<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1996.
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED STATIONERS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5112 36-3141189
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
2200 EAST GOLF ROAD THOMAS W. STURGESS
DES PLAINES, ILLINOIS 60016-1267 CHAIRMAN OF THE BOARD
(847) 699-5000 2200 EAST GOLF ROAD
(ADDRESS, INCLUDING ZIP CODE, AND DES PLAINES, ILLINOIS 60016-1267
TELEPHONE NUMBER, INCLUDING AREA CODE, (847) 699-5000
OF REGISTRANT'S PRINCIPAL EXECUTIVE (NAME, ADDRESS, INCLUDING ZIP CODE,
OFFICES) AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
MARY R. KORBY MICHAEL H. KERR, P.C.
WEIL, GOTSHAL & MANGES LLP KIRKLAND & ELLIS
100 CRESCENT COURT, SUITE 1300 200 EAST RANDOLPH DRIVE
DALLAS, TEXAS 75201-6950 CHICAGO, ILLINOIS 60601
(214) 746-7700 (312) 861-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If the registrant elects to deliver its latest annual report to security-
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
TITLE OF SHARES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.10 per share...................... $183,137,500 $63,150.86
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(c) solely for purposes of calculating the
registration fee, based upon the average of the high and low sale prices
of such Common Stock as reported by the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UNITED STATIONERS INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing the Location in the
Prospectus of the Information Required by Part I of Form S-2
<TABLE>
<CAPTION>
FORM S-2 ITEM
NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------ ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front and Outside Back Cover
Pages; Available Information
3. Summary Information, Risk
Factors and Ratio of Earnings Prospectus Summary; Risk Factors; The
to Fixed Charges............... Company
4. Use of Proceeds................. Prospectus Summary; Use of Proceeds
5. Determination of Offering
Price.......................... Outside Front Cover Page
6. Dilution........................ Not Applicable
7. Selling Security Holders........ Principal and Selling Stockholders
8. Plan of Distribution............ Outside Front Cover Page; Underwriting
9. Description of Securities to be Outside Front Cover Page; Prospectus
Registered..................... Summary; Common Stock Price Range and
Dividend Policy; Description of Capital
Stock
10. Interests of Named Experts and
Counsel........................ Not Applicable
11. Information with Respect to the Outside Front Cover Page; Prospectus
Registrant..................... Summary; Risk Factors; The Company;
Common Stock Price Range and Dividend
Policy; Capitalization; Unaudited Pro
Forma Financial Statements; Selected
Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal and Selling Stockholders;
Certain Transactions; Description of
Capital Stock; Description of
Indebtedness; Available Information;
Consolidated Financial Statements
12. Incorporation of Certain Incorporation of Certain Documents by
Information by Reference....... Reference
13. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1996
PROSPECTUS
7,000,000 SHARES
LOGO UNITED STATIONERS INC.
COMMON STOCK
-----------
Of the 7,000,000 shares of Common Stock of the Company (the "Common Stock")
offered, 3,500,000 shares are being sold by the Company and 3,500,000 shares
are being sold by the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. See
"Principal and Selling Stockholders."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"USTR." On February 16, 1996, the last reported sale price for the Common Stock
as quoted on the Nasdaq National Market was $24.50 per share. See "Common Stock
Price Range and Dividends."
-----------
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 10.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
PUBLIC COMMISSIONS(1) THE COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..............
- --------------------------------------------------------------------------------
Total(3)...............
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $475,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 1,050,000 shares of Common Stock on the same
terms and conditions as set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Selling
Stockholders will be , and ,
respectively. See "Underwriting."
-----------
The shares are offered, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made on or about , 1996 at the offices of Bear,
Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
The date of this Prospectus is , 1996.
<PAGE>
[map entitled "Distribution Network"]
[photographs of products and catalogs]
[chart entitled "The Company's Role in the Office Products Industry"]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
----------------
United Stationers (R) is a registered trademark and service mark of the
Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, together with the
related notes thereto, appearing elsewhere herein. As used in this Prospectus,
unless otherwise indicated or the context otherwise requires, references herein
to the "Offering" mean the offering of Common Stock pursuant to this Prospectus
and references herein to the "Company" include (i) United Stationers Inc., its
direct and indirect subsidiaries, including United Stationers Supply Co.
("USSC"), the principal operating subsidiary of the Company, and (ii) the
business conducted by United Stationers Inc. ("United"), Associated Holdings,
Inc. ("Associated") and Associated Stationers, Inc. ("ASI"), the operating
subsidiary of Associated, prior to the merger of Associated with United and ASI
with USSC on March 30, 1995 (collectively, the "Merger"). Operating data
presented herein for 1995 on a pro forma basis gives effect to the Merger, the
Offering and the other transactions related thereto as if the Merger, the
Offering and such other transactions occurred on January 1, 1995. Comparative
operating data is presented on a basis of 1995 pro forma data for the Company
compared to 1994 combined data (without such pro forma adjustments) for United
and Associated. All share and per share data has been restated to reflect the
100% stock dividend effective November 9, 1995.
THE COMPANY
The Company is the largest general line business products wholesaler in the
United States, with 1995 pro forma net sales of $2.2 billion. The Company
stocks and distributes the broadest and deepest product line in the industry,
consisting of over 25,000 items, including traditional office supplies, office
furniture and desk accessories, computer supplies, peripherals and hardware and
facilities management supplies. The Company markets its products primarily
through catalogs with a total annual circulation of more than 7.5 million
copies, including a general line office products catalog that has more than 900
pages. The Company supplements its general line catalog with several
specialized catalogs and related marketing programs designed for the office
products, office furniture, computer products, facilities management supplies
and certain other specialty markets. The Company purchases its products from
more than 450 manufacturers who rely on it to inventory, market and distribute
their products efficiently to a broad range of approximately 12,000 resellers,
consisting primarily of office products dealers (including commercial, contract
and retail), computer resellers, office furniture dealers, office products
superstores, mail order companies and mass merchandisers.
The Company's distribution and customer service capabilities, together with
those of its resellers, create an efficient distribution channel for office
products. The Company believes that resellers find it necessary to offer a
broad selection of office products to meet the diverse preferences of
individual end-users. The product line offered by the Company is much broader
than that which resellers can efficiently and practically stock themselves. In
addition, the high level of service and overnight delivery capability provided
by the Company enables resellers to meet their end-user service demands. The
Company's distribution and customer service capabilities are supported by its
integrated management information systems and a nationwide network of 43
strategically located and fully integrated distribution centers.
The Company operates primarily within the approximately $65 billion office
products industry. The office products industry has experienced significant
changes in recent years in the channels through which products are distributed
from manufacturer to end-user. The growth of national office products
superstores has led to a significant reduction in the number of resellers by
forcing many smaller, less efficient retail dealers out of business. In
addition, there is ongoing consolidation within the contract stationer
distribution channel as certain national superstores continue to acquire
contract stationers to create their own in-house contract stationer divisions.
Furthermore, several larger contract stationers have sought to achieve growth
and economies of scale through the acquisition of smaller regional contract
stationers. These larger national contract stationers, as well as other
resellers, have focused on profitability as well as return on assets while
maintaining extensive product offerings, high order fill rates and overnight
delivery capability. As a result, resellers typically offer far more products
than they stock, and therefore rely on the Company to provide them with
products not typically stocked but which end-users demand on an overnight
basis. The Company experienced a 10.6% growth in net sales from combined 1994
net sales of United and Associated of $2.0 billion to 1995 pro forma net sales
of the Company of $2.2 billion, with no single reseller accounting for more
than 5% of the Company's pro forma net sales in 1995.
3
<PAGE>
The Company serves an important role for both manufacturers and resellers.
For manufacturers, the Company offers broad geographic market exposure for a
wide range of their products, assumes credit risk, facilitates the introduction
of new products into the marketplace by means of its widely distributed
marketing materials and efficiently breaks bulk shipments into individual
orders on an overnight basis. Due to the volume of its purchases, the Company
is often able to qualify for better pricing and terms than are otherwise
available to other office products distributors and resellers from such
manufacturers. For resellers, the Company provides safety stock (inventory
backup on commodity items) and stocks certain slower-moving high margin
products where the demand is not sufficient for resellers to economically stock
such items. In addition, the Company offers merchandising and pricing programs
to address the individual needs of resellers. By efficiently aggregating demand
for certain slower-moving high margin products, the Company benefits the
manufacturer (by purchasing such products), the reseller (by allowing the
reseller to sell such products without stocking them) and the end-user (by
making such products available on an overnight basis). In addition, the
Company's electronic order entry systems allow the reseller to seamlessly
forward its customers' orders to the Company, resulting in the delivery of pre-
sold products to the reseller or directly to its customers.
The Company's business strategy is to improve its competitive position and
increase its revenues and profitability by (i) maintaining a high level of
customer service, (ii) increasing purchases from existing customers, (iii)
broadening the Company's product line and customer base, (iv) emphasizing cost-
effective operations and (v) increasing the overall efficiency of the Company's
operations and systems.
THE ACQUISITION
On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares
of pre-Merger United common stock for approximately $266.6 million in the
aggregate pursuant to a tender offer (the "Tender Offer" and, collectively with
the Merger, the "Acquisition"). See "The Company." The Merger was consummated
to capitalize on the operating, purchasing and managerial synergies that were
anticipated to result from the combination of the largest (United) and third
largest (Associated) national office products wholesalers. Prior to completing
the Merger, management developed a consolidation plan that represented a
detailed program to achieve operating cost savings, including closing redundant
distribution centers, as well as general and administrative and sales force
consolidations. At the time of the Merger, management estimated that these
synergies would result in annualized cost savings of approximately $26.0
million. The consolidation plan is expected to be substantially completed by
March 30, 1996, and management believes that the full $26.0 million of
annualized savings will be realized.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company............... 3,500,000 shares
Common Stock Offered by the Selling Stockholders.. 3,500,000 shares(1)
--------------------------
Total............................................. 7,000,000 shares
==========================
Common Stock Outstanding after the Offering....... 16,825,839 shares(2)
Use of Proceeds................................... The net proceeds to the
Company from the Offering
will be used to redeem all
of the outstanding shares
of preferred stock of the
Company and to redeem a
portion of senior
subordinated notes issued
by the Company's operating
subsidiary. See "Use of
Proceeds."
Nasdaq National Market Symbol..................... USTR
</TABLE>
- --------
(1) Includes 938,350 shares of Common Stock to be issued upon exercise of
warrants issued to the Company's senior lenders (the "Lender Warrants"),
182,189 shares of Common Stock to be issued upon exercise of warrants held
by certain stockholders and their affiliates (the "Preferred B Warrants"
and, together with the Lender Warrants, the "Warrants") and 197,044 shares
of Common Stock to be issued upon conversion of shares of the Company's
Nonvoting Common Stock, par value $0.01 per share ("Nonvoting Common
Stock") by certain Selling Stockholders immediately prior to the Offering.
Such information assumes that the Underwriters' over-allotment option is
not exercised.
4
<PAGE>
(2) Based on the number of shares outstanding at February 12, 1996 after giving
effect to the exercise of Warrants and the conversion of shares of
Nonvoting Common Stock described in Note (1) above and the conversion of
the remaining 561,950 shares of Nonvoting Common Stock into shares of
Common Stock immediately prior to the Offering. Does not include (i)
2,591,768 shares of Common Stock issuable upon exercise of stock options
granted to employees and directors of the Company ("Employee Stock
Options") and (ii) 289,088 shares issuable upon exercise of Lender Warrants
that will remain outstanding after the Offering.
ANTICIPATED NONRECURRING CHARGES
The Company expects to recognize a nonrecurring noncash charge during the
first quarter of 1996 of approximately $31.7 million ($19.0 million net of tax
benefit of $12.7 million) in compensation expense arising because certain
Employee Stock Options will become exercisable upon consummation of the
Offering. Such compensation expense is based on options outstanding at January
31, 1996 and a stock price of $22.75 as of February 12, 1996. Each $1.00 change
in the Common Stock price will result in an adjustment to such compensation
expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0
million). See "Certain Transactions--Option and Restricted Stock Awards."
In addition, the Company expects to recognize a nonrecurring charge during
the second quarter of 1996 of approximately $11.1 million ($6.7 million net of
tax benefit of $4.4 million). This charge includes (i) a $6.4 million
redemption premium relating to the redemption of a portion of the outstanding
Notes (as hereinafter defined) with a portion of the proceeds from the
Offering, (ii) a $3.8 million noncash write-off of deferred financing costs
related to such redemption and (iii) $0.9 million in fees payable to Chase
Manhattan Bank, N.A. ("Chase Bank") and other senior lenders to permit the
application of the Company's net proceeds from the Offering as described in
this Prospectus.
SUMMARY SUPPLEMENTAL COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents unaudited summary supplemental combined
historical financial data for United and Associated for the years ended
December 31, 1993 and 1994. This supplemental data has not been prepared in
accordance with generally accepted accounting principles, which do not allow
for the combination of financial data for entities that are not under common
ownership. Nevertheless, management believes that this combined historical
financial data, when read in conjunction with the separate historical financial
statements of the Company, United and Associated prepared in accordance with
generally accepted accounting principles and included elsewhere herein, may be
helpful in understanding the past operations of the companies that were
combined in the Merger and in evaluating an investment in the shares of Common
Stock being offered. This combined historical financial data for 1993 and 1994
represents a combination of the historical financial data for United and
Associated for the periods indicated without any pro forma adjustments, and is
supplemental to the historical financial data of United and Associated which
immediately follows.
The following table also presents unaudited summary pro forma financial data
for the Company as of and for the year ended December 31, 1995. This pro forma
data should be read in conjunction with the Unaudited Pro Forma Financial
Statements included elsewhere herein, which are based on the historical
consolidated financial statements of the Company and its predecessors
(Associated and United) after giving effect to: (i) the Acquisition and other
Merger-related adjustments, (ii) the refinancing of certain debt effected in
May 1995 and the repurchase (the "Series B Repurchase") of all outstanding
shares of the Company's Series B Preferred Stock, par value $0.01 per share
("Series B Preferred Stock"), with the proceeds of the 12 3/4% Senior
Subordinated Notes due 2005 issued by USSC (the "Notes"), (iii) the Offering
and application of the Company's net proceeds therefrom primarily to redeem all
outstanding shares of Series A Preferred Stock, par value $0.01 per share, of
the Company ("Series A Preferred Stock") and Series C Preferred Stock, par
value $0.01 per share, of the Company ("Series C Preferred Stock" and,
collectively with the Series A Preferred Stock, the "Preferred Stock") and to
redeem a portion of the Notes and (iv) the exercise of certain Warrants and
conversion of shares of Nonvoting Common Stock into shares of Common Stock by
certain Selling Stockholders in connection with the Offering, all as described
in the notes thereto.
The summary supplemental combined historical and pro forma financial data is
intended for informational purposes only and is not necessarily indicative of
either financial position or results of operations in the future, or that would
have occurred had the events described in the preceding paragraph occurred on
the indicated dates as described elsewhere herein. The following information
should be read in conjunction with, and is qualified in its entirety by, the
historical consolidated financial statements of the Company and its
predecessors, together with the related notes thereto, included elsewhere
herein.
5
<PAGE>
SUMMARY SUPPLEMENTAL COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
YEAR ENDED DECEMBER 31, 1993 YEAR ENDED DECEMBER 31, 1994 1995
------------------------------------ ------------------------------------ ------------
COMBINED COMBINED
ASSOCIATED UNITED HISTORICAL(1) ASSOCIATED UNITED HISTORICAL(1) PRO FORMA(2)
---------- ---------- ------------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(3)(4)(5):
Net sales.............. $455,731 $1,469,645 $1,925,376 $470,185 $1,520,178 $1,990,363 $ 2,201,860
Cost of goods sold..... 350,251 1,124,480 1,474,731 357,276 1,194,328 1,551,604 1,726,021(6)
-------- ---------- ---------- -------- ---------- ---------- -----------
Gross profit........... 105,480 345,165 450,645 112,909 325,850 438,759 475,839
Total operating ex-
penses................ 94,502 298,782 393,284 94,788 284,929 379,717 394,430(6)
-------- ---------- ---------- -------- ---------- ---------- -----------
Income from opera-
tions................. $ 10,978 $ 46,383 $ 57,361 $ 18,121 $ 40,921 $ 59,042 81,409
======== ========== ========== ======== ========== ==========
Interest expense, net.. * * 50,953(7)
-----------
Income before income
taxes................. * * 30,456
Income taxes........... * * 12,762
-----------
Net income............. * * $ 17,694
===========
Net income per common
and common equivalent
share................. * * $ 1.00
Average number of com-
mon and common equiva-
lent shares used in
calculation........... * * 17,633,011
OPERATING DATA:
EBITDA(8).............. $ 16,481 $ 67,718 $ 84,199 $ 23,505 $ 62,498 $ 86,003 $ 111,880
EBITDA margin(9)....... 3.6% 4.6% 4.4% 5.0% 4.1% 4.3% 5.1%
BALANCE SHEET DATA (AT
YEAR END)(10):
Working capital........ * * $ 360,948
Total assets........... * * 997,614
Total debt and capital
leases(11)............ * * 503,153
Redeemable preferred
stock................. * * --
Redeemable warrants.... * * --
Stockholders' equity... * * 151,006
</TABLE>
- --------
* Not meaningful as a result of the change in the capital structure of the
Company due to the Merger.
(1) Combined historical financial data represents a combination without pro
forma adjustment of historical financial data for Associated derived from
its audited consolidated financial statements for fiscal years ended
December 31, 1993 and 1994, and historical financial data for United
derived from its unaudited consolidated financial statements for the
twelve-month periods ended December 31, 1993 and 1994.
(2) Pro forma income statement and operating data for 1995 is presented giving
effect to (i) the Acquisition and other Merger-related adjustments, (ii)
the refinancing of certain debt and the Series B Repurchase effected with
the proceeds of the Notes offered by USSC in May 1995 and (iii) the
Offering and application of the Company's net proceeds therefrom as
described in this Prospectus, all as described in the Notes to Unaudited
Pro Forma Financial Statements included elsewhere herein, as if all such
transactions were effected on January 1, 1995. Accordingly, the pro forma
income statement is derived from the audited consolidated income statement
of the Company for the year ended December 31, 1995 (which includes the
twelve month results of operations of Associated but excludes United for
the three months ended March 30, 1995) and the unaudited consolidated
income statement of United for the three months ended March 30, 1995,
giving effect to the adjustments mentioned above.
(3) The pro forma income statement data for 1995 excludes the following
nonrecurring charges for fiscal year 1995: (i) extraordinary charge of
approximately $2.4 million ($1.4 million net of tax benefit of $1.0
million) due to the write-off of Associated's pre-Merger financing costs
and original issue discount, (ii) restructuring charge of approximately
$9.8 million ($5.9 million net of tax benefit of $3.9 million) for costs
incurred and expected to be incurred subsequent to the Merger in connection
with integration and transition (e.g., severance and the cost of closing
certain facilities operated by Associated prior to the Merger) and (iii)
compensation
6
<PAGE>
expense relating to Associated's employee stock options of approximately
$1.5 million ($0.9 million net of tax benefit of $0.6 million) recognized
as a result of the Acquisition. Also excluded is $27.8 million of Merger-
related expenses recognized by United during the three months ended March
30, 1995.
(4) The pro forma income statement data for 1995 also excludes the following
nonrecurring charges expected to be recognized in 1996 relating to the
anticipated completion of the Offering and application of the Company's
net proceeds therefrom: (i) a noncash charge of approximately $31.7
million ($19.0 million net of tax benefit of $12.7 million) in
compensation expense arising because certain Employee Stock Options will
become exercisable upon consummation of the Offering and (ii) a
nonrecurring charge of approximately $11.1 million ($6.7 million net of
tax benefit of $4.4 million), which charge includes (A) a $6.4 million
redemption premium relating to the redemption of a portion of the
outstanding Notes, (B) a $3.8 million noncash write-off of deferred
financing costs related to such redemption and (C) $0.9 million in fees
payable to Chase Bank and other senior lenders to permit the application
of the Company's net proceeds from the Offering as described in this
Prospectus. The compensation expense described in (i) above is based on
options outstanding at January 31, 1996 and a stock price of $22.75 as of
February 12, 1996. Each $1.00 change in the Common Stock price will result
in an adjustment to such compensation expense of approximately $2.6
million ($1.6 million net of tax benefit of $1.0 million). See "Certain
Transactions--Option and Restricted Stock Awards" and "--Interests of
Certain Persons in the Offering." For pro forma balance sheet purposes,
these nonrecurring charges have been reflected.
(5) Effective January 1, 1995, Associated changed its method of accounting for
the cost of inventory from the first-in, first-out ("FIFO") method to the
last-in, first-out ("LIFO") method. This change resulted in the reduction
of pre-tax income of the Company of approximately $8.8 million ($5.3
million net of tax benefit of $3.5 million). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--General
Comments" and Note 3 to the Consolidated Financial Statements of the
Company included elsewhere herein.
(6) Prior to completing the Merger, management developed a consolidation plan
that represented a detailed program to achieve operating cost savings,
including closing redundant distribution centers, as well as general and
administrative and sales force consolidations. At the time of the Merger,
management estimated that these synergies would result in annualized cost
savings of approximately $26.0 million. The consolidation plan is expected
to be substantially completed by March 30, 1996, and management believes
that the full $26.0 million of annualized savings will be realized. Pro
forma cost of goods sold and operating expenses (warehousing, marketing
and administrative expenses) do not include any adjustments for the
portion of such cost savings which were not realized by the Company in
fiscal year 1995 due to the Merger not occurring until March 30, 1995 and
the phased-in implementation of management's consolidation plan over the
remaining nine months of fiscal year 1995.
(7) The variable portion of pro forma interest expense is based on historical
interest rates in effect during the year ended December 31, 1995 and
approximates that based on current interest rates. Each 1/8 of 1% change
in the base interest rate for variable rate debt has a $0.4 million effect
on annual pro forma interest expense for the Company, without giving
effect to the impact of any interest rate protection agreements.
(8) EBITDA is defined as earnings before interest, taxes, and depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA should not be considered in isolation from,
or as a substitute for, net income, cash flows from operating activities
or other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure
of profitability or liquidity.
(9) EBITDA margin represents EBITDA as a percentage of net sales.
(10) The pro forma balance sheet data is presented giving effect solely to (i)
the Offering and application of the Company's net proceeds therefrom and
(ii) the exercise of certain Warrants and conversion of shares of
Nonvoting Common Stock into shares of Common Stock by certain Selling
Stockholders in connection with the Offering as if these transactions
were effected on December 31, 1995. See Notes (a)-(h) to the Unaudited
Pro Forma Financial Statements included elsewhere herein.
(11) Total debt and capital leases includes current maturities.
7
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Set forth below and on the following pages is summary historical financial
data for the Company and its predecessors. Although the Company was the
surviving corporation in the Merger, the Acquisition was treated as a reverse
acquisition for accounting purposes, with Associated as the acquiring
corporation. Therefore, the income statement and operating data for the year
ended December 31, 1995 reflect the financial information of Associated only
for the three months ended March 30, 1995, and the results of the Company for
the nine months ended December 31, 1995. The balance sheet data at December 31,
1995 reflects the consolidated balances of the Company, including the Merger-
related adjustments.
<TABLE>
<CAPTION>
ASSOCIATED THE COMPANY
------------------------ ------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------ ------------
1993 1994 1995(1)
----------- ----------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $ 455,731 $ 470,185 $1,751,462
Gross profit.......................... 105,480 112,909 380,940
Operating expenses:
Warehousing, marketing and
administrative expenses............ 94,502 94,788 313,624
Restructuring charge................ -- -- 9,759
Income from operations................ 10,978 18,121 57,557
Interest expense, net................. 7,235 7,725 46,186
Income before income taxes and ex-
traordinary item..................... 3,743 10,396 11,371
Income taxes.......................... 781 3,993 5,128
Income before extraordinary item...... 2,962 6,403 6,243
Extraordinary item(2)................. -- -- (1,449)
Net income............................ 2,962 6,403 4,794
Net income attributable to common
stockholders......................... 915 4,210 2,796
OPERATING DATA:
EBITDA(3)............................. 16,481 23,505 81,241
EBITDA margin(4)...................... 3.6% 5.0% 4.6%
BALANCE SHEET DATA (AT YEAR END):
Working capital....................... $ 57,302 $ 56,454 $ 355,465
Total assets.......................... 190,979 192,479 1,001,383
Total debt and capital leases(5)...... 86,350 64,623 551,990
Redeemable preferred stock............ 20,996 23,189 18,041
Redeemable warrants................... 1,435 1,650 39,692
Total stockholders' equity............ 11,422 24,775 30,024
</TABLE>
- --------
(1) Effective January 1, 1995, Associated changed its method of accounting for
the cost of inventory from the FIFO method to the LIFO method. This change
resulted in the reduction of pre-tax income of the Company of approximately
$8.8 million ($5.3 million net of tax benefit of $3.5 million). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General Comments" and Note 3 to the Consolidated Financial
Statements of the Company included elsewhere herein.
(2) Loss on early retirement of debt, net of tax benefit of $1.0 million.
(3) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and extraordinary item and is presented because it is commonly
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance and to determine a company's ability to
service and incur debt. EBITDA should not be considered in isolation from
or as a substitute for net income, cash flows from operating activities or
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity.
(4) EBITDA margin represents EBITDA as a percentage of net sales.
(5) Total debt and capital leases includes current maturities.
8
<PAGE>
<TABLE>
<CAPTION>
UNITED
--------------------------------------------
SEVEN MONTHS ENDED
YEAR ENDED --------------------
AUGUST 31, MARCH 31, MARCH 30,
---------------------- --------- ---------
1993 1994 1994(1) 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................... $1,470,115 $1,473,024 $ 871,585 $ 980,575
Gross profit on sales....... 344,519 322,901 195,865 206,718
Operating expenses:
Warehousing, marketing and
administrative expenses.. 298,405 286,607 170,420 174,021
Merger-related costs...... -- -- -- 27,780
Income from operations...... 46,114 36,294 25,445 4,917
Interest expense, net....... 9,550 10,461 5,837 7,500
Income (loss) before income
taxes...................... 36,919 26,058 19,725 (2,542)
Income taxes................ 15,559 10,309 8,185 4,692
Net income (loss)........... 21,360 15,749 11,540 (7,234)
OPERATING DATA:
EBITDA(2)................... 67,712 57,755 37,665 17,533
EBITDA margin(3)............ 4.6% 3.9% 4.3% 1.8%(4)
BALANCE SHEET DATA (AT PERIOD
END):
Working capital............. $ 216,074 $ 239,827 $ 297,099 $ 257,600
Total assets................ 634,786 618,550 608,728 711,839
Total debt and capital
leases(5).................. 150,251 155,803 227,626 233,406
Stockholders' investment.... 237,697 246,010 243,636 233,125
</TABLE>
- --------
(1) The summary financial information at and for the seven-month period ended
March 31, 1994 is unaudited and in the opinion of management reflects all
adjustments considered necessary for a fair presentation of such data. The
results of operations for any interim period are not necessarily indicative
of results of operations for the fiscal year and should be read in
conjunction with, and is qualified in its entirety by, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Historical Results of Operations of United" and "--Historical Liquidity and
Capital Resources of United" and the financial statements of United
included elsewhere in this Prospectus.
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) EBITDA margin for the seven-month period ended March 30, 1995 would have
been 4.6% if adjusted to exclude Merger-related expenses.
(5) Total debt and capital leases includes current maturities.
9
<PAGE>
RISK FACTORS
Prospective purchasers should consider carefully the following factors,
together with the other information set forth in this Prospectus, prior to
purchasing the Common Stock offered hereby.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with office products manufacturers and with other national, regional
and specialty wholesalers of office products, office furniture, computer
products and related items. Some of such competitors are larger than the
Company and have greater financial and other resources available to them than
does the Company, and there can be no assurance that the Company can continue
to compete successfully with such competitors. Increased competition in the
office products industry, together with increased advertising, has heightened
price awareness among end-users. As a result, purchasers of commodity office
products have become extremely price sensitive, and therefore the Company has
increased its efforts to market to resellers the continuing advantages of its
competitive strengths (as compared to those of manufacturers and other
wholesalers), such as marketing and catalog programs, speed of delivery, and
the ability to offer resellers on a "one-stop shop" basis a broad line of
business products from multiple manufacturers with lower minimum order
quantities. See "Business--Competition." In addition, such heightened price
awareness has led to margin pressure on commodity office products. In the
event that such a trend continues, the Company's profit margins could be
adversely affected.
CONSOLIDATION
Consolidation continues throughout all levels of the office products
industry. Consolidation of commercial dealers and contract stationers has
resulted in (i) an increased ability of those resellers to buy goods directly
from manufacturers on their own or through their participation in buying
groups and (ii) fewer independent resellers to purchase from wholesalers. In
addition, over the last decade, office products superstores (which largely buy
directly from manufacturers) have entered virtually every major metropolitan
market. Continuing consolidation could adversely affect the Company's
financial results.
SUBSTANTIAL LEVERAGE
As a result of the Acquisition, the Company has significant debt and debt
service obligations. Assuming the Offering and the resulting use of proceeds
to redeem all outstanding shares of Preferred Stock (including all accrued and
unpaid dividends thereon through the date of such redemption) and to redeem a
portion of the outstanding Notes (including a redemption premium thereon) had
occurred on December 31, 1995, the Company would have had (i) $503.2 million
of long-term indebtedness (including current maturities) and $151.0 million of
total stockholders' equity and (ii) a long-term indebtedness to total
stockholders' equity ratio of 3.3 to 1.0. See "Capitalization."
The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
potential acquisition opportunities, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of principal and
interest on its indebtedness; (iii) the Company may be more vulnerable to
economic downturns, may be limited in its ability to withstand competitive
pressures and may have reduced flexibility in responding to changing business
and economic conditions; and (iv) fluctuations in market interest rates will
affect the cost of the Company's borrowings to the extent not covered by
interest rate hedge agreements because interest under the Credit Facilities
(as hereinafter defined) are payable at variable rates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources of the Company" and "Description of
Indebtedness."
10
<PAGE>
ABILITY TO SERVICE DEBT
The Company's ability to service its indebtedness will be dependent on its
future performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond the
Company's control. The Company believes that, based upon current levels of
operations, it should be able to meet its debt service obligations when due.
If, however, the Company were unable to service its indebtedness, it would be
forced to pursue one or more alternative strategies such as selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital (which may substantially dilute the ownership interest of holders of
Common Stock). There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources of the Company" and "Description of Indebtedness."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture (the "Indenture") governing the $150 million in aggregate
principal amount of Notes of USSC and the credit agreement governing the
Company's senior credit facilities (the "Credit Agreement") contain numerous
restrictive covenants that limit the discretion of management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments,
investments, loans and guarantees and to sell or otherwise dispose of assets
and merge or consolidate with another entity. The Credit Agreement also
contains a number of financial covenants that require the Company to meet
certain financial ratios and tests. A failure to comply with the obligations
in the Credit Agreement or the Indenture could result in an event of default
under the Credit Agreement, or an event of default under the Indenture, which,
if not cured or waived, could permit acceleration of the indebtedness
thereunder and acceleration of indebtedness under other instruments that may
contain cross-acceleration or cross-default provisions which could have a
material adverse effect on the Company. See "Description of Indebtedness."
CHANGING END-USER DEMANDS
The Company's sales and profitability are largely dependent on its ability
to continually enhance its product offerings to meet changing end-user
demands. End-users' traditional demands for office products have changed over
the last several years as a result of, among other things, the widespread use
of computers and other technological advances (resulting in the elimination or
reduction in use of traditional office supplies), efforts by various
businesses to establish "paperless" work environments, increased recycling
efforts and a trend toward non-traditional offices (such as home-offices). The
Company's ability to continually monitor and react to such trends and changes
in end-user demands will be necessary to avoid adverse effects on its sales
and profitability. In addition, the Company's financial results could be
adversely affected if and to the extent that end-user demand for a broad
product selection or the need for overnight delivery were to substantially
diminish or end-user demand for a higher proportion of low margin products
were to substantially increase.
IMPACT OF CHANGING MANUFACTURERS' PRICES
The Company maintains substantial inventories to accommodate the prompt
service and delivery requirements of its customers. Accordingly, the Company
purchases its products on a regular basis in an effort to maintain its
inventory at levels that it believes to be sufficient to satisfy the
anticipated needs of its customers based upon historic buying practices and
market conditions. Although the Company has historically been able to pass
through manufacturer price increases to its customers on a timely basis,
competitive conditions will influence how much of future price increases can
be passed on to the Company's customers. Conversely, when manufacturers'
prices decline, lower sales prices could result in lower margins as the
Company sells existing inventory. Changes in the prices paid by the Company
for its products therefore could adversely affect the Company's net sales,
gross margins and net income.
11
<PAGE>
EFFECT OF CHANGES IN THE ECONOMY
Demand for office products is affected by, among other things, white collar
employment levels. Changes in the economy resulting in decreased white collar
employment levels may therefore adversely affect the Company's operations and
profitability. In addition, pricing and, to an extent, profitability of the
Company's product offerings, generally decrease under deflationary economic
conditions. Deflationary swings in the economy may therefore adversely affect
the Company's profitability.
EFFECTS OF THE MERGER
Changes to the Company's product selection, ordering systems, pricing,
marketing strategies and personnel effected in connection with the Company's
consolidation plan may adversely affect the Company's relationship with
certain resellers in the future and thereby adversely affect the Company's
financial performance.
SERVICE INTERRUPTIONS
Substantially all of the Company's shipping, warehouse and maintenance
employees at certain of the Company's facilities in Chicago, Detroit,
Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City are
covered by various collective bargaining agreements, which expire at various
times during the next three years. Although the Company considers its
relationships with its employees to be satisfactory, a prolonged labor dispute
could have a material adverse effect on the Company's business (including its
ability to deliver its products readily) as well as the Company's results of
operations and financial condition. Although the Company has been able to
maintain its service levels during past work stoppages by distributing to its
customers from unaffected distribution centers, profitability has been reduced
during such periods as a result of higher distribution costs. The Company has
not experienced any work stoppages for the financial periods presented herein.
The Company's ability to receive and deliver products is largely dependent on
the availability of trucks utilized by manufacturers and the Company.
Therefore, the occurrence of a national trucking strike could also impair the
Company's operations. The Company's service levels would also be affected in
the event of an interruption in operation of its computers or
telecommunications network on a company-wide scale for an extended period of
time, although the Company has developed contingency plans to limit its
exposure.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company conducts its business through USSC and has no operations of its
own. The primary asset of the Company is all of the capital stock of USSC.
Consequently, the Company's sole source for cash from which to make dividend
payments will be dividends distributed or other payments made to it by USSC.
The right of the Company to participate in any distribution of earnings or
assets of USSC is subject to the prior claims of the creditors of USSC. In
addition, the Indenture and the Credit Agreement contain certain restrictive
covenants, including covenants that restrict or prohibit USSC's ability to pay
dividends and make other distributions to the Company. Any determination to
declare and pay dividends will be made by the Board of Directors of the
Company (the "Board of Directors") in light of the Company's earnings,
financial position, capital requirements, credit agreements and such other
factors as the Board of Directors deems relevant at the time. See "Common
Stock Price Range and Dividend Policy" and "Description of Indebtedness."
DEPENDENCE ON KEY PERSONNEL
The Company's success relies on the efforts and abilities of its executive
officers and certain other key employees, particularly Mr. Thomas W. Sturgess,
the Company's Chairman of the Board, President and Chief Executive Officer,
Mr. Daniel H. Bushell, an Executive Vice President and the Chief Financial
Officer of the Company, and Mr. Michael D. Rowsey and Mr. Steven R. Schwarz,
each an Executive Vice President of the Company, the loss of any of whom could
have a material adverse effect on the Company. The Company has entered into
employment agreements having terms ranging from two to three years with the
executive officers listed above. The Company currently does not have any "key
man" life insurance for its key personnel.
12
<PAGE>
BENEFITS TO PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Wingate Partners, L.P. ("Wingate Partners"), Wingate Partners II, L.P.
("Wingate II"), Wingate Affiliates, L.P. ("Wingate Affiliates") and Wingate
Affiliates II, L.P. ("Wingate Affiliates II" and, collectively with Wingate
Partners, Wingate II and Wingate Affiliates, "Wingate") will receive an
estimated $43.2 million in net proceeds from the sale of an aggregate of
1,988,740 shares of Common Stock by them hereby ($56.1 million if the
Underwriters' over-allotment option is exercised in full). In addition, of the
estimated $75.5 million of net proceeds to be received by the Company from the
Offering, approximately $4.9 million will be used to redeem all shares of
Series A Preferred Stock held by Wingate. See "Use of Proceeds" and "Certain
Transactions--Redemption of Series A Preferred Stock." Mr. Sturgess, the
Company's Chairman, President and Chief Executive Officer, is a general
partner of various entities affiliated with Wingate Partners ("Wingate
entities"), including the indirect general partner of each of Wingate Partners
and Wingate II. Although Mr. Sturgess has not actively participated in the
management of such entities since December 31, 1995, he will ultimately
receive approximately $1.7 million ($2.1 million if the Underwriters' over-
allotment option is exercised in full) of the proceeds from Wingate's sale of
Common Stock in the Offering and the redemption of Series A Preferred Stock
held by Wingate in connection therewith. In addition, several other Selling
Stockholders presently serve as directors and/or executive officers of the
Company (or formerly served as directors and/or executive officers of
Associated). See "Certain Transactions--Interests of Certain Selling
Stockholders" and "Principal and Selling Stockholders." Furthermore, the
consummation of the Offering will cause Employee Stock Options held by
management of the Company to become immediately exercisable upon stockholder
approval. See "Certain Transactions--Stock Option and Award Grants."
INFLUENCE OF CERTAIN STOCKHOLDERS
As of the date of this Prospectus and after giving effect to the Offering,
Wingate, Cumberland Capital Corporation ("Cumberland") and Mr. Daniel J. Good
and his affiliates will beneficially own approximately 24.1%, 7.8% and 2.5%,
respectively, of the outstanding shares of Common Stock (18.6%, 6.0% and 1.9%,
respectively, if the Underwriters' over-allotment option is exercised in
full). Four of the current nine directors of the Company are indirect general
partners of Wingate Partners or Wingate II. In addition, Mr. Gary G. Miller,
who is the President and a stockholder of Cumberland, and Mr. Good serve as
directors of the Company. Consequently, such persons and their affiliates will
continue to have significant influence over the policies of the Company and
any matters submitted to a stockholder vote. See "Management--Directors and
Executive Officers," "Certain Transactions" and "Principal and Selling
Stockholders."
POSSIBLE VOLATILITY OF STOCK PRICE
As a result of the Acquisition, the number of publicly traded shares of
Common Stock was reduced from approximately 37.2 million shares to
approximately 2.8 million shares (in each case adjusted to give effect to the
100% stock dividend effective November 9, 1995). Consequently, the market
price for Common Stock has been subject to greater volatility as a result of
the reduced number of publicly traded shares. In addition, the market price
for shares of the Common Stock has varied significantly and may be volatile
depending on news announcements and changes in general market conditions. See
"Common Stock Price Range and Dividend Policy." In particular, news
announcements regarding quarterly or annual results of operations, competitive
developments or litigation impacting the Company could cause significant
fluctuations in the Company's stock price.
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the prevailing
market price of the Common Stock. Upon consummation of this Offering, the
Company will have 16,825,839 shares of Common Stock outstanding. In addition,
289,088 shares will be issuable upon exercise of outstanding Warrants and
2,591,768 shares will be issuable upon exercise of outstanding Employee Stock
Options. Of the shares of Common Stock that will be outstanding after this
Offering, approximately 10,470,832 shares (not including 289,088 shares
issuable upon exercise of outstanding Lender Warrants) will be freely tradable
without restriction or further registration under the Securities Act. Subject
to Rule 144 under the Securities Act (as currently in effect), after
13
<PAGE>
expiration of certain lock-up agreements between the Underwriters and the
Company and certain of its officers and directors and stockholders (or earlier
with the consent of the representative of the Underwriters), approximately
6,355,007 shares (5,305,007 shares if the Underwriters' over-allotment option
is exercised in full) will become eligible at various times for sale in the
public market beginning on March 31, 1997. In addition, certain stockholders
and holders of Lender Warrants have previously been granted registration
rights entitling them to demand, in certain circumstances, that the Company
register the shares of Common Stock and/or Lender Warrants held by them for
sale under the Securities Act. In connection therewith, the Company has
effected a shelf registration with respect to all shares of Common Stock
issuable upon exercise of the Lender Warrants and all shares of Nonvoting
Common Stock (which will be converted into Common Stock prior to the Offering)
held by Chase Bank (collectively representing an aggregate of 851,038 shares
of Common Stock after the Offering). See "Certain Transactions--Registration
Rights Agreements." The Company also intends to register under the Securities
Act the shares of Common Stock issuable upon exercise of certain Employee
Stock Options after the amendment to the plan under which such options were
granted has received stockholder approval, which approval is expected to be
obtained at the Company's annual meeting to be held in May 1996. Following the
consummation of this Offering, sales of substantial amounts of Common Stock in
the public market, pursuant to Rule 144 or otherwise, or the availability of
such shares for sale, could adversely affect the prevailing market price of
the Common Stock and impair the Company's ability to raise additional capital
through the sale of equity securities. See "Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN DOCUMENTS
Assuming the redemption of all of the outstanding shares of Preferred Stock
with a portion of the proceeds of the Offering, the Company will have
available for issuance 1.5 million shares of preferred stock, which the Board
of Directors is authorized to issue, in one or more series, without any
further action on the part of the Company's stockholders. Subject to
limitations imposed by law or the Company's Restated Certificate of
Incorporation (as amended from time to time, the "Charter"), the Board of
Directors is empowered to determine the designation of and the number of
shares constituting each series of preferred stock; the dividend rate for each
series; the terms and conditions of any voting, conversion and exchange rights
for each series; the amounts payable on each series upon redemption or the
Company's liquidation, dissolution or winding-up; the provisions of any
sinking fund for the redemption or purchase of shares of any series; and the
preferences and the relative rights among the series of preferred stock. At
the discretion of the Board of Directors, and subject to its fiduciary duties,
the preferred stock could be used to deter any takeover attempt, by tender
offer or otherwise. In addition, preferred stock could be issued with voting
and conversion rights which could adversely affect the voting power and/or
economic value to holders of Common Stock. The issuance of preferred stock
could also result in a series of securities outstanding that would have
preferences over the Common Stock with respect to dividends and in
liquidation. Upon completion of this Offering and after giving effect to the
use of the proceeds therefrom, no shares of preferred stock will be
outstanding.
The Company's Charter and Restated Bylaws (as amended from time to time, the
"Bylaws") contain certain other provisions that may be deemed to have anti-
takeover effects and may delay, deter or prevent a takeover attempt that a
stockholder of the Company might consider to be in the best interests of the
Company or its stockholders. See "Description of Capital Stock--Special
Provisions of the Charter and Bylaws." In addition, the Indenture provides
that, upon the occurrence of a change of control (which term includes the
acquisition by any person or group of more than 50% of the voting power of the
outstanding Common Stock or certain significant changes in the composition of
the Board of Directors), the Company shall be obligated to offer to repurchase
all outstanding Notes at a purchase price of 101% of the principal amount
thereof. Such obligation, if it arose, could have a material adverse effect on
the Company. Such provision could also delay, deter or prevent a takeover
attempt. See "Description of Indebtedness--Notes."
14
<PAGE>
THE COMPANY
United's operating subsidiary, USSC, began operations in 1922 under the name
Utility Supply Company, and has operated under its current name since 1960. In
June 1992, United acquired Stationers Distributing Company, Inc. ("SDC"), a
privately held office products wholesaler (the "SDC Acquisition"). SDC was
based in Fort Worth, Texas, and operated 22 distribution facilities throughout
the continental United States. Prior to such acquisition, SDC had annual
revenues of more than $400 million. Associated was formed in January 1992 by
an investor group led by Wingate Partners to effect the acquisition (the
"Associated Transaction") of the wholesale office products division of Boise
Cascade Office Products Corporation ("BCOP"). To further its geographical
presence and increase market share, in October 1992 Associated acquired (the
"Lynn-Edwards Acquisition") Lynn-Edwards Corp., a privately held office
products wholesaler based in Sacramento, California ("Lynn-Edwards").
On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares
of pre-Merger United common stock for approximately $266.6 million in the
aggregate pursuant to the Tender Offer. Immediately thereafter, Associated
merged with and into United, and ASI merged with and into USSC, with the
Company and USSC continuing as the respective surviving corporations. As a
result of share conversions in the Merger, immediately after the Merger, (i)
the former holders of common stock and common stock equivalents of Associated
owned shares of Common Stock and warrants or options to purchase shares of
Common Stock constituting in the aggregate approximately 80% of the shares of
Common Stock on a fully diluted basis, and (ii) holders of pre-Merger United
common stock owned in the aggregate approximately 20% of the shares of Common
Stock on a fully diluted basis. As a result of the Merger, USSC assumed $430
million of indebtedness incurred by ASI in connection with the Acquisition. In
order to refinance a portion of such indebtedness, USSC subsequently sold $150
million aggregate principal amount of its Notes. See "Description of
Indebtedness."
The principal executive offices of the Company are located at 2200 East Golf
Road, Des Plaines, Illinois 60016-1267, telephone number (847) 699-5000.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering (after deducting
applicable underwriting discounts and estimated expenses payable by the
Company) are estimated to be approximately $75.5 million. Such net proceeds
will be used substantially as follows:
(i) Approximately $7.8 million will be used to redeem all outstanding
shares of Series A Preferred Stock (including accrued and unpaid dividends
thereon through the date of such redemption);
(ii) Approximately $11.1 million will be used to redeem all outstanding
shares of Series C Preferred Stock (including accrued and unpaid dividends
thereon through the date of such redemption);
(iii) Approximately $56.4 million will be contributed to USSC to enable
USSC to exercise its Equity Clawback Option (as defined under "Description
of Indebtedness--Notes") and thereby redeem a portion of the outstanding
Notes and pay the redemption premium thereon of approximately $6.4 million;
and
(iv) Any remaining net proceeds to the Company will be used to pay
certain fees and expenses incurred in connection with the consummation of
the Offering, including a $0.9 million fee payable to Chase Bank and other
senior lenders in connection with a waiver of certain provisions of the
Credit Agreement in order to permit the application of the Company's net
proceeds from the Offering as described in this Prospectus.
The redemption of Preferred Stock and Notes described above will be effected
as soon as practicable following consummation of the Offering. Pending such
redemptions, the Company will use the net proceeds allocated to such
redemptions to temporarily reduce borrowings outstanding under the revolving
credit facility under the Credit Agreement (the "Revolving Credit Facility").
The Notes mature on May 1, 2005, and bear interest at the rate of 12 3/4%
per annum, payable semi-annually on May 1 and November 1 of each year. See
"Description of Indebtedness--Notes" for a description of additional
provisions of the Notes and the Company's use of the proceeds therefrom.
A portion of the Series A Preferred Stock to be redeemed by the Company is
beneficially owned by Wingate and certain directors and executive officers of
the Company (including Thomas W. Sturgess, Chairman of the Board, President
and Chief Executive Officer of the Company), some of whom are also Selling
Stockholders. See "Certain Transactions--Interests of Certain Selling
Stockholders" and "Principal and Selling Stockholders."
The Company will not receive any of the proceeds from the sale of 3,500,000
shares of Common Stock by the Selling Stockholders.
16
<PAGE>
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
The Common Stock is quoted through the Nasdaq National Market under the
symbol "USTR." The following table sets forth on a per share basis, for the
periods indicated, the high and low closing sale prices per share for the
Common Stock as reported by the Nasdaq National Market. All stock price
information has been restated to reflect the 100% stock dividend effective
November 9, 1995.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter........................................ * *
Second Quarter....................................... $ 9 5/16 $ 8 9/16
Third Quarter........................................ $15 1/2 $ 8 11/16
Fourth Quarter....................................... $27 3/4 $13 1/4
1996
First Quarter (through February 12, 1996)............ $30 1/4 $22 3/4
</TABLE>
- --------
* Due to the significant changes in the Company's capital structure resulting
from the Merger, stock price information for periods prior to the Merger has
not been included as it is not comparable to the stock price information
since the Merger.
On February 12, 1996, the last reported sale price of the Common Stock as
quoted on the Nasdaq National Market was $22.75 per share, and there were
approximately 1,084 holders of record of Common Stock.
The Company does not currently intend to pay any cash dividends on the
Common Stock. Furthermore, as a holding company, the ability of the Company to
pay dividends in the future is dependent upon the receipt of dividends or
other payments from its operating subsidiary, USSC. The payment of dividends
by USSC to the Company for purposes of paying dividends to holders of Common
Stock is effectively prohibited by the Credit Agreement and the Indenture. See
"Risk Factors--Restrictions on Payment of Dividends" and "Description of
Indebtedness."
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at December 31, 1995 and at December 31, 1995 as adjusted to give effect to
(i) the issuance and sale by the Company of shares of Common Stock offered
hereby at an assumed public offering price of $22.85 per share and the
application of the net proceeds therefrom to (A) redeem all of the outstanding
shares of Preferred Stock and (B) to redeem a portion of the outstanding
Notes, (ii) the exercise of Warrants and conversion of shares of Nonvoting
Common Stock into shares of Common Stock by certain Selling Stockholders in
connection with the Offering and (iii) termination of the put feature of the
Lender Warrants resulting from the consummation of the Offering. See "Use of
Proceeds" and "Principal and Selling Stockholders." The table set forth below
should be read in conjunction with the Consolidated Financial Statements and
Unaudited Pro Forma Financial Statements of the Company, together with the
related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt and capital
leases................................................. $ 23,886 $ 23,886
-------- --------
Long-term debt, excluding current maturities:
Revolving credit facility............................. 185,000 186,163
Term loan facilities.................................. 159,153 159,153
12 3/4% Senior Subordinated Notes due 2005............ 150,000 100,000
Other long-term debt and capital leases............... 33,951 33,951
-------- --------
Total long-term debt and capital leases............. 528,104 479,267
-------- --------
Redeemable preferred stock:
Series A.............................................. 7,437 --
Series C.............................................. 10,604 --
-------- --------
Total redeemable preferred stock.................... 18,041 --
-------- --------
Redeemable warrants(1).................................. 39,692 --
-------- --------
Stockholders' equity:
Common stock, $0.10 par value; 40,000,000 shares au-
thorized;
11,446,306 shares issued and outstanding;
16,825,839 shares issued and outstanding as adjust-
ed(1)(2)(3).......................................... 1,145 1,680
Nonvoting common stock, $0.01 par value;
5,000,000 shares authorized; 758,994 shares issued
and outstanding;
no issued and outstanding shares as adjusted(3)(4)... 8 --
Additional paid in capital............................ 28,871 166,985
Lender warrants(1).................................... -- 8,022
Retained earnings (accumulated deficit)............... -- (25,681)
-------- --------
Total stockholders' equity.......................... 30,024 151,006
-------- --------
Total capitalization (including current maturities of
long-term debt and
capital leases)...................................... $639,747 $654,159
======== ========
</TABLE>
- --------
(1) Immediately prior to the Offering, Lender Warrants exercisable for an
aggregate of 938,350 shares of Common Stock and Preferred B Warrants
exercisable for an aggregate of 182,189 shares of Common Stock will be
exercised by certain Selling Stockholders. See "Principal and Selling
Stockholders." The Lender Warrants have a put feature that will terminate
upon the consummation of the Offering. See "Description of Capital Stock--
Lender Warrants."
(2) Does not include (i) 2,591,768 shares of Common Stock issuable upon
exercise of Employee Stock Options, (ii) 1,409,627 shares (289,088 shares
on an as adjusted basis) of Common Stock issuable upon exercise of
Warrants and (iii) 758,994 shares (no shares on an as adjusted basis) of
Common Stock issuable upon conversion of outstanding shares of Nonvoting
Common Stock. See "Description of Capital Stock--Capital Stock of the
Company."
(3) Immediately prior to the Offering, all shares of Nonvoting Common Stock
will be converted into shares of Common Stock (on a one-for-one basis) by
certain Selling Stockholders. See "Principal and Selling Stockholders."
(4) Does not include 1,227,438 shares (289,088 shares on an as adjusted basis)
of Nonvoting Common Stock issuable upon exercise of Lender Warrants.
Lender Warrants are exercisable for shares of either Common Stock or
Nonvoting Common Stock at the option of the holder thereof. See
"Description of Capital Stock--Lender Warrants."
18
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements are based on the
historical financial statements of the Company and its predecessors. The pro
forma income statement gives effect to (i) the Acquisition and other Merger-
related adjustments, (ii) the refinancing of certain debt effected in May 1995
and the Series B Repurchase effected with the proceeds of the Notes, (iii) the
Offering and application of the Company's net proceeds therefrom primarily to
redeem all outstanding shares of Preferred Stock and to redeem a portion of
the Notes, and (iv) the exercise of certain Warrants and conversion of shares
of Nonvoting Common Stock into shares of Common Stock by certain Selling
Stockholders in connection with the Offering, all as described in the Notes to
Unaudited Pro Forma Financial Statements included elsewhere herein, as if all
such transactions were effected on January 1, 1995. Although the Company was
the surviving corporation in the Merger, the Acquisition was treated as a
reverse acquisition for accounting purposes, with Associated as the acquiring
corporation. Accordingly, the pro forma income statement combines the audited
consolidated income statement of the Company for the year ended December 31,
1995 (which includes the twelve month results of operations of Associated but
excludes United for the three months ended March 30, 1995) and the unaudited
consolidated income statement of United for the three months ended March 30,
1995. The pro forma balance sheet is presented giving effect solely to (i) the
Offering and the application of the Company's net proceeds therefrom as
described in this Prospectus and (ii) the exercise of certain Warrants and
conversion of shares of Nonvoting Common Stock into shares of Common Stock by
certain Selling Stockholders in connection with the Offering as if these
transactions were effected on December 31, 1995.
The pro forma income statement does not include any adjustments for the
portion of estimated Merger-related cost savings which were not realized by
the Company in fiscal year 1995. At the time of the Merger, management
estimated that synergies from the integration and consolidation of
Associated's and United's operations after the Merger would result in
annualized cost savings of approximately $26.0 million, and developed a
detailed twelve-month plan to achieve such cost savings. The consolidation
plan is expected to be substantially completed by March 30, 1996, and
management believes that the full $26.0 million of annualized savings will be
realized.
The pro forma income statement data for 1995 excludes the following
nonrecurring charges for fiscal year 1995: (i) extraordinary charge of
approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million)
due to the write-off of Associated's pre-Merger financing costs and original
issue discount, (ii) restructuring charge of approximately $9.8 million ($5.9
million net of tax benefit of $3.9 million) for costs incurred and expected to
be incurred subsequent to the Merger in connection with integration and
transition (e.g., severance and the cost of closing certain facilities
operated by Associated prior to the Merger) and (iii) compensation expense
relating to Associated's employee stock options of approximately $1.5 million
($0.9 million net of tax benefit of $0.6 million) recognized as a result of
the Acquisition. Also excluded is $27.8 million of Merger-related expenses
recognized by United during the three months ended March 30, 1995.
The pro forma income statement data for 1995 also excludes the following
nonrecurring charges expected to be recognized in 1996 relating to the
anticipated completion of the Offering and application of the Company's net
proceeds therefrom: (i) a noncash charge of approximately $31.7 million ($19.0
million net of tax benefit of $12.7 million) in compensation expense arising
because certain Employee Stock Options will become exercisable upon
consummation of the Offering, and (ii) a nonrecurring charge of approximately
$11.1 million ($6.7 million net of tax benefit of $4.4 million), which charge
includes (A) a $6.4 million redemption premium relating to the redemption of a
portion of the outstanding Notes, (B) a $3.8 million noncash write-off of
deferred financing costs related to such redemption and (C) $0.9 million in
fees payable to Chase Bank and other senior lenders to permit the application
of the Company's net proceeds from the Offering as described in this
Prospectus. The compensation expense described in (i) above is based on
options outstanding at January 31, 1996 and a stock price of $22.75 as of
February 12, 1996. Each $1.00 change in the Common Stock price will result in
an adjustment to such compensation expense of approximately $2.6 million ($1.6
million net of tax benefit of $1.0 million). See "Certain Transactions--Option
and Restricted Stock Awards" and "--Interests of Certain Persons in the
Offering." For pro forma balance sheet purposes, these nonrecurring charges
have been reflected.
19
<PAGE>
The unaudited pro forma financial statements are intended for informational
purposes only and are not necessarily indicative of the future financial
position or future results of operations of the Company after the Offering, or
of the financial position or results of operations of the Company that would
have actually occurred had the Acquisition, the Merger, the refinancing of
certain debt and the Series B Repurchase effected with a portion of the
proceeds of the Notes, the Offering and the application of the Company's net
proceeds therefrom as described in this Prospectus and the exercise of certain
Warrants and conversion of shares of Nonvoting Common Stock into shares of
Common Stock by certain Selling Stockholders in connection with the Offering
occurred on the date or at the beginning of the period presented. The
unaudited pro forma financial statements and the accompanying notes should be
read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements of the Company and its predecessors,
together with the related notes thereto, included elsewhere herein.
UNITED STATIONERS INC.
UNAUDITED PRO FORMA BALANCE SHEET
AT DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 11,660 $ -- $ 11,660
Accounts receivable..................... 265,827 -- 265,827
Inventories............................. 381,618 -- 381,618
Other................................... 30,903 -- 30,903
---------- -------- --------
Total current assets.................. 690,008 -- 690,008
Net property, plant and equipment......... 199,981 -- 199,981
Goodwill, net............................. 77,786 -- 77,786
Other..................................... 33,608 (3,769)(a) 29,839
---------- -------- --------
Total Assets.......................... $1,001,383 $ (3,769) $997,614
========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital leases......................... $ 23,886 $ -- $ 23,886
Accounts payable........................ 194,567 -- 194,567
Accrued expenses........................ 107,622 (1,062)(b) 106,560
Accrued income taxes.................... 8,468 (4,421)(c) 4,047
---------- -------- --------
Total current liabilities............. 334,543 (5,483) 329,060
Deferred income taxes..................... 34,380 (12,698)(d) 21,682
Long-term obligations:
Long-term debt.......................... 526,198 (48,837)(e) 477,361
Deferred obligations and other liabili-
ties................................... 18,505 -- 18,505
Redeemable preferred stock................ 18,041 (18,041)(f) --
Redeemable warrants....................... 39,692 (39,692)(g) --
Stockholders' equity...................... 30,024 120,982 (h) 151,006
---------- -------- --------
Total Liabilities and Stockholders'
Equity .............................. $1,001,383 $ (3,769) $997,614
========== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements.
20
<PAGE>
UNITED STATIONERS INC.
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
THE COMPANY UNITED ADJUSTMENTS PRO FORMA
FOR THE FOR THE THREE RELATING TO THE ADJUSTMENTS
YEAR ENDED MONTHS ENDED ACQUISITION AND PRO FORMA RELATING
DECEMBER 31, MARCH 30, THE ISSUANCE OF PRIOR TO TO THE
1995 1995 THE NOTES THE OFFERING OFFERING PRO FORMA
------------ ------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $ 1,751,462 $450,398 $ -- $ 2,201,860 $ -- $ 2,201,860
Cost of goods sold..... 1,370,522 355,499 -- 1,726,021 -- 1,726,021
----------- -------- ------- ----------- ------- -----------
Gross profit........... 380,940 94,899 -- 475,839 -- 475,839
Operating expenses:
Warehousing,
marketing and
administrative
expenses............ 313,624 80,863 (57)(i) 394,430 -- 394,430
Merger-related
costs............... -- 27,780 (27,780)(j) -- -- --
Restructuring
charge.............. 9,759 -- (9,759)(k) -- -- --
----------- -------- ------- ----------- ------- -----------
Total operating
expenses.......... 323,383 108,643 (37,596) 394,430 -- 394,430
----------- -------- ------- ----------- ------- -----------
Income (loss) from op-
erations.............. 57,557 (13,744) 37,596 81,409 -- 81,409
Interest expense,
net................... 46,186 3,372 9,114 (l) 58,672 (7,719)(p) 50,953
----------- -------- ------- ----------- ------- -----------
Income (loss) before
income taxes
(benefit) and
extraordinary item.... 11,371 (17,116) 28,482 22,737 7,719 30,456
Income taxes (bene-
fit).................. 5,128 (1,207) 5,753 (m) 9,674 3,088 (m) 12,762
----------- -------- ------- ----------- ------- -----------
Income (loss) before
extraordinary item.... 6,243 (15,909) 22,729 13,063 4,631 17,694
Extraordinary
item(1)............... (1,449) -- 1,449 (n) -- -- --
----------- -------- ------- ----------- ------- -----------
Net income (loss)...... 4,794 (15,909) 24,178 13,063 4,631 17,694
Preferred stock
dividends issued and
accrued............. 1,998 -- (332)(o) 1,666 (1,666)(q) --
----------- -------- ------- ----------- ------- -----------
Net income (loss)
attributable to
common stockholders... $ 2,796 $(15,909) $24,510 $ 11,397 $ 6,297 $ 17,694
=========== ======== ======= =========== ======= ===========
Net income (loss) per
common and common
equivalent share
(primary and fully
diluted):
Income before
extraordinary item.. $ 0.33 $ 1.00
Extraordinary item... (.11) --
----------- -----------
Net income per common
and common
equivalent share.... $ 0.22 $ 1.00
=========== ===========
Average number of
common shares used
in primary calcula-
tion................ 12,809,212 17,633,011
=========== ===========
Average number of
common shares used
in fully diluted
calculation......... 12,913,229 17,633,011
=========== ===========
OPERATING DATA:
EBITDA(2).............. $ 81,241 $ 111,880
EBITDA margin(3)....... 4.6% 5.1%
</TABLE>
- --------
(1) Loss on early retirement of debt, net of tax benefit of $1.0 million.
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and extraordinary item and is presented because it is commonly
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA should not be considered in
isolation from, or as a substitute for, net income, cash flows from
operating activities or other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
See accompanying Notes to Unaudited Pro Forma Financial Statements.
21
<PAGE>
UNITED STATIONERS INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The pro forma financial statements have been prepared giving effect to the
following:
(1) Associated acquired 92.5% of United's outstanding shares for approximately
$266.6 million. Outstanding options to purchase United's shares were
retired for approximately $3.0 million. Prior to the Acquisition, certain
stockholders of Associated and their affiliates purchased shares of
Associated common stock for $12.0 million. As a result of the Acquisition,
stockholders of United whose shares were not acquired in the Tender Offer
held a 20.0% ownership interest in the Company on a fully diluted basis
immediately after the Acquisition. Chase Manhattan Investment Holdings,
Inc. ("CMIHI"), an affiliate of Chase Bank, the agent and a lender under
the Credit Agreement, received from the Company a 2.0% ownership interest
in the Company on a fully diluted basis immediately after the Merger and
received from the pre-Merger holders of Associated common stock an
additional 2.0% ownership interest immediately after the May 1995 issuance
of the Notes. The remaining 76.0% of the Common Stock on a fully diluted
basis immediately after the May 1995 issuance of the Notes was held by
former holders of Associated common stock, warrants and options. Shares of
Associated common stock were converted into shares of Common Stock as a
result of the Merger.
(2) The total purchase price for the United common stock in the Acquisition,
including the ownership interest held by the pre-Merger stockholders of
United and transaction costs of $6.2 million, was approximately $294.5
million. The purchase price was allocated to the net assets of United
based on fair values at the date of the Acquisition with the excess of
cost over fair value allocated to goodwill. The purchase price allocation
to property, plant and equipment is being amortized over the estimated
useful lives ranging from 3 to 40 years and goodwill is being amortized
over 40 years.
The total purchase price of United by Associated and its allocation to
assets and liabilities acquired are as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchase price:
Price of United shares purchased by Associated................... $266,629
Fair value of United shares not acquired by Associated........... 21,618
Transaction costs................................................ 6,309
--------
Total purchase price............................................. $294,556
========
Allocation of purchase price:
Current assets................................................... $542,993
Property, plant and equipment.................................... 151,012
Goodwill......................................................... 74,503
Other assets..................................................... 7,699
Liabilities assumed.............................................. (481,651)
--------
Total purchase price............................................. $294,556
========
</TABLE>
(3) The Offering price for the shares of Common Stock is assumed to be $22.85
per share.
(4) The pro forma balance sheet reflects a noncash charge of approximately
$31.7 million ($19.0 million net of tax benefit of $12.7 million) in
compensation expense to be recognized because certain Employee Stock
Options will become exercisable upon consummation of the Offering. Such
compensation expense is based on options outstanding at January 31, 1996
and stock price information as of February 12, 1996. Each $1.00 change in
the Common Stock price will result in an adjustment to such compensation
expense of approximately $2.6 million ($1.6 million net of tax benefit of
$1.0 million). See "Certain Transactions--Option and Restricted Stock
Awards." For pro forma income statement purposes, this one-time
nonrecurring noncash charge has been excluded.
22
<PAGE>
(5) The variable portion of pro forma interest expense is based on historical
interest rates in effect during the year ended December 31, 1995 and
approximates that based on current interest rates. Each 1/8 of 1% change
in the base interest rate for variable rate debt has a $0.4 million effect
on annual pro forma interest expense for the Company, without giving
effect to the impact of any interest rate protection agreements.
(6) Income taxes have been provided for pro forma adjustments relating to the
Acquisition and the issuance of Notes at historical rates and for pro
forma adjustments relating to the Offering at 40.0%.
Pro forma adjustments have been made to the Pro Forma Balance Sheet to
reflect solely the following effects of the Offering and use of proceeds
therefrom:
(a) Write-off of deferred financing costs relating to the redemption of a
portion of the Notes.
(b) Payment of accrued interest in conjunction with redemption of a portion of
the Notes using a portion of the proceeds of the Offering.
(c) Adjustment to current income tax liability for tax effect of write-off of
deferred financing costs and payment of redemption premium.
(d) Adjustment to deferred taxes to reflect tax effect of compensation expense
relating to Employee Stock Options.
(e) Redemption of $50.0 million aggregate principal amount of Notes using a
portion of the proceeds of the Offering and additional borrowings under
the Revolving Credit Facility of $1.2 million to pay accrued interest on
the Notes through the date of redemption and a portion of the fees payable
to Chase Bank and the other senior lenders.
(f) Redemption of all of the outstanding shares of Preferred Stock, together
with accrued and unpaid dividends thereon through the date of such
redemption using a portion of the proceeds of the Offering.
(g) Exercise of a portion of the Lender Warrants and termination of the put
feature of the remaining portion of the Lender Warrants.
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S> <C>
(h)Issuance of shares of Common Stock by the Company in conjunction
with the Offering (net of underwriting discounts and
commissions)................................................... $ 75,985
Adjustment to additional paid in capital for Offering-related fees.. (475)
Adjustment to Common Stock and additional paid in capital due to
exercise of certain Lender Warrants............................ 31,670
Reclassification of Lender Warrants not exercised due to termination
of the put feature............................................. 8,022
Adjustment to Employee Stock Options (see (4) above)................ 31,746
Adjustment to retained earnings for compensation expense relating to
Employee Stock Options (net of tax effect of $12,698).......... (19,048)
Adjustment to retained earnings due to loss on early retirement of
debt (net of tax effect of $4,421)............................. (6,633)
Accrual of preferred stock dividends................................ (285)
Conversion of Shares of Nonvoting Common Stock into Shares of Common
Stock by certain Selling Stockholders in connection with the
Offering....................................................... --
---------
$ 120,982
=========
</TABLE>
Pro forma adjustments have been made to the Pro Forma Income Statement to
reflect the following (dollars in thousands):
(i) Assuming the Acquisition was effected on January 1, 1995:
<TABLE>
<S> <C>
Incremental amortization of goodwill............................... $ 166
Incremental depreciation of plant, property and equipment.......... 1,277
Elimination of non-recurring compensation expense relating to
Employee Stock Options recognized as a result of the Acquisition.. (1,500)
------
$ (57)
======
</TABLE>
23
<PAGE>
(j) Elimination of non-recurring Merger-related expenses recognized by United.
(k) Elimination of non-recurring charge for restructuring costs incurred or
expected to be incurred in connection with integration and consolidation
subsequent to the Acquisition.
(l) Incremental interest expense on debt and elimination of amortization of
financing costs and original issue discount relating to retired debt
(assuming that (i) the Acquisition and (ii) the issuance of the Notes and
use of proceeds therefrom were each effected on January 1, 1995).
(m) Income tax effect of the pro forma adjustments.
(n) Eliminates effects of the May 1995 nonrecurring write-off of deferred
financing costs and original issue discount relating to debt which was
retired.
(o) Adjustment of preferred stock dividends for the Series B Repurchase.
(p) Adjustment to interest expense for the redemption of a portion of the
Notes using a portion of the proceeds of the Offering.
(q) Adjustment of preferred stock dividends for redemption of all of the
outstanding shares of Preferred Stock using a portion of the proceeds of
the Offering.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below and on the following pages is selected historical
consolidated financial data for the Company and its predecessors. Although the
Company was the surviving corporation in the Merger, the Acquisition was
treated as a reverse acquisition for accounting purposes, with Associated as
the acquiring corporation. Therefore, the income statement and operating and
other data for the year ended December 31, 1995 reflect the financial
information of Associated only for the three months ended March 31, 1995 and
the results of the Company for the nine months ended December 31, 1995. The
balance sheet data at December 31, 1995 reflects the consolidated balances of
the Company, including various Merger-related adjustments.
THE COMPANY/ASSOCIATED
The selected consolidated financial data of Associated's predecessor set
forth below for the fiscal year ended December 31, 1991 and for the one-month
period ended January 31, 1992 (when the Associated Transaction was
consummated) are derived from the unaudited financial statements of
Associated's predecessor for such periods. Associated accounted for the
Associated Transaction using the purchase method of accounting. There are
material operational and accounting differences between Associated's
predecessor and Associated resulting from the Associated Transaction.
Accordingly, the historical financial data of Associated's predecessor may not
be comparable in all material respects with data of Associated.
The selected consolidated financial data of Associated set forth below for
the period from January 31, 1992 to December 31, 1992 and for the fiscal years
ended December 31, 1993 and 1994 has been derived from the consolidated
financial statements of Associated which have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated financial data
of the Company for the fiscal year ended December 31, 1995 (which for income
statement and operating and other data includes Associated only for the three
months ended March 30, 1995 and the results of the Company for the nine months
ended December 31, 1995) has been derived from the consolidated financial
statements of the Company which have been audited by Ernst & Young LLP,
independent auditors. All selected consolidated financial data set forth below
should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Historical Results of Operations of the Company/Associated" and
"--Liquidity and Capital Resources of the Company" and the Consolidated
Financial Statements of the Company and Associated, together with the related
notes thereto, included elsewhere herein.
25
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1)(2) ASSOCIATED THE COMPANY
------------------------ ------------------------------- ------------
JANUARY 1 JANUARY 31
YEAR ENDED TO TO YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ----------- ------------ ------------------ ------------
1991(3) 1992(4) 1992 1993 1994 1995
------------ ----------- ------------ -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $411,343 $39,016 $359,779 $455,731 $470,185 $1,751,462
Cost of goods sold...... 308,090 29,874 276,546 350,251 357,276 1,370,522
-------- ------- -------- -------- -------- ----------
Gross profit........... 103,253 9,142 83,233 105,480 112,909 380,940
Operating expenses(5)... 88,374 7,723 72,880 94,502 94,788 323,383
-------- ------- -------- -------- -------- ----------
Income from opera-
tions................. $ 14,879 $ 1,419 10,353 10,978 18,121 57,557
======== =======
Interest expense, net... 5,626 7,235 7,725 46,186
-------- -------- -------- ----------
Income before income
taxes and
extraordinary item.... 4,727 3,743 10,396 11,371
Income taxes............ 1,777 781 3,993 5,128
-------- -------- -------- ----------
Income before extraor-
dinary item........... 2,950 2,962 6,403 6,243
Extraordinary item(6)... -- -- -- (1,449)
-------- -------- -------- ----------
Net income.............. $ 2,950 $ 2,962 $ 6,403 $ 4,794
======== ======== ======== ==========
Net income attributable
to common stockhold-
ers.................... $ 1,501 $ 915 $ 4,210 $ 2,796
======== ======== ======== ==========
Net income per common
and common equivalent
share (primary and
fully diluted)
Income before extraor-
dinary item........... $ 0.19 $ 0.11 $ 0.51 $ 0.33
Extraordinary item..... -- -- -- (0.11)
-------- -------- -------- ----------
Net income............. $ 0.19 $ 0.11 $ 0.51 $ 0.22
======== ======== ======== ==========
Cash dividends declared
per share.............. -- -- -- -- -- --
OPERATING AND OTHER DA-
TA:
EBITDA(7)............... $ 18,028 $ 1,661 $ 14,875 $ 16,481 $ 23,505 $ 81,241
EBITDA margin(8)........ 4.4% 4.3% 4.1% 3.6% 5.0% 4.6%(9)
Depreciation and amorti-
zation(10)............. $ 3,149 $ 242 $ 4,522 $ 5,503 $ 5,384 $ 23,684
Capital expenditures,
net.................... 273 (36) 4,289 3,273 554 8,017
</TABLE>
<TABLE>
<CAPTION>
THE
PREDECESSOR(1) ASSOCIATED COMPANY
-------------- -------------------------- ----------
AT DECEMBER 31,
----------------------------------------------------
1991(3) 1992 1993 1994 1995
-------------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $ 54,373 $ 46,396 $ 57,302 $ 56,454 $ 355,465
Total assets............. 140,756 179,069 190,979 192,479 1,001,383
Total debt and capital
leases(11).............. -- 78,297 86,350 64,623 551,990
Redeemable preferred
stock................... -- 18,949 20,996 23,189 18,041
Redeemable warrants...... -- 1,435 1,435 1,650 39,692
Total stockholders' or
predecessor division eq-
uity.................... 93,642 10,466 11,422 24,775 30,024
</TABLE>
- --------
(1) The capital structure and accounting basis of the assets and liabilities
of Associated's predecessor differ from those of Associated and the
Company. Accordingly, certain of the financial information for periods
before January 31, 1992 is not comparable to that for periods after
January 31, 1992 and therefore is not presented in this table.
(2) Associated's predecessor operated as a division of BCOP. BCOP did not
allocate income tax or interest expense to the predecessor. Accordingly,
actual operating results for the predecessor reflect only income from
operations before interest expense and income taxes.
(3) Derived from the unaudited financial statements of Associated's
predecessor at and for the year ended December 31, 1991.
(4) Derived from the unaudited financial statements of Associated's
predecessor for the one month ended January 31, 1992.
(5) Includes restructuring charge of $9.8 million for the year ended December
31, 1995.
(6) Loss on early retirement of debt, net of tax benefit of $1.0 million.
(7) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and extraordinary item and is presented because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service and incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(8) EBITDA margin represents EBITDA as a percentage of net sales.
(9) EBITDA margin for the year ended December 31, 1995 would have been 5.2% if
adjusted to exclude restructuring charge.
(10) Excludes amortization of deferred financing costs.
(11) Total debt and capital leases includes current maturities.
26
<PAGE>
UNITED
The selected consolidated financial data of United set forth below for each
of the fiscal years in the four-year period ended August 31, 1994 has been
derived from the consolidated financial statements of United which have been
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated financial data of United for the seven months ended March 30,
1995 (at which time United and Associated merged to create the Company) has
been derived from the financial statements of United which have been audited
by Ernst & Young LLP, independent auditors. The selected consolidated
financial data at and for the seven-month period ended March 31, 1994 is
unaudited and in the opinion of management reflects all adjustments considered
necessary for a fair presentation of such data. All selected consolidated
financial data set forth below should be read in conjunction with, and is
qualified in its entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Historical Results of
Operations of United" and "--Historical Liquidity and Capital Resources of
United" and the Consolidated Financial Statements of United, together with the
related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED AUGUST 31, ENDED
-------------------------------------------- --------------------
MARCH 31, MARCH 30,
1991 1992 1993 1994 1994 1995
-------- ---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $951,109 $1,094,275 $1,470,115 $1,473,024 $871,585 $980,575
Cost of sales........... 732,401 848,588 1,125,596 1,150,123 675,720 773,857
-------- ---------- ---------- ---------- -------- --------
Gross profit on
sales................ 218,708 245,687 344,519 322,901 195,865 206,718
Operating expenses...... 195,694 219,285 298,405 286,607 170,420 174,021
Merger-related costs.... -- -- -- -- -- 27,780(1)
-------- ---------- ---------- ---------- -------- --------
Income from
operations........... 23,014 26,402 46,114 36,294 25,445 4,917
Interest expense, net... 6,082 6,503 9,550 10,461 5,837 7,500
Other income (expense),
net.................... (14) 364 355 225 117 41
-------- ---------- ---------- ---------- -------- --------
Income (loss) before
income taxes......... 16,918 20,263 36,919 26,058 19,725 (2,542)
Income taxes............ 7,008 8,899 15,559 10,309 8,185 4,692
-------- ---------- ---------- ---------- -------- --------
Net income (loss)..... $ 9,910 $ 11,364 $ 21,360 $ 15,749 $ 11,540 $ (7,234)
======== ========== ========== ========== ======== ========
Net income (loss) per
common share........... $ 0.64 $ 0.71 $ 1.15 $ 0.85 $ 0.62 $ (0.39)
Cash dividends declared
per share.............. 0.40 0.40 0.40 0.40 0.30 0.30
OPERATING AND OTHER
DATA:
EBITDA(2)............... 41,912 46,645 67,712 57,755 37,665 17,553
EBITDA margin(3)........ 4.4% 4.3% 4.6% 3.9% 4.3% 1.8%
Depreciation and
amortization........... $ 18,912 $ 19,879 $ 21,243 $ 21,236 $ 12,103 $ 12,595
Net capital
expenditures........... 15,765 8,291 29,958 10,499 4,287 7,764
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... 135,347 214,611 216,074 239,827 297,099 257,600
Total assets............ 409,958 601,465 634,786 618,550 608,728 711,839
Total debt and capital
leases(4).............. 73,123 150,728 150,251 155,803 227,626 233,406
Stockholders'
investment............. 181,584 223,387 237,697 246,010 243,636 233,125
</TABLE>
- --------
(1) In connection with the Merger, United incurred approximately $27.8 million
of Merger-related costs, consisting of severance payments under employment
contracts ($9.6 million); insurance benefits under employment contracts
($7.4 million); legal, accounting and other professional services fees
($5.2 million); retirement of stock options ($3.0 million); and fees for
letters of credit related to employment contracts and other costs ($2.6
million).
27
<PAGE>
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Total debt and capital leases includes current maturities.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On March 30, 1995, Associated merged with and into United. Although the
Company was the surviving corporation in the Merger, the transaction was
treated as a reverse acquisition for accounting purposes, with Associated as
the acquiring corporation. Therefore, the results of operations for the year
ended December 31, 1995 reflects the financial information of Associated only
for the three months ended March 31, 1995 and the results of the Company for
the nine months ended December 31, 1995. As a result of the Merger, the
results of operations of the Company for the year ended December 31, 1995 are
not comparable to those of previous periods.
To facilitate a meaningful comparison, the following supplemental discussion
and analysis is based on certain components of the combined historical results
of operations without any pro forma adjustments for Associated and United for
the years ended December 31, 1993 and 1994 and on the pro forma results of
operations for the Company for the year ended December 31, 1995. The pro forma
results of operations do not purport to be indicative of the results that
would have been obtained had such transactions been completed for the periods
presented or that may be obtained in the future. The following information
should be read in conjunction with, and is qualified in its entirety by, the
Consolidated Financial Statements of the Company and its predecessors,
together with the related notes thereto, included elsewhere herein.
GENERAL COMMENTS
Gross Profit Margins. Recently, a number of factors have adversely affected
gross profit margins in the office products industry, including those of the
Company. These factors reflect the increasingly competitive nature of the
industry. Competitive pressures have increased due in part to the growth of
large resellers such as national office products superstores that have
heightened price awareness at the end-user level. The increasing price
sensitivity of end-users has contributed to the decline in industrywide gross
profit margins. These pressures are expected to continue in the future.
The Company's gross profit margins vary across product categories, so that
material changes in its product mix can impact the Company's overall margin.
For example, the gross profit margin on the Company's sales of commodity
products, such as copier paper and laser printer toner--product categories
that have grown over the past few years--tend to be lower than the gross
profit margins on most other product categories. While the recent increases in
sales of these types of products have adversely affected the Company's overall
gross profit margin, they have contributed to higher operating income. The
Company expects such sales to increase as a percentage of revenues in the
future.
Restructuring Charge. In the first quarter of 1995, the Company recorded a
restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9
million). The restructuring charge includes severance costs totaling $1.8
million. The Company's consolidation plan specifies that 330 distribution,
sales and corporate positions, 180 of which relate to pre-Merger Associated,
will be eliminated substantially within the one-year period following the
Merger. As of December 31, 1995, approximately 90 former Associated employees
had been terminated, with the related termination costs of approximately $1.0
million charged against the reserve. The restructuring charge also includes
distribution center closing costs totaling $6.7 million and stockkeeping unit
reduction costs totaling $1.3 million. The consolidation plan calls for the
closing of eight redundant distribution centers, six of which relate to pre-
Merger Associated facilities, and the elimination of overlapping inventory
items from the Company's catalogs substantially within the one-year period
following the Merger. Distribution center closing costs include (i) the net
occupancy costs of leased facilities after they are vacated until expiration
of leases and (ii) the losses on the sale of owned facilities and the
facilities' furniture, fixtures and equipment. Stockkeeping unit reduction
costs include losses on the sale of inventory items which have been
discontinued solely as a result of the Acquisition. As of December 31, 1995,
$0.4 million relating to distribution center closing costs had been charged
against the reserve. See Note 4 to the Consolidated Financial Statements of
the Company included elsewhere herein.
29
<PAGE>
Employee Stock Options. In September 1995, the Board of Directors approved,
subject to stockholder approval, an amendment to its employee stock option
plan (the "Plan") that allows for the issuance of Employee Stock Options to
key management employees of the Company exercisable for up to approximately
2.2 million additional shares of Common Stock. The Plan was designed to build
increased employee commitment through participation in the growth and
performance of the Company. Subsequently, Employee Stock Options exercisable
for an aggregate of approximately 2.2 million shares of Common Stock were
granted (subject to stockholder approval of the Plan amendment) to key
management employees. The Employee Stock Options were granted at an exercise
price below the then fair market value of the Common Stock. The exercise price
of certain of such options is subject to increases on a quarterly basis
beginning in 1996. See "Certain Transactions--Option and Restricted Stock
Awards." The Company's stockholders will vote to approve such Plan amendment
at the Company's annual meeting to be held in May 1996.
The Employee Stock Options granted under the Plan do not vest to the
employee until the occurrence of an event (a "Vesting Event") that causes the
present non-public equity investors to have received at least a full return of
their investment (at cost) in cash, fully tradable marketable securities or
the equivalent. A Vesting Event will cause the Company to recognize
compensation expense based upon the difference between the fair market value
of the Common Stock and the exercise price of the Employee Stock Options.
Based upon a stock price of $22.75 as of February 12, 1996, the Company
expects to recognize a nonrecurring noncash charge and related tax effect
during the first quarter of 1996 of $31.7 million in compensation expense
($19.0 million net of tax benefit of $12.7 million) relating to such Employee
Stock Options because the consummation of the Offering will constitute a
Vesting Event. See "Unaudited Pro Forma Financial Statements." Such
compensation expense is based on options outstanding at January 31, 1996. Each
$1.00 change in the Common Stock price will result in an adjustment to such
compensation expense of approximately $2.6 million ($1.6 million net of tax
benefit of $1.0 million).
Change in Accounting Method. Effective January 1, 1995, Associated changed
its method of accounting for the cost of inventory from the FIFO method to the
LIFO method. Associated made this change in contemplation of its acquisition
of United (accounted for as a reverse acquisition) so that its method would
conform to that of United. Associated believed that in an inflationary
environment the LIFO method provides a better matching of current costs and
current revenues, and that earnings reported under the LIFO method are more
easily compared to that of other companies in the wholesale industry where the
LIFO method is common. In 1995, this change resulted in the reduction of pre-
tax income of the Company of approximately $8.8 million ($5.3 million net of
tax benefit of $3.5 million). See Note 3 to the Consolidated Financial
Statements of the Company included elsewhere herein.
30
<PAGE>
PRO FORMA AND COMBINED RESULTS OF OPERATIONS
The following table of summary pro forma (see Note 4 to the Consolidated
Financial Statements of the Company for additional information) and combined
historical financial data is intended for informational purposes only and is
not necessarily indicative of either financial position or results of
operations in the future, or that would have occurred had the events described
in the preceding paragraph occurred on the indicated dates as described
elsewhere herein. The following information should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial
Statements of the Company and its predecessors, including the related notes
thereto, included elsewhere herein.
The following table also presents unaudited summary combined historical
financial data for Associated and United for the years ended December 31, 1993
and 1994. This data has not been prepared in accordance with generally
accepted accounting principles, which do not allow for the combination of
financial data for entities that are not under common ownership. Nevertheless,
management believes that this combined historical financial data, when read in
conjunction with the separate historical financial statements of the Company,
Associated and United prepared in accordance with generally accepted
accounting principles and included elsewhere herein, may be helpful in
understanding the past operations of the companies that were combined in the
Merger. This combined historical financial data for 1993 and 1994 represents a
combination of the historical financial data for Associated and United for the
periods indicated without any pro forma adjustments, and is supplemental to
the historical financial data of Associated and United included elsewhere
herein.
<TABLE>
<CAPTION>
COMBINED PRO FORMA
----------------------------------- -----------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $1,925,376 100.0% $1,990,363 100.0% $2,201,860 100.0%
Gross profit............. 450,645 23.4 438,759 22.0 475,839 21.6
Operating expenses....... 393,284 20.4 379,717 19.0 394,430 17.9
Income from operations... 57,361 3.0 59,042 3.0 81,409 3.7
</TABLE>
Comparison of Pro Forma Results for the Fiscal Year Ended December 31, 1995
and Combined Results for the Fiscal Year Ended December 31, 1994
Net Sales. Net sales were $2,201.9 million for 1995, a 10.6% increase over
net sales of $1,990.4 million in 1994. The increase in net sales is primarily
the result of changes in unit volume rather than changes in prices. Sales grew
in all geographic regions. In addition, the sales growth is also attributable
to increases in the sales of computer and related products through the
Company's MicroUnited Division.
Gross Profit. Gross profit as a percent of net sales decreased to 21.6% in
1995 from 22.0% in 1994. The lower gross profit margin reflects a shift in
product mix and a larger LIFO charge due to Associated's change in its method
of accounting for inventory from the FIFO method to the LIFO method. Also,
gross profit was adversely affected by the higher sales of computer and
related products and commodity items which typically carry lower gross profit
margins.
Operating Expenses. Operating expenses as a percent of net sales decreased
to 17.9% in 1995 from 19.0% in 1994. The decrease in operating expenses as a
percent of net sales was primarily due to increased operating efficiencies,
improved productivity and increased economies of scale as a result of the
higher sales base.
Income from Operations. Income from operations as a percent of net sales was
3.7% in 1995 compared to 3.0% in 1994 due to the aforementioned reasons.
Comparison of Combined Results for the Fiscal Years Ended December 31, 1994
and 1993.
Net Sales. Net sales were $1,990.4 million for 1994, a 3.4% increase over
net sales of $1,925.4 million in 1993. The increase in net sales is primarily
the result of changes in unit volume rather than changes in prices.
31
<PAGE>
Gross Profit. Gross profit as a percent of net sales decreased to 22.0% in
1994 from 23.4% in 1993. The lower gross profit margin primarily reflects
higher levels of rebates and volume allowances earned by the Company's
customers as a result of ongoing consolidations. In addition, gross profit
margin was affected by a LIFO charge (an increase to "cost of goods sold") of
$2.1 million in 1994 versus LIFO income (a decrease to "cost of goods sold")
of $5.0 million in 1993, and a shift in product mix.
Operating Expenses. Operating expenses as a percent of net sales decreased
to 19.0% in 1994 from 20.4% in 1993. The decrease is the result of
streamlining the Company's work processes and reducing payroll and freight
expense.
Income from Operations. Income from operations as a percent of net sales was
3.0% in 1994 and 1993.
HISTORICAL RESULTS OF OPERATIONS OF THE COMPANY/ASSOCIATED
Comparison of Historical Fiscal Years Ended December 31, 1995 and 1994
Net Sales. Net sales were $1,751.5 million for 1995 compared to $470.2
million in 1994. The increase is primarily the result of the Merger. Sales in
1995 include only nine months of United's sales.
Gross Profit. Gross profit as a percent of net sales decreased to 21.7% in
1995 from 24.0% in 1994. The lower gross profit margin reflects a shift in
product mix, the Acquisition and the change in the method of accounting for
inventory from the FIFO method to the LIFO method. See Note 3 to the
Consolidated Financial Statements of the Company included elsewhere herein.
Operating Expenses. Operating expenses as a percent of net sales decreased
to 18.5% in 1995 from 20.2% in 1994. The actual results for 1995 include the
impact of a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) in the first quarter of 1995. Operating expenses
before the restructuring charge were 17.9% in 1995. The decrease in operating
expenses as a percent of net sales before the restructuring charge was
primarily due to increased operating efficiencies and improved productivity,
partially offset by Merger-related compensation expense relating to an
increase in the value of Employee Stock Options of approximately $1.5 million
($0.9 million net of tax benefit of $0.6 million).
Income from Operations. Income from operations as a percent of net sales was
3.2% in 1995 (after the restructuring charge) compared to 3.8% in 1994. Before
such restructuring charge, income from operations in 1995 was 3.8%.
Interest Expense. Interest expense as a percent of net sales was 2.5% in
1995 compared to 1.6% in 1994. The increase reflects additional debt needed to
consummate the Acquisition and higher interest rates in 1995.
Income Before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary item as a percent of net sales was 0.7% in 1995
compared to 2.2% in 1994.
Income Before Extraordinary Item. Income before extraordinary item was $6.2
million in 1995 compared to $6.4 million in 1994. An extraordinary item, the
loss on early retirement of debt related to the Merger of $2.4 million ($1.4
million net of tax benefit of $1.0 million), was recognized in the first
quarter of 1995. The net income was $4.8 million in 1995 compared to $6.4
million in 1994. Excluding the extraordinary item, net income would have been
$6.2 million.
Fourth Quarter Results. Certain interim expense and inventory estimates are
recorded throughout the year relating to shrinkage, inflation and product mix.
The results of the year-end close and physical inventory reflected a favorable
adjustment with respect to such estimates, resulting in approximately $0.9
million of additional net income, which is reflected in the fourth quarter of
1995.
32
<PAGE>
Comparison of Historical Fiscal Years Ended December 31, 1994 and 1993
Net Sales. Net sales increased to $470.2 million in 1994 from $455.7 million
in 1993, a 3.2% increase, primarily as a result of inclusion in 1994 of the
full year of sales from Associated's new Baltimore distribution facility and
increased unit sales volume to existing Associated customers as, in
management's estimation, Associated's customers channeled more of their
purchasing through Associated with the goal of reducing their internal
inventory levels.
Gross Profit. Gross profit increased to $112.9 million in 1994 from $105.5
million in 1993, a 7.0% increase, primarily due to increased unit volume as
well as Associated's lower net cost of goods sold, as a percentage of sales,
resulting from increased allowances granted to Associated by its suppliers.
Management of Associated believes that increased vendor allowances were due to
competition among Associated's vendors that resulted in increased purchasing
leverage. The increase in gross profit also resulted in part from Associated's
increased forward-buying efforts, as management better identified and utilized
product pricing opportunities available in the marketplace. Gross profit
increases were partially offset by increased allowances extended by Associated
to its customers in response to increased competition.
Operating Expenses. Operating expenses as a percent of net sales decreased
to 20.2% in 1994 from 20.7% in 1993. The decrease in operating expenses as a
percent of net sales was primarily due to productivity improvements and lower
freight costs partially offset by lump-sum incentive awards earned in 1994 by
employees and management based on Associated's level of profitability.
Income from Operations. Income from operations increased to $18.1 million
in 1994 from $11.0 million in 1993, a 65.1% increase, and as a percentage of
net sales was 3.8% in 1994, compared with 2.4% in 1993, for the reasons stated
above.
Interest Expense. Interest expense increased to $7.7 million in 1994 from
$7.2 million in 1993, a 6.8% increase, as a result of an increase in the
weighted average interest rate on outstanding debt in effect during the year
from 7.75% in 1993 to 8.90% in 1994, which was offset in part by a reduction
in average revolving debt balances to $39.6 million in 1994 from $46.9 million
in 1993.
Income Before Income Taxes. Income before income taxes increased to $10.4
million in 1994 from $3.7 million in 1993, a 177.7% increase, for the reasons
stated above.
Income Taxes. Income taxes increased to $4.0 million in 1994 from $0.8
million in 1993, a $3.2 million increase. The effective tax rates for 1994 and
1993 were 38.4% and 20.9%, respectively. The increase in rate was due
primarily to the effect of the change in the amount of tax valuation
allowances.
Net Income. Net income increased to $6.4 million in 1994 from $3.0 million
in 1993, an increase of $3.4 million, or 116.2%. Net income as a percentage of
net sales increased to 1.4% in 1994 from 0.6% in 1993 for the reasons stated
above.
HISTORICAL RESULTS OF OPERATIONS OF UNITED
Comparison of the Seven Months Ended March 30, 1995 and 1994
Net Sales. Net sales were $980.6 million in the seven months ended March 30,
1995, a 12.5% increase from net sales of $871.6 million in the comparable
period in 1994. The primary reason for the increase is growth in unit volume.
Gross Profit on Sales. Gross profit as a percent of net sales was 21.1% for
the seven months ended March 30, 1995, compared with 22.5% in the comparable
period in 1994. This lower gross profit margin is primarily the result of a
shift in the sale of computer related products that have lower gross profit
margins and is consistent with the gross profit margins achieved in the latter
half of United's fiscal year ended August 31, 1994.
33
<PAGE>
Operating Expenses. Operating expenses as a percent of net sales increased
to 20.6% in the seven-month period ended March 30, 1995 from 19.6% in the
comparable period in 1994. The increase is primarily attributable to $27.8
million ($18.5 million net of tax benefit of $9.3 million) of non-recurring
Merger-related costs consisting of severance payments under employment
contracts; insurance benefits under employment contracts; legal, accounting
and other professional services fees; the repurchase of stock options; and
fees for letters of credit related to employment contracts and other costs.
Operating expenses as a percent of net sales prior to the Merger-related costs
were 17.7% for the seven-month period ended March 30, 1995. This decline from
the comparable period in 1994 is a result of savings in employee-related
payroll and freight expenses.
Income From Operations. Income from operations as a percent of net sales was
0.5% in the seven-month period ended March 30, 1995, compared with 2.9% in the
comparable period in 1994. The decrease was attributable to the Merger-related
costs discussed under "Operating Expenses" above. Income from operations as a
percent of net sales was 3.3% in the seven-month period ended March 30, 1995,
excluding the Merger-related costs.
Interest Expense. Interest expense was $7.6 million for the seven-month
period ended March 30, 1995, compared with $6.1 million for the same period in
1994. The increase was due to higher interest expense from increased debt to
meet working capital and other capital expenditure needs and higher interest
rates on borrowings.
Income Before Income Taxes. Income (loss) before income taxes as a percent
of net sales was a loss of 0.3% in the seven-month period ended March 30,
1995, compared to income of 2.3% in the comparable period of 1994. The
decrease in income before income taxes was attributable to the factors stated
above.
Income Taxes. The effective tax rate for the seven-month period ended March
30, 1995 was (184.6%), compared with 41.5% for the seven-month period ended
March 31, 1994. The increase is primarily due to non-deductible Merger-related
costs and non-deductible amortization of goodwill.
Net Income. Net income (loss) was a loss of $7.2 million for the seven-month
period ended March 30, 1995, compared with income of $11.5 million for the
same period in 1994. The loss was primarily due to $27.8 million ($18.5
million net of tax benefit of $9.3 million) of non-recurring Merger-related
costs discussed under "Operating Expenses" above. Net income (loss) per share
was a loss of $0.39 in the seven-month period ended March 30, 1995, compared
with income of $0.62 for the same period in 1994.
Comparison of the Fiscal Years Ended August 31, 1994 and 1993
Net Sales. Net sales increased to $1,473.0 million in fiscal 1994 from
$1,470.1 million in fiscal 1993, a 0.2% increase reflecting a slight increase
in unit volume. Sales in the early part of fiscal 1994 were affected by a
temporary drop in in-stock service levels and the discontinuing of nearly
12,000 items as a final step in the consolidation process of the SDC
Acquisition in June 1992. Sales were also negatively impacted by the SDC
Acquisition-related operational disruptions in the west and southwest regions.
Sales grew in the fourth quarter by 3.4%, reversing the decline experienced in
the prior two quarters.
Gross Profit on Sales. Gross profit on sales decreased to $322.9 million in
fiscal 1994 from $344.5 million in fiscal 1993, a 6.3% decrease, due
principally to a decrease in gross profit margin. Gross profit margin
decreased to 21.9% in fiscal 1994 from 23.4% in fiscal 1993. The decline
primarily reflects higher levels of rebates and volume allowances earned by
the Company's customers as a result of ongoing consolidations. Gross profit
margins over the last half of fiscal 1994 were relatively stable reflecting
the slowing pace of dealer consolidations. In addition, gross profit margin
was affected by a LIFO charge (an increase to "cost of sales") of $2.2 million
in fiscal 1994 versus LIFO income (a decrease to "cost of sales") of $4.7
million in fiscal 1993, and a shift in the sale of products to items that have
lower gross margins.
34
<PAGE>
Operating Expenses. Operating expenses decreased to $286.6 million in fiscal
1994 from $298.4 million in fiscal 1993, a 4.0% decrease. Operating expenses
as a percentage of net sales decreased to 19.4% in fiscal 1994 from 20.3% in
fiscal 1993. The decrease is the result of streamlining United's work
processes and reducing payroll and freight expense.
Income From Operations. Income from operations decreased to $36.3 million in
fiscal 1994 from $46.1 million in fiscal 1993, a 21.3% decrease, and as a
percentage of net sales was 2.5% in fiscal 1994, compared with 3.1% in fiscal
1993, for the reasons stated above.
Interest Expense. Interest expense increased to $10.7 million in fiscal 1994
from $9.8 million in fiscal 1993, an 8.9% increase, primarily due to
additional debt incurred to support working capital and other capital
expenditures.
Income Before Income Taxes. Income before income taxes decreased to $26.0
million in fiscal 1994 from $36.9 million in fiscal 1993, a 29.4% decrease,
for the reasons stated above.
Income Taxes. Income taxes decreased to $10.3 million in fiscal 1994 from
$15.5 million in fiscal 1993, a $5.3 million decrease. The effective tax rates
for 1994 and 1993 were 39.6% and 42.1%, respectively. The decrease is
primarily due to the liquidation of a foreign subsidiary and a decrease in the
effective state income tax rate, offset by an increase in the non-deductible
losses in United's foreign operation and the non-deductible amortization of
goodwill.
Net Income. Net income decreased to $15.7 million in 1994 from $21.4 million
in 1993, a decrease of $5.7 million, or 26.3%. Net income as a percentage of
net sales decreased to 1.1% in 1994 from 1.5% in 1993 for the reasons stated
above.
Fourth Quarter Results. Certain interim expense and inventory estimates are
recognized throughout the fiscal year relating to shrinkage, inflation and
product mix. The results of the year-end close and physical inventory
reflected a favorable adjustment with respect to such estimates, resulting in
approximately $0.5 million of additional net income, which is reflected in the
fourth quarter of fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
In connection with the consummation of the Acquisition, Associated received
an equity investment of $12.0 million and borrowed an aggregate of $416.5
million under the Credit Facilities and $130.0 million under a subordinated
bridge facility (the "Subordinated Bridge Facility"). The proceeds of such
investment and borrowings were used to (i) finance the purchase of shares of
Common Stock pursuant to the Tender Offer, (ii) refinance certain existing
indebtedness of Associated (including all amounts outstanding under the
Associated credit facilities in effect prior to the Merger) and indebtedness
of the Company (including certain amounts outstanding under the United credit
and overline facilities in effect prior to the Merger), (iii) repurchase
United employee stock options and (iv) pay fees and expenses relating to the
Acquisition.
The credit facilities under the Credit Agreement (the "Credit Facilities")
consist of $200.0 million of term loan borrowings (the "Term Loan Facilities")
and up to $325.0 million of revolving loan borrowings under the Revolving
Credit Facility.
On May 3, 1995, USSC completed the issuance of $150.0 million of the Notes.
The net proceeds of the Notes (after an underwriter discount of $4.5 million)
were used to repay the $130.0 million Subordinated Bridge Facility (together
with $1.6 million in accrued and unpaid interest thereon), to repay a portion
of the Term Loan Facilities and accrued interest thereon (totaling
approximately $6.5 million), to pay a dividend to the Company to effect the
Series B Repurchase and to pay certain expenses.
The Term Loan Facilities consist of a $125.0 million Tranche A term loan
facility (the "Tranche A Facility") and a $75.0 million Tranche B term loan
facility (the "Tranche B Facility"). Amounts outstanding
35
<PAGE>
under the Tranche A Facility are required to be repaid in 20 consecutive
installments, the first four of which (each in the aggregate principal amount
of $3.63 million) are due on the last day of each of the first four calendar
quarters which commenced with the quarter ended June 30, 1995. Subsequent
quarterly payments under the Tranche A Facility are each in the aggregate
principal amount of $6.05 million for each of the eight consecutive calendar
quarters commencing with the quarter ending June 30, 1996 and $7.26 million
for each of the eight consecutive calendar quarters commencing with the
quarter ending June 30, 1998. Amounts outstanding under the Tranche B Facility
are required to be repaid in 28 consecutive quarterly installments, the first
twenty of which (in the aggregate principal amount of $0.24 million each) are
due on the last day of each of the first twenty calendar quarters which
commenced with the quarter ended June 30, 1995. The remaining eight
installments in the aggregate principal amount of $8.47 million each will be
due on the last day of each calendar quarter commencing with the quarter
ending June 30, 2000. The final installments under the Tranche A Facility and
the Tranche B Facility will be payable on March 31, 2000 and March 31, 2002,
respectively.
The Revolving Credit Facility is limited to the lesser of $325.0 million or
a borrowing base equal to: 80% of Eligible Receivables (as defined); plus 50%
of Eligible Inventory (as defined) (provided that no more than 60% or, during
certain periods 65%, of the Borrowing Base may be attributable to Eligible
Inventory); plus the aggregate amount of cover for Letter of Credit
Liabilities (as defined). The Revolving Credit Facility provides that, for
each fiscal year commencing January 1, 1996, the Company must repay revolving
loans so that for a consecutive period of 30 consecutive days in each fiscal
year the aggregate revolving loans do not exceed $200.0 million. The Revolving
Credit Facility matures on March 31, 2000. The Revolving Credit Facility was
amended as of December 21, 1995 to increase the amount available thereunder
from $300.0 million to an aggregate of $325.0 million. As of December 31,
1995, $87.4 million remained available for borrowing under the Revolving
Credit Facility.
The Term Loan Facilities and the Revolving Credit Facility are secured by
first priority pledges of the stock of USSC, all of the stock of the domestic
direct and indirect subsidiaries of USSC, certain of the stock of all of the
foreign direct and indirect subsidiaries of USSC and security interests in,
and liens upon, all accounts receivable, inventory, contract rights and other
certain personal and certain real property of USSC and its domestic
subsidiaries.
The Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of this
type. As of January 31, 1996, the Company was in compliance in all material
respects with all covenants contained in the Credit Agreement.
The Credit Facilities permit capital expenditures for the Company of up to
$12.0 million for its fiscal year ending December 31, 1996, plus $4.1 million
of unused capital expenditures and approximately $3.1 million of unused excess
cash flow (as defined) for the Company's fiscal year ended December 31, 1995.
Capital expenditures will be financed from internally generated funds and
available borrowings under the Credit Facilities. The Company expects gross
capital expenditures to be approximately $10 to $12 million in 1996.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the Credit
Facilities, together with the net proceeds to be received by the Company from
the Offering, will be sufficient to meet the short-term (less than twelve
months) and long-term operating and capital needs of the Company as well as to
service its debt in accordance with its terms. There is, however, no assurance
that this will be accomplished.
On July 28, 1995, the Company effected the Series B Repurchase. Quarterly
dividends currently accrue on the Company's two outstanding series of
Preferred Stock at the rate of 10.0% for Series A Preferred Stock and 9.0% for
Series C Preferred Stock per annum (or, when dividends are not paid in cash,
13.0% for Series A Preferred Stock and 10.0% for Series C Preferred Stock),
and may be paid in the form of additional shares of the respective series of
preferred stock (except, in the case of the Series C Preferred Stock, for
dividends payable after January 31, 1999). All shares of Preferred Stock will
be redeemed by the Company with a portion of the proceeds of the Offering. See
"Use of Proceeds."
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<PAGE>
The Company is a holding company and, as a result, the Company's primary
source of funds is cash generated from operating activities of its operating
subsidiary, USSC, and bank borrowings by USSC. The Credit Agreement and the
Indenture contain restrictions on the ability of USSC to transfer cash to the
Company. Associated was a holding company and, as a result, Associated's
primary source of funds was cash generated from operating activities of its
operating subsidiary, ASI, and bank borrowings by ASI. The Associated credit
agreement in effect prior to the Merger contained restrictions on the ability
of ASI to transfer cash to Associated. The statement of cash flows for
Associated and the Company for the periods indicated is summarized below:
<TABLE>
<CAPTION>
ASSOCIATED THE COMPANY
-------------------- -----------
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Cash Provided by (Used in) Operating
Activities.............................. $ (12,084) $ 14,088 $ 26,329
Net Cash Used in Investing Activities.... (3,276) (554) (266,291)
Net Cash Provided by (Used in) Financing
Activities.............................. 8,095 (12,676) 249,773
</TABLE>
Net cash provided by operating activities for 1995 was $26.3 million. The
increase in 1995 was due to the Acquisition. Net cash provided by operating
activities for 1994 increased to $14.1 million from a use of cash of $12.1
million in 1993. This increase in 1994 was principally due to an increase in
accounts payable, a lesser increase in inventory levels and an increase in net
income. Associated used $12.1 million of cash in operations in 1993 relating
to an increase in inventory in 1993 due to a full year of Associated's
operations, additional inventory to support the Lynn-Edwards Acquisition and
an overall increase in sales volume. During the eleven months ended December
31, 1992, Associated deferred payment on purchases or services rendered in the
amount of $9.0 million pursuant to a transition services agreement entered
into in connection with the Associated Transaction. During 1994, Associated
settled its obligations under such transition services agreement by issuing
58,653 pre-Merger shares of Associated common stock.
Net cash used in investing activities in 1995 was $266.3 million, reflecting
the Acquisition. Net cash used in investing activities in 1994 was $0.6
million, reflecting capital expenditures necessary to maintain existing
assets. Net cash used in investing activities in 1993 was $3.3 million
stemming mostly from capital expenditures in connection with the opening of
the new Baltimore facility and those expenditures related to the assimilation
of the Lynn-Edwards Acquisition.
Net cash provided by financing activities in 1995 was $249.8 million,
reflecting the additional debt needed to consummate the Acquisition. Net cash
used in financing activities in 1994 was $12.7 million, which was attributable
to the pay down of debt. Net cash provided by financing activities in 1993 was
$8.1 million due to $11.5 million of borrowings and an equipment loan
partially offset by scheduled principal payments of $3.4 million.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES OF UNITED
United was a holding company and, as a result, United's primary source of
funds was cash generated from operating activities of its operating
subsidiary, USSC, and bank borrowings by USSC. United's statement of cash
flows for the periods indicated is summarized below:
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
--------------------
YEAR ENDED AUGUST 31,
------------------------- MARCH 31, MARCH 30,
1992 1993 1994 1994 1995
------- ------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used
in) Operating
Activities............... $(2,538) $36,002 $ 8,108 $(55,757) $(47,533)
Net Cash Used in Investing
Activities............... (45,629) (29,958) (10,499) (4,287) (7,764)
Net Cash Provided by (Used
in) Financing
Activities............... 48,542 (10,097) 1,422 62,514 62,912
</TABLE>
37
<PAGE>
Operating Activities. The decrease in net cash used in operating activities
from $55.8 million in the seven months ended March 31, 1994 to $47.5 million
in the seven months ended March 30, 1995 was primarily due to increases in
accounts payable and accrued liabilities partially offset by an increase to
inventory. The decrease in net cash provided by operations from $36.0 million
in fiscal 1993 to $8.1 million in fiscal 1994 was primarily attributable to a
decrease in accounts payable and accrued liabilities as well as lower net
income in 1994, partially offset by a decrease in accounts receivable and
inventory. The substantial increase in net cash provided by operations from a
use of cash of $2.5 million in fiscal 1992 to $36.0 million of cash being
provided in fiscal 1993 was primarily the result of an increase in accrued
liabilities, net income, accounts payable, deferred taxes and inventory,
partially offset by an increase in accounts receivable.
Investing Activities. The increase in net cash used in investing activities
from $4.3 million in the seven months ended March 31, 1994 to $7.8 million in
the seven months ended March 30, 1995 was primarily due to the acquisition of
property, plants and equipment. Net cash used in investing activities declined
from $30.0 million in fiscal 1993 to $10.5 million in fiscal 1994, as a result
of a commensurate decline in capital expenditures. The $30.0 million of
capital expenditures in fiscal 1993 includes the purchase of $16.0 million of
computer and related hardware. Net cash used in investing activities in fiscal
1992 included $37.3 million of cash as part of the SDC Acquisition. Net
capital expenditures in fiscal 1994, 1993 and 1992 were $10.5 million, $30.0
million and $8.2 million, respectively.
Financing Activities. The increase in net cash provided by financing
activities from $62.5 million in the seven months ended March 31, 1994 to
$62.9 million in the seven months ended March 30, 1995 was primarily due to
increases in short-term debt partially offset by an increase in payments on
long-term obligations. Net cash provided by financing activities in fiscal
1992 primarily reflects additional debt to finance the SDC Acquisition. Net
cash of $1.4 million was provided by financing activities in fiscal 1994 as
compared to a net use of cash in financing activities in fiscal 1993 of $10.1
million.
INFLATION AND CHANGING PRICES
Inflation during the last three years has not been a significant factor to
operations. The Company's business is not generally governed by contracts that
establish prices substantially in advance of the receipt of goods or services.
As suppliers increase their prices for merchandise to the Company, the Company
generally seeks to increase its prices to its customers. Significant deflation
may, however, adversely affect the Company's profitability. See "Risk
Factors--Effect of Changes in the Economy."
SEASONALITY
Although the Company's sales are generally relatively level throughout the
year, the Company's sales vary to the extent of seasonal differences in the
buying patterns of end-users who purchase office products. In particular, the
Company's sales are generally higher than average during the months of January
through March when many businesses begin operating under new annual budgets.
The Company experiences significant seasonality in terms of its working
capital needs, with highest requirements in December through February
reflecting a build up in inventory prior to and during the peak sales period.
The Company believes that its current availability under the Revolving Credit
Facility is sufficient to satisfy such seasonal capital needs for the
foreseeable future.
38
<PAGE>
BUSINESS
OVERVIEW
The Company is the largest general line business products wholesaler in the
United States, with 1995 pro forma net sales of $2.2 billion. The Company
stocks and distributes the broadest and deepest product line in the industry,
consisting of over 25,000 items, including traditional office supplies, office
furniture and desk accessories, computer supplies, peripherals and hardware
and facilities management supplies. The Company markets its products primarily
through catalogs with a total annual circulation of more than 7.5 million
copies, including a general line office products catalog that has more than
900 pages. The Company supplements its general line catalog with several
specialized catalogs and related marketing programs designed for the office
products, office furniture, computer products, facilities management supplies
and certain other specialty markets. The Company purchases its products from
more than 450 manufacturers who rely on it to inventory, market and distribute
their products efficiently to a broad range of approximately 12,000 resellers,
consisting primarily of office products dealers (including commercial,
contract and retail), computer resellers, office furniture dealers, office
products superstores, mail order companies and mass merchandisers.
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
Largest Office Products Wholesaler. As the largest national office products
wholesaler in the United States, the Company has substantial purchasing power
and can realize significant economies of scale. The Company's size and
nationwide service capabilities also enable it to (i) service the demands of
large national reseller accounts, (ii) seek cost-effective sourcing of
products in the United States and, in many cases, worldwide and (iii) mitigate
the effect of local or regional economic downturns. The Company obtains
products from over 450 manufacturers, for many of whom the Company believes it
is a very significant customer. In addition, the Company's size allows it to
maintain a broad and deep product selection reflected by its more than $380
million (as of December 31, 1995) inventory investment. This permits its
resellers to hold less inventory while still providing end-users with a high
level of service. The Company believes that it publishes the largest number of
catalogs in the office products industry with a wide array of product catalogs
with a total annual circulation of more than 7.5 million copies, including a
general line office products catalog that has more than 900 pages. Most of
these product catalogs are custom imprinted with particular resellers' names,
which enables the reseller to distribute the catalogs directly to its
customers and garner repeat orders.
High Level of Customer Service. The Company provides its customers with a
broad product selection, a high degree of product availability, prompt
distribution and comprehensive customer assistance. The Company seeks to base
its business decisions on an "If I were the customer . . ." approach. With
over 25,000 products being offered, the Company believes that it has the
broadest selection of office products available in the industry, enabling
resellers in most cases to do "one-stop shopping" for their office products
needs. The Company's broad product selection, inventory procurement and
management procedures, substantial inventory investment and advanced
distribution facilities enable it to achieve a high order fill rate. The
Company's integrated management information system has been designed, in part,
to enable management to monitor five key measures of customer satisfaction:
order fill rate, order accuracy, inventory accuracy, on-time delivery and
accessibility of the Company's personnel to customers. The Company makes
substantially all of its orders available nationwide by next day delivery to
assist resellers in successfully meeting end-users' demands. In addition, the
Company provides its customers with a variety of support services such as its
"wrap and label" program which offers resellers the option to receive orders
packaged in accordance with the specifications of particular end-users. This
service allows resellers to lower their inventory investment and minimize
double handling costs. The Company also offers an office furniture set-up
program in which the Company delivers furniture directly to end-users on the
reseller's behalf, thereby enabling the reseller to offer a wide range of
furniture on a cost-effective basis.
39
<PAGE>
The Company also provides its resellers a variety of electronic order entry
systems, pricing software programs and business management and marketing
training programs. For instance, the Company maintains electronic data
interchange ("EDI") systems that link the Company to selected resellers, and
interactive order systems that link the Company to selected resellers and such
resellers to their ultimate end-users. The Company's integrated management
information system enables dealers to manage critical business functions
including order entry, purchasing, pricing, accounts receivable, accounts
payable and inventory control. The Company's matrix pricing software program
permits resellers to identify the optimum pricing mix between high and low
margin items, thereby enabling resellers to enhance their gross margins. The
Company's specialized business management programs enhance particular
resellers' ability to increase profits by providing a higher level of service
to the end-user while the Company's marketing training programs are designed
to instruct resellers on how to market to the end-user based upon a total cost
of procurement approach rather than focusing on specific product prices. The
Company continually reviews additional services that might be helpful to its
customers.
Diverse Customer Base. With more than 12,000 resellers as customers, the
Company believes that it has the broadest customer base in the industry. The
Company's customers include office products dealers (including commercial,
contract and retail), computer resellers, office furniture dealers, office
products superstores, mail order companies and mass merchandisers. No single
reseller accounted for more than 5% of the Company's pro forma net sales in
1995. The Company plans to continue to expand its customer base by (i)
maintaining and building its business with commercial dealers and contract
stationers (including the contract stationer divisions of national office
products superstores) who, through consolidation, have continued to increase
in size, (ii) developing additional programs for marketing and buying groups
that represent groups of dealers and (iii) continuing to focus on niche
markets, including specialty dealers (e.g., furniture, computer and sanitary
supply distributors).
Advanced Distribution Capabilities. The Company's network of 43 distribution
centers located throughout the United States includes more than seven million
square feet of warehouse space and employs advanced technology to distribute
products to customers efficiently. For example, as described above, the
Company has developed EDI capabilities and interactive order systems that link
the Company to selected resellers and such resellers to the ultimate end-user.
In 1995, approximately 90% of all of the Company's orders were received
electronically. The Company also uses a proprietary computer-based system to
enhance order fill rates by automatically searching alternative distribution
centers for products and routing those products for shipment.
Growth of Private Brand Products. The Company offers a line of approximately
1,750 private brand products, including approximately 1,200 products under the
Universal(TM) brand name, which the Company believes is the broadest private
brand product offering in the industry. Private brand products represented
approximately 10% of the Company's pro forma net sales in 1995. The Company
believes its private brand products offer significant benefits both to the
reseller, by providing an alternative to branded products that offers similar
quality at a moderate price, and to many manufacturers, by enabling the
manufacturer to increase sales without diluting its brand name pricing
structure. To further develop the Universal(TM) brand, the Company operates a
trading office in Hong Kong to facilitate the global purchasing of products.
Experienced Management Team. The Company's senior management team comprises
individuals who combine many years of experience in the office products and
distribution industries. Management also has had significant experience in
integrating companies in the office products industry through the SDC
Acquisition by United and the Lynn-Edwards Acquisition by Associated, each in
1992. The Company believes that such experience has contributed to the
successful combination of Associated and United into the Company. See "--
Consolidation Plan and Benefits of the Merger."
40
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to improve its competitive position and
increase its revenues and profitability by (i) maintaining a high level of
customer service, (ii) increasing purchases from existing customers, (iii)
broadening the Company's product line and customer base, (iv) emphasizing cost
effective operations and (v) increasing the overall efficiency of the
Company's operations and systems.
Maintaining a High Level of Customer Service. Customer service has been an
important factor in the Company's business strategy in the increasingly
competitive office products industry. The Company intends to continue its
efforts to differentiate itself from competitive distribution models by
providing its customers with a broad product selection, a high degree of
product availability, prompt distribution and a variety of customer services.
The Company plans to accomplish these goals by continuing to (i) offer one of
the broadest product selections available in the industry, (ii) achieve high
order fill rates to assure availability of product to its resellers, (iii)
offer next day delivery on substantially all of its orders and (iv) assist its
resellers by offering electronic order entry systems, pricing software
programs and business management and marketing training programs, as well as
continually reviewing additional support services which might be helpful to
resellers. In addition, because resellers sell directly to end-users, the
Company has also focused on the needs of the end-user by designing
informative, user-friendly catalogs and marketing programs to assist the
reseller's sales efforts.
Increasing Purchases from Existing Customers. The Company believes that
there is an opportunity to capture a portion of the sizeable percentage of
total shipments by office products manufacturers currently sold directly to
resellers or end-users without wholesaler involvement. As resellers
increasingly focus on asset management and return on investment, they
increasingly rely on the Company's inventory and service levels to continue to
meet end-user requirements for a high order fill rate on an overnight basis.
The Company believes that this focus on inventory minimization will continue
in the foreseeable future, which creates an opportunity to capture a greater
portion of shipments by office products manufacturers.
Broadening Product Line and Customer Base. The Company's product line
expansion plans include developing its ancillary product categories, such as
office furniture, computer supplies and peripherals and facilities management
supplies. The Company believes that its ancillary product categories allow it
to gain incremental sales from its existing resellers and thereby strengthen
its position with resellers as a "one-stop shop." In addition, ancillary
products allow the Company to enter additional distribution channels and, by
adding new types of resellers beyond general line office products dealers, to
expand its customer base. At the same time, the Company intends to continue to
refine its existing product line offering to eliminate certain redundant items
while preserving the diversity of such offering. The Company also plans to
continue to expand its customer base by maintaining and building its business
with commercial dealers, contract stationers (including the contract stationer
divisions of national office products superstores) and mass merchandisers, and
by developing additional programs for marketing and buying groups.
Emphasizing Cost Effective Operations. The Company intends to continue to
seek cost reductions at both the corporate and operating levels in order to
continue to operate in a cost effective manner. Examples of such cost
reductions include (i) reduced merchandise procurement costs through
manufacturers' incentives, (ii) continued efforts to increase inventory
turnover without lowering service levels, (iii) reduced payroll and benefits
costs through improved labor allocation, (iv) reduced freight costs through
ongoing refinements to delivery systems, (v) increased sourcing of certain
products off-shore, (vi) streamlining of work practices and procedures, and
(vii) increased absorption of fixed costs over an increasing sales base.
Increasing the Efficiency of Operations and Systems. The Company intends to
continue to enhance its systems and streamline its operations. These
enhancements include internal systems development as well as customer systems
interfaces. The Company is working to make its systems more user friendly from
both a customer and internal standpoint. In addition, increased electronic
linkages for transactions with customers and suppliers enable both the Company
and its business partners to reduce their costs and execute transactions
faster and more accurately. As the Company's proprietary electronic linkages
become more flexible and easier to use, it enables the Company to garner a
growing percentage of its customers' business.
41
<PAGE>
CONSOLIDATION PLAN AND BENEFITS OF THE MERGER
Prior to completing the Merger, management developed a consolidation plan
that represented a detailed program to achieve operating cost savings,
including closing redundant distribution centers, as well as general and
administrative and sales force consolidations. At the time of the Merger,
management estimated that these synergies would result in annualized cost
savings of approximately $26.0 million. The consolidation plan is expected to
be substantially completed by March 30, 1996, and management believes that the
full $26.0 million of annualized savings will be realized. Management expects
that such savings will result from vendor allowances, distribution center
consolidations, corporate overhead reduction, sales force consolidation, and
computer services and telecommunications cost reductions.
THE OFFICE PRODUCTS INDUSTRY
The Company operates in a large, fragmented and consolidating industry. The
office products distribution industry consists of several different channels
by which office products are distributed from the manufacturer to the end-
user, including resellers buying through wholesalers and resellers purchasing
directly from manufacturers. Due to consolidation, the distinct boundaries
that once clearly defined distribution channels have become blurred. The
industry today consists principally of manufacturers, wholesalers, office
products dealers (including commercial, contract and retail), computer
resellers, office furniture dealers, office products superstores, mail order
companies and mass merchandisers.
Office Products Wholesalers. The wholesale segment of the office products
industry consists of national, specialty and regional wholesalers. The
Company, which offers 25,000 items, and S.P. Richards (a division of Genuine
Parts), which has historically offered 18,000 items, are the only two national
office products wholesalers, and compete with one another on the basis of
breadth and depth of product offering, price and the provision of extensive
marketing and distribution services for their reseller customers. Specialty
office products wholesalers focus on limited product lines such as computer
supplies, legal supplies, writing instruments, office furniture or facilities
management supplies. Regional office products wholesalers generally offer a
broad range of office products and marketing services on a smaller and more
limited scale and within a much more limited geographic area than national
office products wholesalers.
For manufacturers, the wholesaler provides broad geographic market exposure
for a wide range of their products, assumes credit risk, facilitates the
introduction of new products into the marketplace by means of marketing
materials, carries inventory and processes smaller orders than manufacturers
can economically service. Wholesalers serve a fulfillment function, as a
sizable percentage of orders received from wholesalers are pre-sold by their
customers to end-users. Wholesalers also provide resellers with prompt service
and delivery, a source for placing orders for small quantities and the
opportunity to obtain credit, minimize investment in inventory and access
marketing resources and technical support. In order for resellers to perform
these functions themselves, a source of significant capital is generally
required for both investment in systems and additional distribution
facilities, as well as for the working capital requirements needed to
establish appropriate inventory levels.
Office Products Dealers. Office products dealers include commercial dealers,
contract stationers (e.g., Boise Cascade Office Products, BT Office Products
International, Corporate Express, U.S. Office Products and the contract
stationer divisions of national office product superstores) and retail
dealers. The most significant reseller channel for office product distribution
continues to be commercial dealers and contract stationers who serve medium
and large-sized business customers through the use of catalogs and sales
forces. These resellers typically stock products in distribution centers and
deliver them to customers on a next-day basis against orders received
electronically, by telephone or fax, or taken by a salesperson on the
customer's premises. Major commercial dealers and contract stationers purchase
in large quantities directly from manufacturers, rely upon wholesalers for
inventory backup and product breadth and offer significant volume-related
discounts and a high level of service to their customers.
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Retail office products dealers typically serve small- and medium-sized
businesses, home offices and individuals. For many years, retail dealers
consisted principally of a large number of independent dealers, operating one
or a few relatively small stores in a single local area. During the last
decade, however, the office products retail market has undergone significant
change, including the elimination or consolidation of many retail dealers
(including most traditional stationery stores), as a result of the emergence
and rapid growth of discount office supply retailers, which are known as
superstores. To compete with the lower prices generally offered on commodity
products by superstores, many independent retail dealers have joined marketing
or buying groups to negotiate on a collective basis directly with
manufacturers and wholesalers, or have altered their business model to adapt
to lower gross margins and reduce their operating expenses.
Computer Resellers. Because computer supplies are now widely used in
offices, more office products are computer related and, therefore, are sold
through computer resellers (e.g., Computer Discount Warehouse, CompUSA). In
addition, most computer resellers now offer a limited selection of more
traditional office products.
Office Furniture Dealers. Office furniture is a major product category
within the office products industry. Although nearly all general-line office
products dealers sell office furniture, about 75% of all new office furniture
is sold through office furniture specialists.
Office Products Superstores. Office products superstores (e.g., Office
Depot, OfficeMax, Staples) employ a warehouse format, are typically open for
business seven days a week, stock a select number of items in inventory
(typically in the range of 6,000 products), purchase in volume and typically
take delivery at their stores direct from manufacturers and offer many of
their products at discounts from manufacturers' list prices. Virtually every
major metropolitan area in the United States is now served by at least one,
and most by several, office products superstores, and the three largest
superstore companies operate and advertise nationally. Office products
superstores may also purchase from wholesalers for "fill-in" needs and to fill
customer orders from special wholesaler catalogs made available to end-users
in certain superstores when the superstore does not carry an item. This allows
the office products superstores to expand the range of products offered
without increasing their on hand inventory levels.
Mail Order Companies. Mail order marketers of office products (e.g., Quill,
Reliable Office Products, Viking Office Products) typically serve small and
medium-sized business customers and home offices. While their procurement and
order fulfillment functions are similar to contract stationers, they rely
exclusively on catalogs and other database marketing programs, rather than
direct sales forces, to sell their product offerings. Their operations are
based upon large, proprietary customer data bases and sophisticated
circulation strategies drawn from end-user marketing programs. Mail order
companies purchase from both wholesalers and manufacturers.
Mass Merchandisers. The mass market retailers (e.g., Kmart, Price/Costco,
Sears, Target, Wal-Mart Stores/Sam's Club) have recently taken a growing
interest in office products. Office supplies is one of many categories of
products typically available in these stores. Certain of these retailers rely
on wholesalers to fulfill a portion of their customers' orders.
PRODUCTS
The Company markets a broad array of products, which include traditional
office products; computers and related supplies, office furniture; and other
products (including facilities management supplies). As part of the Company's
business strategy to acquire incremental sales and increase market share
through ancillary product offerings, the Company began to focus on niche
product segments in 1991 and has expanded steadily upon this concept since
then. The Company's product offerings, composed of more than 25,000 items, may
be divided into four primary categories:
Traditional Office Products. The Company's core business continues to be
traditional office products, which includes both brand-name products and the
Company's private brand products. Traditional office products include writing
instruments, paper products, organizers and calendars and various office
accessories. The
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Company's traditional office product offerings are quite deep, including, for
example, more than 1,000 different stockkeeping units of ring binders and 800
types of file folders. Traditional office products constituted the majority of
the Company's 1995 pro forma net sales.
Computers and Related Supplies. The Company sells computer supplies,
peripherals and hardware with major brand names to computer resellers and
office products dealers. Such office technology constituted approximately 27%
of the Company's 1995 pro forma net sales.
Office Furniture. The Company's sale of office furniture such as leather
chairs, wooden and steel desks and computer furniture has enabled it to become
the nation's largest office furniture wholesaler, with the Company currently
offering nearly 3,000 furniture items from 70 different manufacturers. Office
furniture constituted approximately 15% of the Company's 1995 pro forma net
sales. The Company's "Pro-Image" program enables resellers with no previous
expertise to provide high-end furniture and office design services to end-
users. The Company offers national delivery and product "set-up" capabilities
to office products dealers as well as to attract new furniture dealers.
Other Products. The Company's newest product categories encompass the
facilities management supplies market, which includes janitorial and
sanitation supplies, specialty mailroom and warehouse items, kitchen and
cafeteria items, first aid products and ergonomic products designed to enhance
worker productivity, comfort and safety. Another one of the Company's niche
markets is business presentation products, including audio visual equipment,
flip charts and dry erase boards. Additionally, the Company offers its
"Signature Image" program, which provides resellers with access into the
advertising specialties market (such as imprinted and logo items).
CUSTOMERS
The Company sells principally to resellers of office products, consisting
primarily of commercial dealers and contract stationers, retail dealers,
superstores, mail order companies and mass merchandisers. In addition, the
Company sells to office furniture dealers, computer resellers and janitorial
and sanitary supply distributors. No single reseller accounted for more than
5% of the Company's pro forma net sales in 1995.
Commercial dealers and contract stationers are the most significant reseller
channel for office products distribution and typically serve large businesses,
institutions and government agencies. Through industry consolidation, the
number of such dealers has decreased, with the remaining dealers getting
larger. Net sales to these commercial dealers and contract stationers as a
group are growing rapidly.
The number of retail dealers has been declining for some time as the result
of individual retail dealers' inability to compete successfully with the
growing number of superstores and, more recently, as a result of dealerships
being acquired and brought under an umbrella of common ownership. However,
many retail office products dealers adapted to this highly competitive
environment. Many retail dealers, commercial dealers and contract stationers
have joined forces in marketing or buying groups in order to increase
purchasing leverage. The Company believes it is the leading wholesale source
for many of these groups, providing not only merchandise but also special
programs that enable these dealers to take advantage of their combined
strengths.
While the Company maintains and builds its business with commercial dealers,
contract stationers (including the contract stationer divisions of national
office product superstores) and retail dealers, it has also initiated
relationships with most major office products superstore chains. In addition,
the Company supplies inventory and other fulfillment services to the retail
operations of certain superstores, including their direct-to-business delivery
programs.
MARKETING AND CUSTOMER SUPPORT
Substantially all of the Company's 25,000 products are sold through its
comprehensive office products catalogs and flyers. These materials include
general line catalogs, promotional pieces and specialty catalogs for the
office products, office furniture, facilities management supplies and other
specialty markets. The Company
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produces numerous catalogs for placement with dealers' end-user customers,
including the following annual catalogs: General Line Catalog; Office
Furniture Catalog featuring furniture and accessories; Universal Catalog
promoting the Company's private-brand merchandise; Computer Products Catalog
offering hardware, supplies, accessories and furniture; Workplace Solutions
Catalog featuring janitorial, maintenance, food service, warehouse and
mailroom supplies; Business Communications Catalog, featuring products and
supplies used for meetings and presentations; and separate Legal and
Healthcare Catalogs offering office products used within such professions. In
addition, the Company produces the following quarterly promotional catalogs:
Action 2000 and Office Saver, each featuring over 1,000 high-volume commodity
items, and Computer Concepts, featuring computer supplies, peripherals,
accessories and furniture. The Company also produces separate 8-page quarterly
flyers covering general office supplies, office furniture and Universal(TM)
products. Because commercial dealers, contract stationers and retail dealers
typically distribute only one wholesaler's catalogs in order to streamline and
concentrate order entry, the Company attempts to maximize the distribution of
its catalogs by offering advertising credits to resellers, which can be used
to offset the cost of catalogs.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 160 salespersons.
The sales force is responsible for sales and service to resellers with which
the Company has an existing relationship, as well as for establishing new
relationships with additional resellers. The Company supplements the efforts
of its sales force through telemarketing.
The Company concentrates its marketing efforts on providing value-added
services to resellers. The Company distributes products that are generally
available at similar prices from multiple sources, and most of its customers
purchase their products from more than one source. As a result, the Company
seeks to differentiate itself from its competitors through a broader product
offering, a higher degree of product availability, a variety of high quality
customer services and prompt distribution capabilities. In addition to
emphasizing its broad product line, extensive inventory, computer integration
and national distribution capabilities, the Company's marketing programs have
relied upon two additional major components. First, the Company produces an
extensive array of catalogs for commercial dealers, contract stationers and
retail dealers that are usually custom imprinted with each reseller's name and
sold to these resellers who, in turn, distribute the catalogs to their
customers. Second, the Company provides its resellers with a variety of dealer
support and marketing services, including business management systems,
promotional programs and pricing services. These services are designed to aid
the reseller in differentiating itself from its competitors by addressing the
steps in the end-user's procurement process.
To assist its resellers with pricing, the Company offers a matrix pricing
software program. Traditionally, many resellers have priced products on a
discount from the manufacturer's suggested retail price, but recently pricing
has shifted toward a net pricing approach, whereby the reseller sells certain
products at significant discounts, assuming that it can recapture the
discounts through the sale of other higher margin products. The Company's
matrix pricing program provides resellers with a resource to assist them in
identifying the optimum pricing mix between high and low margin items and, as
a result, enables resellers to manage their gross margins.
The Company offers to its resellers a variety of electronic order entry
systems and business management and marketing programs which enhance the
resellers' ability to manage their businesses profitably. For instance, the
Company maintains EDI systems that link the Company to selected resellers, and
interactive order systems that link the Company to selected resellers and such
resellers to the ultimate end-user. In addition, the Company's electronic
order entry systems allow the reseller to seamlessly forward its customers'
orders to the Company, resulting in the delivery of pre-sold products to the
reseller or directly to its customers. The Company estimates that in 1995,
approximately 90% of its orders were received electronically.
DISTRIBUTION
At the time of the Merger, certain of the Company's 47 regional distribution
centers were redundant and, accordingly, management determined to close eight
of such facilities. To date, four redundant facilities have been closed and
four remaining facilities are expected to be closed in early Spring of 1996.
As a result, the Company
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will have a network of 40 regional distribution centers (including one
expected to open in Pittsburgh, Pennsylvania in the first quarter of 1996)
located in 36 metropolitan areas in 25 states, most of which will carry the
Company's full line of inventory. In addition, the Company has achieved cost
savings from the more efficient post-Merger operation of two distribution
centers in each of four market areas, where the size of the Company's sales
base requires multiple facilities.
The Company supplements its regional distribution centers with 26 local
distribution points throughout the United States that serve as reshipment
points for orders filled at the regional distribution centers. The Company
utilizes more than 250 trucks, substantially all of which are contracted for
by the Company, to enable direct delivery from the regional distribution
centers and local distribution points to resellers.
The Company's distribution capabilities are augmented by its proprietary,
computer-driven system. If a reseller places an order for an item that is out
of stock at the Company location which usually serves the particular reseller,
the Company's system will automatically search for the item at alternative
distribution centers. If the item is available at an alternative location, the
system will automatically forward the order to that alternate location, which
will then coordinate shipping with the primary facility and, for the majority
of resellers, provide a single on-time delivery. The system effectively
provides the Company with added inventory support, which enables it to provide
higher service levels to the reseller, to reduce back orders and to minimize
time spent searching for merchandise substitutes, all of which contribute to
the Company's high order fill rate and efficient levels of inventory balances.
See "Risk Factors--Service Interruptions."
Another service offered by the Company to resellers is its "wrap and label"
program, which allows resellers the option to receive orders in accordance
with the specifications of particular end-users. For example, when a reseller
receives orders from a number of separate end-users, the Company groups and
wraps the items separately by end-user so that the reseller need only deliver
the package. The "wrap and label" program is attractive to resellers because
it eliminates the need to break down case shipments and to repackage the
orders before delivering them to the end-user.
PURCHASING AND MERCHANDISING
As the largest national office products wholesaler in the United States, the
Company has substantial purchasing power and can realize significant economies
of scale. See "--Competitive Strengths--Largest Office Product Wholesaler."
The Company obtains products from over 450 manufacturers, for many of whom the
Company believes that it is a significant customer. In 1995 on a pro forma
basis, no supplier accounted for more than 11% of the Company's aggregate
purchases. As a centralized corporate function, the Company's merchandising
department interviews and selects suppliers and products for inclusion in the
catalogs. Selection is based upon end-user acceptance and demand for the
product and the manufacturer's total service, price and product quality
offering.
COMPETITION
The Company competes with office products manufacturers and with other
national, regional and specialty wholesalers of office products, office
furniture, computers and related items. Competition between the Company and
manufacturers is based primarily upon net pricing, minimum order quantity and
product availability. Although manufacturers may provide lower prices to
resellers than the Company does, the Company's marketing and catalog programs,
combined with speed of delivery and its ability to offer resellers a broad
line of business products from multiple manufacturers on a "one-stop shop"
basis and with lower minimum order quantities, are important factors in
enabling the Company to compete effectively. See "--Marketing and Customer
Support" and "--Distribution." Manufacturers typically sell their products
through a variety of distribution channels, including wholesalers and
resellers.
Competition between the Company and other wholesalers is based primarily on
net pricing to resellers, breadth of product lines, availability of products,
speed of delivery to resellers, order fill rates and the quality of
46
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its marketing and other services. The Company believes it is competitive in
each of these areas. Most wholesale distributors of office products conduct
operations regionally and locally, sometimes with limited product lines such
as writing instruments or computer products. Only one other national
wholesaler carries a general line of office products.
Consolidation has occurred in recent years throughout all levels of the
office products industry. Consolidation of commercial dealers and contract
stationers has resulted in an increased ability of those resellers to buy
goods directly from manufacturers. In addition, over the last decade, office
products superstores (which largely buy directly from manufacturers) have
entered virtually every major metropolitan market.
Increased competition in the office products industry, together with
increased advertising, has heightened price awareness among end-users. As a
result, purchasers of commodity type office products have become extremely
price sensitive, and therefore the Company has increased its efforts to market
to resellers the continuing advantages of its competitive strengths (as
compared to those of manufacturers and other wholesalers), such as marketing
and catalog programs, speed of delivery, and the ability to offer resellers on
a "one-stop shop" basis a broad line of business products from multiple
manufacturers with lower minimum order quantities. In addition, such
heightened price awareness has led to margin pressure on commodity office
products. In the event that such trend continues, the Company's profit margins
could be adversely affected. See "Risk Factors--Competition."
EMPLOYEES
At December 31, 1995, the Company employed approximately 4,800 persons.
The Company considers its relationships with its employees to be good.
Approximately 900 of the shipping, warehouse and maintenance employees at
certain of the Chicago, Detroit, Philadelphia, Baltimore, Los Angeles,
Minneapolis and New York City facilities are covered by collective bargaining
agreements. The agreements expire at various times during the next three
years. See "Risk Factors--Service Interruptions."
LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course
of its business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
Executive Offices. The Company's office facility in Des Plaines, Illinois
has approximately 135,800 square feet of office and storage space. In
September 1993, approximately 47,000 square feet of office space located in
Mount Prospect, Illinois was leased by the Company. This lease expires in
1999, with an option to renew for two five-year terms.
Distribution Centers. The Company presently operates 43 distribution centers
in 24 states. Four of such centers are scheduled to close by early Spring of
1996, and one is scheduled to open in Pittsburgh, Pennsylvania
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during the first quarter of 1996. The Company also operates 26 local
distribution points. The following table sets forth information regarding the
principal leased and owned distribution centers.
<TABLE>
<CAPTION>
APPROXIMATE SQUARE FEET
METROPOLITAN ------------------------DATE OF LEASE
STATE CITY AREA SERVED OWNED LEASED EXPIRATION(1)
- ----- ------------------ --------------------- ----------- -------------------------
<S> <C> <C> <C> <C> <C>
Arizona................. Tempe Phoenix -- 110,000 3/31/01
California.............. City of Industry(2) Los Angeles 344,487 125,000 5/31/98
Sacramento(3) Sacramento -- 149,800 5/30/03
Sacramento Sacramento -- 267,284 7/31/08
Colorado................ Denver(4) Denver 104,244 -- --
Denver Denver -- 132,618 5/31/96
Florida................. Hialeah(1)(4) Miami -- 134,400 12/31/99
Jacksonville(2) Jacksonville 95,500 -- --
Tampa Tampa 128,000 -- --
Ft. Lauderdale Miami -- 151,500 7/01/03
Georgia................. Norcross Atlanta 287,700 -- --
Illinois................ Carol Stream Chicago -- 139,444 6/30/97
Forest Park Chicago 222,280 106,000 3/31/97
Greenville St. Louis 210,000 -- --
Indiana................. Indianapolis Indianapolis 128,000 -- --
Louisiana............... Harahan(1) New Orleans -- 39,385 11/20/96
Maryland................ Harmans(1)(2) Baltimore/Wash., D.C. 323,980 170,000 2/29/96
Massachusetts........... Woburn Boston 372,000 -- --
Michigan................ Livonia Detroit 229,700 33,500 11/22/96
Minnesota............... Brooklyn Park Minneapolis/St. Paul 127,480 -- --
Eagan Minneapolis/St. Paul 210,468 -- --
Missouri................ Kansas City Kansas City -- 77,244 5/31/00
New Jersey.............. Edison New York 257,579 133,177 6/30/98
Pennsauken Philadelphia 231,000 25,316 3/31/96
New York................ Coxsackie Albany 256,500 -- --
North Carolina.......... Charlotte Charlotte 104,000 -- --
Ohio.................... Cincinnati Cincinnati 108,778 -- --
Cincinnati(4) Cincinnati -- 81,400 6/30/96
Columbus Columbus -- 126,665 8/31/99
Twinsburg Cleveland 206,136 -- --
Valley View(4) Cleveland 233,508 -- --
Oklahoma................ Tulsa Tulsa 75,100 22,500 12/31/97
Oregon.................. Portland Portland -- 65,850 2/28/97
Pennsylvania............ Pittsburgh Pittsburgh -- 84,176 1/31/01
Tennessee............... Memphis Memphis -- 78,280 3/31/10
Nashville Nashville -- 66,000 4/30/98
Nashville Nashville -- 59,250 9/30/96
Texas................... Dallas(1)(2) Dallas/Fort Worth 223,230 159,873 12/31/98
Houston Houston -- 143,859 6/30/96
Lubbock Lubbock -- 58,725 4/27/98
San Antonio San Antonio -- 63,098 12/31/03
Utah.................... Salt Lake City Salt Lake City -- 89,324 9/30/99
Washington.............. Tukwila Seattle -- 144,031 3/31/97
Wisconsin............... Milwaukee Milwaukee 67,300 -- --
</TABLE>
- --------
(1) Except as specifically indicated, with respect to facilities subject to
more than one lease, references are to the earliest possible expiration
date.
(2) A portion of such property is subleased to a third party.
(3) A portion of the lease covering 30,947 square feet of such property
expires on March 31, 1996.
(4) The Company expects to close such facility by early Spring of 1996.
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The Company also owns 73,907 square feet of warehouse space in Fort Worth,
Texas, which it leases to a third party. In addition, the Company leases
approximately 84,000 square feet of warehouse space in Elkridge, Maryland and
81,726 square feet of warehouse space in Charlotte, North Carolina, both of
which have been vacated, and the Company intends to sublease such properties
(which leases expire on July 31, 2004 and
July 31, 1997, respectively) to third persons.
All property rights of the Company are pledged to secure its obligations
under the Credit Facilities. See "Description of Indebtedness--Credit
Facilities."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to those individuals who
are currently serving as members of the Board of Directors or as executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas W. Sturgess...... 45 Chairman of the Board, President and Chief Executive Officer
Daniel H. Bushell....... 44 Executive Vice President, Chief Financial Officer and Assistant Secretary
Michael D. Rowsey....... 43 Director and Executive Vice President
Steven R. Schwarz....... 42 Executive Vice President
Robert H. Cornell....... 56 Vice President, Human Resources
Otis H. Halleen......... 61 Vice President, Secretary and General Counsel
James A. Pribel......... 42 Treasurer
Ted S. Rzeszuto......... 43 Vice President and Controller
Albert Shaw............. 46 Vice President, Operations
Ergin Uskup............. 58 Vice President, Management Information Systems and Chief Information Officer
Gary G. Miller.......... 45 Director and Assistant Secretary
James T. Callier, Jr.... 60 Director
Daniel J. Good.......... 55 Director
Frederick B. Hegi, Jr... 52 Director
Jeffrey K. Hewson....... 52 Director
James A. Johnson........ 41 Director
Joel D. Spungin......... 58 Director
</TABLE>
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There is no family relationship between any
directors or executive officers of the Company. Officers of the Company are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
THOMAS W. STURGESS became President and Chief Executive Officer of the
Company on May 31, 1995 and Chairman of the Board of the Company upon
consummation of the Merger. Prior to the Merger, Mr. Sturgess served as
Chairman of the Board and Chief Executive Officer of Associated since January
1992 and had been Chairman of the Board and Chief Executive Officer of ASI
since December 1994. Since 1987, Mr. Sturgess has served as a general partner
of various Wingate entities, including the indirect general partner of each of
Wingate Partners and Wingate II. Mr. Sturgess has not actively participated in
the management of Wingate Partners or the Wingate entities since December 31,
1995. Mr. Sturgess currently serves as a non-executive Chairman of the Board
of Redman Industries, Inc., a manufactured housing producer ("Redman"), as
well as RBPI Holding Corporation, a manufacturer and distributor of aluminum
and vinyl windows. He is a director of Loomis Armored Inc., a provider of
armored car and related services ("Loomis"), and Century Products Company, a
manufacturer and distributor of baby seats and other juvenile products
("Century Products").
DANIEL H. BUSHELL became Executive Vice President and Chief Financial
Officer of the Company upon consummation of the Merger. Mr. Bushell has served
as Assistant Secretary of the Company since January 1996, and served as
Secretary of the Company from June 1995 through such date. Mr. Bushell also
served as Assistant Secretary of the Company from the consummation of the
Merger until June 1995. Prior thereto, Mr. Bushell had been Chief
Administrative and Chief Financial Officer of Associated and ASI since January
1992. From 1978 to January 1992, Mr. Bushell served in various capacities with
ACE Hardware Corporation, most recently as Vice President of Finance.
MICHAEL D. ROWSEY was elected to the Board of Directors upon consummation of
the Merger and became Executive Vice President of the Company upon
consummation of the Merger with primary responsibility for field operations.
Prior to the Merger, Mr. Rowsey had been a director of Associated since 1992
and President and Chief Operating Officer of Associated since January 1992.
From 1979 to January 1992, Mr. Rowsey served in various capacities with BCOP,
most recently as the North Regional Manager.
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<PAGE>
STEVEN R. SCHWARZ became Executive Vice President of the Company upon
consummation of the Merger with primary responsibility for marketing and
merchandising. Prior thereto, he was Senior Vice President, Marketing of
United since June 1992 and had previously been Senior Vice President, General
Manager, MicroUnited since 1990 and Vice President, General Manager,
MicroUnited since September 1989. He had held a staff position in the same
capacity since February 1987.
ROBERT H. CORNELL became Vice President, Human Resources of the Company upon
consummation of the Merger. Prior thereto, he was Vice President, Human
Resources of United since February 1988, and since 1987 had been Vice
President, Human Resources for USG Interiors Inc., a subsidiary of USG
Corporation.
OTIS H. HALLEEN became Vice President, Secretary and General Counsel of the
Company as of January 30, 1996. Since November 1, 1995 he has served as Vice
President, Secretary and General Counsel at USSC. From 1986 through March 1995
he had been Vice President, Secretary and General Counsel of United.
JAMES A. PRIBEL became Treasurer of the Company upon consummation of the
Merger. Prior thereto he was Treasurer of United since 1992. Prior thereto he
had been Assistant Treasurer of USSC since 1984 and had served in various
positions since joining USSC in 1978.
TED S. RZESZUTO became Vice President and Controller of the Company upon
consummation of the Merger. Prior thereto he was Vice President and Controller
of United since 1987 and Controller of United since 1985 and prior thereto had
served in various accounting positions since joining USSC in 1975.
ALBERT SHAW became Vice President, Operations of the Company shortly after
consummation of the Merger. Prior thereto, he was Vice President, Midwest
Region of USSC since March 1994. He had been a Vice President of USSC since
1992 and prior to that had served in various management positions since
joining USSC in 1974.
ERGIN USKUP became Vice President, Management Information Systems and Chief
Information Officer of the Company upon consummation of the Merger. Prior
thereto, he was Vice President, Management Information Systems and Chief
Information Officer of United since February 1994, and since 1987 had been
Vice President, Corporate Information Services for Baxter International Inc.,
a global manufacturer and distributor of health care products.
GARY G. MILLER was elected to the Board of Directors upon consummation of
the Merger and became Assistant Secretary of the Company on June 27, 1995. Mr.
Miller served as Vice President and Secretary of the Company from consummation
of the Merger until June 27, 1995. Prior thereto, Mr. Miller had been a
director of Associated since 1992 and Vice President and Secretary of
Associated since January 1992. Mr. Miller also currently serves as President
of Cumberland, a private investment firm which is located in Fort Worth,
Texas. In addition, from 1977 to December 1993, Mr. Miller served as Executive
Vice President, Chief Financial Officer and a director of AFG Industries,
Inc., and its parent company, Clarity Holdings Corp. He is Chairman of the
Board of both CFData Corp., a nationwide provider of check collection and
check verification services, and Fore Star Golf, Inc., which was formed in
1993 to own and operate golf course facilities.
JAMES T. CALLIER, JR. was elected to the Board of Directors upon
consummation of the Merger. Prior to the Merger, he had been a director of
Associated since 1992. Mr. Callier is a general partner of Wingate Partners,
and has served as President of Callier Consulting, Inc., an operating
management firm, since 1985. Mr. Callier currently serves as Chairman of the
Board of Century Products, as a director of Redman and Loomis and as an
advisory director of Wingate II.
DANIEL J. GOOD was elected to the Board of Directors upon consummation of
the Merger. Prior to the Merger, he had been a director of Associated since
1992. Mr. Good is Chairman of Good Capital Co., Inc. ("Good Capital"), an
investment firm in Lake Forest, Illinois. Until June 1995, Mr. Good was Vice
Chairman of Golden Cat Corp., the largest producer of cat litter in the United
States, and prior thereto he was Managing Director of Merchant Banking for
Shearson Lehman Bros. and President of A.G. Becker Paribas, Inc. Mr. Good
serves as a director of Supercuts, Inc.
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<PAGE>
FREDERICK B. HEGI, JR. was elected to the Board of Directors upon
consummation of the Merger. Prior to the Merger, he had been a director of
Associated since 1992. Mr. Hegi is a general partner of various Wingate
entities, including the indirect general partner of each of Wingate Partners
and Wingate II. Since May 1982, Mr. Hegi has served as President of Valley
View Capital Corporation, a private investment firm. Mr. Hegi also currently
serves as Chairman of the Board of Loomis Holding Corporation, the parent
corporation of Loomis, ITCO Holding Company, Inc., the parent corporation of
ITCO Tire Company, Tahoka First Bancorp, Inc., a bank holding company, and
Cedar Creek Bancshares, Inc., a bank holding company, and as a director of
Century Products, Lone Star Technologies, Inc., a diversified company engaged
in the manufacturing of steel pipe, Cattle Resources, Inc., a manufacturer of
animal feeds and operator of commercial cattle feedlots and various funds
managed by InterWest Partners.
JEFFREY K. HEWSON was elected to the Board of Directors in 1991. Mr. Hewson
served as President and Chief Executive Officer of the Company from
consummation of the Merger until May 31, 1995. Prior thereto, he was President
and Chief Operating Officer of United since April 1991. He had been Executive
Vice President of United since March 1990. Prior to that, he had been
President of ACCO International's U.S. Division since 1989 and President of
its Canadian Division since 1987. ACCO International is a manufacturer of
traditional office products and a subsidiary of American Brands, Inc., which
is a global consumer products holding company.
JAMES A. JOHNSON was elected to the Board of Directors upon consummation of
the Merger. Prior to the Merger, he had been a director of Associated since
1992. Mr. Johnson is a general partner of various Wingate entities, including
the indirect general partner of Wingate II. From 1980 until he joined Wingate
Partners in 1990, Mr. Johnson served as a Principal of Booz-Allen & Hamilton,
an international management consulting firm. Mr. Johnson currently serves as a
director of Century Products.
JOEL D. SPUNGIN has served as a member of the Board of Directors since 1972
and prior to the consummation of the Merger was Chairman of the Board of
Directors and Chief Executive Officer of United since August 1988. From
October 1989 until April 1991, he was also President of United. Prior to that,
since March 1987, Mr. Spungin was Vice Chairman of the Board and Chief
Executive Officer of United. Previously, since August 1981, Mr. Spungin was
President and Chief Operating Officer of United. He also serves as a general
partner of DMS Enterprises, L.P., a management advisory and investment
partnership, and as a director of AAR Corp.
Messrs. Sturgess, Rowsey, Miller, Callier, Good, Hegi and Johnson were
elected to the Board of Directors pursuant to a voting trust. See "Certain
Transactions--Voting Trust." Such voting trust will terminate upon the
consummation of the Offering.
The Charter provides that the Board of Directors shall be divided into three
classes, each class as nearly equal in number as possible, and each term
consisting of three years. The directors currently in each class are as
follows: Class I (having terms expiring in 1996)--Messrs. Good, Johnson and
Hewson; Class II (having terms expiring in 1997)--Messrs. Sturgess, Hegi and
Rowsey; and Class III (having terms expiring in 1998)--Messrs. G. Miller,
Callier and Spungin. See "Description of Capital Stock--Special Provisions of
the Charter and Bylaws--Classified Board of Directors."
52
<PAGE>
CERTAIN TRANSACTIONS
VOTING TRUST
As of February 12, 1996, approximately 74.1% of the outstanding shares of
Common Stock were held in a voting trust (the "Voting Trust") pursuant to a
Voting Trust Agreement dated as of January 31, 1992. The Voting Trust will
terminate upon consummation of the Offering. The trustees of the Voting Trust
are Thomas W. Sturgess, Frederick B. Hegi, Jr., James A. Johnson, Daniel J.
Good and Gary G. Miller. The trustees of the Voting Trust hold all voting
power to vote the shares held in the Voting Trust and may act by a majority
vote of the trustees. The trustees agree to vote all shares in trust to elect
a board of directors of the Company with (i) at least one representative
designated by Good Capital, (ii) at least one representative designated by ASI
Partners, L.P., the general partner of which is Cumberland, (iii) at least one
representative designated by Messrs. Michael Rowsey, Robert Eberspacher,
Daniel Schleppe and Larry Miller and (iv) such number of directors designated
by Wingate Partners as will represent a majority of the total number of
directors. Messrs. Sturgess, Rowsey, Miller, Callier, Good, Hegi and Johnson
were elected to the Board of Directors pursuant to the Voting Trust.
LENDER WARRANTS
In connection with the Associated Transaction, Associated entered into a
warrant agreement (the "Lender Warrant Agreement") with CMIHI pursuant to
which Associated issued to CMIHI and certain of Associated's senior lenders
the Lender Warrants entitling the holders thereof to acquire an aggregate of
150,340 pre-Merger shares of Associated common stock (or, at such holder's
option, nonvoting common stock of Associated) for an exercise price of $0.01
per share. The Lender Warrants were issued in two tranches representing an
aggregate of 34,694 pre-Merger shares of Associated common stock (the "Tranche
A Warrants") and 115,646 pre-Merger shares of Associated common stock (the
"Tranche B Warrants"), respectively.
In connection with the Lynn-Edwards Acquisition in 1992, the Tranche B
Warrant holders received additional Tranche B Warrants exercisable for an
additional 39,878 pre-Merger shares of Associated common stock. In addition,
an antidilution adjustment mechanism in the Lender Warrant Agreement caused
the holders of the Tranche A and Tranche B Warrants to be entitled to purchase
an additional 2,017 and 9,040 pre-Merger shares of Associated common stock,
respectively, on a pro rata basis as an adjustment relating to the issuance of
shares of Associated common stock to an Associated stockholder pursuant to a
transition services agreement.
The Tranche A and Tranche B Warrants were assumed by the Company upon
consummation of the Merger, and currently allow the holders thereof to acquire
an aggregate of 244,924 and 982,514 shares of Common Stock (or, at such
holder's option, shares of Nonvoting Common Stock), respectively, at an
exercise price of $0.10 per share. Prior to the Merger, Wingate and Daniel J.
Good purchased from one of Associated's former senior lenders Tranche B
Warrants exercisable for an aggregate of 462,286 shares of Common Stock for an
aggregate of approximately $1.7 million. The number of shares of Common Stock
into which the Lender Warrants are exercisable has been increased by
approximately 0.12% (representing an antidilution adjustment relating to the
issuance of certain Employee Stock Options). See "Description of Capital
Stock--Lender Warrants."
PREFERRED B WARRANTS
In connection with the Associated Transaction, Associated issued Preferred B
Warrants entitling the holders thereof to acquire an aggregate of 23,129 pre-
Merger shares of Associated common stock for an exercise price of $1.00 per
share. Associated amended the Preferred B Warrants prior to the consummation
of the Merger to apply to the shares of Common Stock in the same manner as
they formerly applied to Associated common stock. Accordingly, the holders
thereof are presently entitled to acquire an aggregate of 182,189 shares of
Common Stock for an exercise price of approximately $0.15 per share. In July
1995, Wingate, ASI Partners III, L.P. and certain affiliates of Daniel J. Good
purchased all of the Preferred B Warrants from the holder thereof for an
aggregate purchase price of approximately $1.2 million. The number of shares
of Common Stock into which the Preferred B Warrants are exercisable has been
increased by approximately 18.1% (representing an antidilution
53
<PAGE>
adjustment relating to the issuance of certain Employee Stock Options). See
"--Option and Restricted Stock Awards." See "Principal and Selling
Stockholders" and "Description of Capital Stock--Preferred B Warrants."
REGISTRATION RIGHTS AGREEMENTS
In connection with the issuance of the Lender Warrants, Associated, on
January 31, 1992, entered into a registration rights agreement (the "Lender
Registration Rights Agreement") with the holders of the Lender Warrants
pursuant to which it granted to such holders certain rights with respect to
registration under the Securities Act of shares of Associated common stock
issuable to them upon exercise of the Lender Warrants. The Company assumed the
obligations of Associated under the Lender Registration Rights Agreement by
operation of law in connection with the Merger and such agreement has been
amended accordingly. Pursuant to the amended agreement, in October 1995 the
Company effected a "shelf" registration under the Securities Act of all shares
of Common Stock issuable or issued upon exercise of the Lender Warrants.
In connection with the Associated Transaction, Associated, on January 31,
1992, entered into a registration rights agreement (the "Stockholders
Registration Rights Agreement") with Wingate Partners, Cumberland, ASI
Partners, L.P., Good Capital and certain other holders of Associated common
stock (including Messrs. Rowsey, Schleppe, Eberspacher and L. Miller),
pursuant to which it granted to such stockholders certain rights with respect
to registration under the Securities Act of shares of Associated common stock
held by them. The Company assumed the obligation of Associated under the
Stockholder Registration Rights Agreement by operation of law as a result of
the Merger, and such agreement has been amended accordingly. Under the amended
agreement, a holder of 20.0% of the shares of Common Stock subject to the
Stockholders Registration Rights Agreement can, in certain circumstances,
require the Company to effect up to three registrations of all or part of such
holder's shares of Common Stock. The Company is not required to honor any
request to register shares of Common Stock if the request is received either
prior to March 30, 1996 or less than 300 days following the effective date of
any previous registration statement filed in connection with any such request.
Upon receipt of a written request to register a holder's shares of Common
Stock, the Company must send notice to the other holders subject to such
agreement and permit them to also request to have their respective shares of
Common Stock registered under the Securities Act. Registrations effected at
the request of the holders will be at the expense of the Company (excluding
underwriting discounts and commissions).
MANAGEMENT AGREEMENTS
Pursuant to an Investment Banking Fee and Management Agreement dated as of
January 31, 1992 among Associated, ASI and Wingate Partners, Wingate Partners
provided certain financial advisory services to Associated and ASI in
connection with the Associated Transaction in exchange for a one-time fee of
$500,000 (which was paid in January 1992 upon the consummation of the
Associated Transaction). The Company assumed the obligation of Associated
under such agreement by operation of law as a result of the Merger and such
agreement has been amended accordingly. Pursuant to the amended agreement,
Wingate Partners has agreed to provide certain oversight and monitoring
services to the Company and USSC and their subsidiaries in exchange for an
annual fee of up to $725,000, payment (but not accrual) of which is subject to
restrictions under the Credit Agreement related to certain Company performance
criteria. Upon consummation of the Acquisition, the Company paid aggregate
fees to Wingate Partners of $2.3 million for services rendered in connection
therewith. Pursuant to the $350,000 annual fee limit previously in effect
under such agreement, Wingate Partners earned an aggregate of $603,000,
$350,000 and $210,000 with respect to each of the fiscal years ended 1995,
1994 and 1993, respectively, for such oversight and monitoring services. Under
the amended agreement, the Company is obligated to reimburse Wingate Partners
for its out-of-pocket expenses and indemnify Wingate Partners and its
affiliates from loss in connection with these services.
54
<PAGE>
Effective as of the consummation of the Offering, the Investment Banking Fee
and Management Agreement will be terminated and replaced with a Consulting
Agreement, pursuant to which Wingate Partners will continue to provide
consulting services to the Company. In exchange for the provision of such
services during the remainder of 1996, the Company has agreed to pay Wingate
Partners a consulting fee of $50,000 per month through December 31, 1996. For
consulting services to be provided in 1997 and beyond, the Company has agreed
to pay, commencing January 1997, an annual consulting fee equal to the product
of $725,000 multiplied by a fraction equal to the ratio of Wingate's
beneficial ownership of Common Stock as of the beginning of such year to its
beneficial ownership of Common Stock immediately prior to the Offering. In
addition, the Company has agreed to pay annual directors fees of $25,000 to
any members of the Board of Directors that have been or may in the future be
nominated by Wingate Partners (other than Mr. Sturgess). Messrs. Callier, Hegi
and Johnson, as nominees of Wingate Partners, will be eligible to receive such
fees upon the effectiveness of the Consulting Agreement. Such agreement will
terminate on the earlier to occur of January 31, 2002 or such time as Wingate
beneficially owns less than 5% of the Common Stock.
Pursuant to an Investment Banking Fee and Management Agreement dated as of
January 31, 1992 among Associated, ASI and Cumberland, Cumberland provided
certain financial advisory services to Associated and ASI in connection with
the Associated Transaction in exchange for a one-time fee of $500,000 (which
was paid in January 1992 upon consummation of the Associated Transaction). The
Company assumed the obligation of Associated under such agreement by operation
of law as a result of the Merger and such agreement has been amended
accordingly. Pursuant to the amended agreement, Cumberland has agreed to
provide certain oversight and monitoring services to the Company and USSC and
their subsidiaries in exchange for (i) an annual fee of up to $137,500,
payment (but not accrual) of which is subject to restrictions under the Credit
Agreement related to certain Company performance criteria and (ii) previously
issued shares of Associated common stock converted pursuant to the Merger into
154,125 shares of Common Stock. Subject to certain exceptions, the issuance of
such shares of Common Stock is subject to rescission if the agreement is
terminated before January 31, 2002. Upon consummation of the Acquisition, the
Company paid aggregate fees to Cumberland of $100,000 for services rendered in
connection therewith. Pursuant to the $75,000 annual fee limit previously in
effect under such agreement, Cumberland earned $129,000, $75,000 and $45,000
with respect to each of the fiscal years ended 1995, 1994 and 1993,
respectively, for such oversight and monitoring services. The Company is also
obligated to reimburse Cumberland for its out-of-pocket expenses and indemnify
Cumberland and its affiliates from loss in connection with these services. The
agreement expires on January 31, 2002, provided that the agreement continues
in effect on a year to year basis thereafter unless terminated in writing by
one of the parties at least 180 days before the expiration of the primary term
or any subsequent yearly term. Such agreement will be amended as of the
consummation of the Offering so as to (i) provide for the payment of annual
directors fees of $25,000 to Mr. Miller (which fees will reduce amounts
payable by the Company to Cumberland thereunder) and (ii) provide that such
agreement will terminate on January 31, 2000.
Pursuant to an Investment Banking Fee and Management Agreement dated as of
January 31, 1992 among Associated, ASI and Good Capital, Good Capital provided
financial advisory services to Associated and ASI in connection with the
Associated Transaction in exchange for 31,480 shares of Associated common
stock and 185 shares of Associated class A preferred stock. The Company
assumed the obligations of Associated under such agreement by operation of law
as a result of the Merger and such agreement has been amended accordingly.
Pursuant to the amended agreement, Good Capital has agreed to provide certain
oversight and monitoring services to the Company and USSC and their
subsidiaries, in exchange for (i) an annual fee of up to $137,500, payment
(but not accrual) of which is subject to restrictions under the Credit
Agreement related to certain Company performance criteria and (ii) previously
issued shares of Associated common stock converted pursuant to the Merger into
154,125 shares of Common Stock. Subject to certain exceptions, the issuance of
such shares of Common Stock are subject to rescission if the agreement is
terminated before January 31, 2002. Upon consummation of the Acquisition, the
Company paid aggregate fees to Good Capital of $100,000 for services rendered
in connection therewith. Pursuant to the $75,000 annual fee limit previously
in effect under such agreement, Good Capital earned an aggregate of $129,000,
$75,000 and $45,000 in each of the fiscal years ended
55
<PAGE>
1995, 1994 and 1993, respectively, for such oversight and monitoring services.
The Company is also obligated to reimburse Good Capital for its out-of-pocket
expenses and indemnify Good Capital and its affiliates from loss in connection
with these services. The agreement expires on January 31, 2002, provided that
the agreement continues in effect thereafter on a year to year basis unless
terminated in writing by one of the parties at least 180 days before the
expiration of the primary term or any subsequent yearly term. Such agreement
will be amended as of the consummation of the Offering so as to provide for
the payment of annual directors fees of $25,000 to Mr. Good (which fees will
reduce amounts payable by the Company to Good Capital thereunder).
CERTAIN INTERESTS OF CHASE BANK
Chase Bank has certain interests in the Company in addition to its
affiliate, Chase Securities, Inc. ("Chase Securities"), which served as the
initial purchaser of the Notes and received a discount in the amount of $4.5
million. As a result of the sale of the Notes, CMIHI, an affiliate of Chase
Bank, beneficially owns (as of February 12, 1996) approximately 9.7% of the
shares of Common Stock outstanding as a result of its ownership of (i) the
Lender Warrants received in connection with the Associated Transaction that
entitle CMIHI to purchase 476,067 shares of Common Stock for $0.10 per share,
(ii) 480,045 shares of Nonvoting Common Stock purchased or received in
connection with the Acquisition and (iii) 278,949 shares of Nonvoting Common
Stock issued by the Company to CMIHI in exchange for shares of Common Stock
and securities exercisable or convertible into shares of Common Stock
contributed by certain pre-Merger holders of Associated common stock upon
consummation of the sale of the Notes. See "--Lender Warrants" and
"Description of Indebtedness--Notes". Chase Bank has indicated that it intends
to sell shares of Common Stock in the Offering. See "Principal and Selling
Stockholders." Such shares will be obtained by exercising Lender Warrants and
converting shares of Nonvoting Common Stock.
Chase Securities served as financial advisor to Associated in connection
with the Acquisition. Chase Bank is the agent and a lender under the Credit
Facilities. In addition, in connection with the Tender Offer, Chase Securities
served as dealer manager and Chase Bank served as depositary for tendered
shares of Common Stock. A substantial portion of the net proceeds from the
sale of the Notes was used to repay in full the Subordinated Bridge Facility,
and a portion of the remainder was used to prepay loans under the Term Loan
Facilities. In all such capacities, Chase Bank and its affiliates received an
aggregate of approximately $23.3 million in fees (although certain of such
fees were shared with other members of the lending groups) and had certain of
their expenses reimbursed.
SERIES B REPURCHASE
On July 28, 1995, the Company consummated the repurchase of all of the
outstanding shares of the Series B Preferred Stock, together with accrued and
unpaid dividends thereon, from the holder thereof for an aggregate purchase
price of $7.0 million. In order to enable the Company to consummate the Series
B Repurchase, USSC paid a dividend to the Company in the amount of $7.0
million, as permitted under the Credit Facilities and the Indenture. In
addition, USSC also paid a dividend to the Company in an amount sufficient to
enable the Company to pay a cash dividend on the Series C Preferred Stock of
approximately $0.3 million in accordance with the terms of the Company's
Charter as a result of the Series B Repurchase.
In connection with the Series B Repurchase, Wingate and certain affiliates
of Cumberland and Daniel J. Good purchased from the former holder of the
Series B Preferred Stock an aggregate of 391,056 shares of Common Stock and
Preferred B Warrants currently exercisable for an aggregate of 182,189 shares
of Common Stock for aggregate purchase prices of approximately $1.8 million
and $1.2 million, respectively.
INTERESTS OF CERTAIN PERSONS IN THE OFFERING
Wingate will receive an aggregate of $43.2 million ($56.1 million if the
Underwriters' over-allotment option is exercised in full) of the $75.5 million
($98.3 million if the Underwriters' over-allotment option is exercised in
full) in aggregate net proceeds to be received by the Selling Stockholders as
a result of the Offering. Mr. Sturgess, the Company's Chairman, President and
Chief Executive Officer, serves as a general partner of various Wingate
entities, including the indirect general partner of each of Wingate Partners
and Wingate II. Although Mr. Sturgess has not actively participated in the
management of such entities since December 31, 1995, as a
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<PAGE>
result of such relationship, Mr. Sturgess will ultimately receive
approximately $1.7 million ($2.1 million if the Underwriters' over-allotment
option is exercised in full) of the proceeds from Wingate's sale of Common
Stock in the Offering and the redemption of Series A Preferred Stock held by
Wingate in connection therewith. In addition, several other Selling
Stockholders presently serve as directors and/or executive officers of the
Company or formerly served as directors or executive officers of Associated.
See "Principal and Selling Stockholders." The Company will pay all expenses of
the Offering, including those attributable to the Selling Stockholders
(excluding underwriting discounts and commissions relating to shares of Common
Stock to be sold by the Selling Stockholders).
REDEMPTION OF SERIES A PREFERRED STOCK
Wingate will receive an aggregate of approximately $4.9 million of the $7.8
million in aggregate proceeds to be received by the holders of shares of
Series A Preferred Stock as a result of the redemption by the Company of all
shares of Preferred Stock using a portion of the proceeds of the Offering. See
"Use of Proceeds." Mr. Sturgess, the Company's Chairman, President and Chief
Executive Officer, serves as a general partner of various Wingate entities,
including the indirect general partner of each of Wingate Partners and Wingate
II. Although Mr. Sturgess has not actively participated in the management of
such entities since December 31, 1995, as a result of such relationship, Mr.
Sturgess will ultimately receive approximately $1.7 million ($2.1 million if
the Underwriters' over-allotment option is exercised in full) of the proceeds
from Wingate's sale of Common Stock in the Offering and the redemption of
Series A Preferred Stock held by Wingate in connection therewith. See "--
Interests of Certain Persons in the Offering." In addition, several other
holders of shares of Series A Preferred Stock presently serve as directors or
executive officers of the Company or formerly served as directors or executive
officers of Associated. See "Principal and Selling Stockholders."
OPTION AND RESTRICTED STOCK AWARDS
Effective October 2, 1995, the Company granted, subject to stockholder
approval, options exercisable (net of forfeitures) for an aggregate of
1,633,250 shares of Common Stock at an exercise price of $12.50 per share
(subject to quarterly increases) and 198,750 shares of Common Stock at a fixed
exercise price of $5.12 per share to certain members of the Company's
management. Of such options, options exercisable for an aggregate of 542,500
shares of Common Stock at an exercise price of $12.50 per share (subject to
quarterly increases) and options exercisable for an aggregate of 77,500 shares
of Common Stock at a fixed exercise price of $5.12 per share were granted to
Messrs. Bushell, Rowsey, Schwarz, Cornell, Halleen, Pribel, Rzeszuto, Shaw and
Uskup. Such options do not vest to the employee until the occurrence of a
Vesting Event that causes the present non-public equity investors to have
received at least a full return of their investment (at cost) in cash, fully
tradable marketable securities or the equivalent, as determined by the Board
of Directors in good faith. All of such options will become exercisable upon
consummation of the Offering.
On November 29, 1995, the Company granted options exercisable for an
aggregate of 14,648 shares of Common Stock at an exercise price of $5.12 per
share to Jeffrey K. Hewson and a restricted stock award of 9,678 shares of
Common Stock to Joel D. Spungin, both of whom are directors of the Company, in
consideration for their service on the Board of Directors in lieu of directors
compensation for a three year period.
Effective January 1, 1996, the Company granted to Mr. Sturgess, in
consideration for services rendered and to be rendered as Chairman, President
and Chief Executive Officer of the Company and subject to stockholder
approval, (i) options exercisable for an aggregate of 240,000 shares of Common
Stock at an exercise price of $12.50 per share (subject to quarterly
increases) (80,000 of which will be exercisable only upon the occurrence of a
Vesting Event, 80,000 of which will be exercisable upon the later to occur of
a Vesting Event or December 31, 1996, and 80,000 of which will be exercisable
upon the later to occur of a Vesting Event or March 31, 1997) and (ii) options
exercisable for an aggregate of 120,000 shares of Common Stock at a fixed
exercise price of $5.12 per share (all of which will only be exercisable upon
the occurrence of a Vesting Event). The $5.12 exercise price represents the
price paid by certain investors for shares of Associated common stock
immediately prior to the Merger.
Effective January 31, 1996, the Company, subject to stockholder approval,
granted to certain officers, including Messrs. Bushell and Rowsey, options
exercisable for an aggregate of 202,772 shares of Common Stock at an exercise
price of $1.45 per share (of which options exercisable for an aggregate of
51,343 shares and 50,000
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<PAGE>
shares were granted to Messrs. Bushell and Rowsey, respectively). All of such
options (other than those granted to Mr. Bushell) were granted pursuant to
executive stock purchase agreements entered into by Associated in connection
with the Associated Transaction in January 1992. All of such options will
become exercisable upon consummation of the Offering.
In addition, options granted to management of Associated (including Messrs.
Bushell and Rowsey) prior to the Merger and exercisable for an aggregate of
182,348 shares (net of forfeitures) of Common Stock at an exercise price of
$1.45 per share (of which options exercisable for an aggregate of 37,856
shares and 44,506 shares were granted to Messrs. Bushell and Rowsey,
respectively) will become exercisable (if not already exercisable) upon
consummation of the Offering.
EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company entered into an employment agreement
with Mr. Sturgess having a three year term, subject to automatic one year
renewals thereof. Pursuant to such agreement, Mr. Sturgess agreed to serve as
the Company's Chairman of the Board, President and Chief Executive Officer
during the term of such agreement in exchange for (i) an annual salary of no
less than $495,000, (ii) eligibility to participate in the Company's bonus
plans (subject to a maximum of 150% of annual salary) and (iii) eligibility to
participate in various benefit programs provided to the Company's employees
and senior management. Mr. Sturgess will be entitled to severance pay equal to
two times base salary and bonus payable over a period of one year (if the
agreement expires) or two years (if Mr. Sturgess terminates his employment for
good reason (as defined)).
The Company has also entered into employment agreements with certain of its
other executive officers. Such agreements typically have a one or two year
term.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of February 12, 1996 and after
giving effect to the Offering (assuming no exercise of the Underwriters' over-
allotment option) with respect to the beneficial ownership of Common Stock by
(i) each person who is known by the Company to own beneficially more than five
percent of the Company's Common Stock, (ii) each of the Company's directors
and executive officers and (iii) all current directors and executive officers
as a group. The table also sets forth information as of the date immediately
prior to the Offering with respect to the beneficial ownership of the Series A
Preferred Stock by such persons. Unless otherwise indicated, each person has
sole voting power and investment power with respect to the shares attributed
to him.
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK(1) PREFERRED STOCK(2)
---------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
DIRECTORS, EXECUTIVE BEFORE OFFERING AFTER OFFERING BEFORE OFFERING
OFFICERS AND 5% ------------------------------SHARES TO -----------------------------------------------
STOCKHOLDERS SHARES %(3) BE SOLD SHARES %(3) SHARES %(3)
- -------------------- ------------ ------------------ ------------ -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Wingate Partners, L.P... 6,045,823(4) 50.3% 1,988,740 4,057,083 24.1% 4,908(5) 63.2%
750 N. St. Paul Street,
Suite 1200
Dallas, Texas 75201
ASI Partners, L.P....... 1,799,588(6) 15.7 481,021 1,318,567 7.8 1,889 24.3
301 Commerce Street,
Suite 3300
Ft. Worth, Texas 76102
Cumberland Capital Cor-
poration............... 1,799,588(6) 15.7 481,021 1,318,567 7.8 1,889(7) 24.3
301 Commerce Street,
Suite 3300
Ft. Worth, Texas 76102
Chase Manhattan......... 1,235,061(8) 9.7 673,111 561,950 3.3 -- --
Investment Holdings,
Inc.
1 Chase Manhattan Plaza
New York, NY 10081
Daniel H. Bushell....... 228,737(9) 2.0 5,072 223,665 1.3 -- --
James T. Callier, Jr. .. -- -- -- -- -- -- --
Robert H. Cornell....... 60,480(10) * -- 60,480 * -- --
Daniel J. Good.......... 257,943(11) 2.2 111,135 146,808 * --(12) --
Otis H. Halleen......... 30,240(13) * -- 30,240 * -- --
Frederick B. Hegi, Jr.
....................... -- -- -- -- -- -- --
Jeffrey K. Hewson....... 6,958(14) * -- 6,958 * -- --
James A. Johnson(15).... 19,171 * 4,977 14,194 * 23 *
Gary G. Miller(16)...... -- -- -- -- -- -- --
James A. Pribel......... 20,240(17) * -- 20,240 * -- --
Michael D. Rowsey(15)... 299,063(18) 2.6 21,952 277,111 1.6 83(15) 1.1
Ted S. Rzeszuto(15)..... 31,350(19) * -- 31,350 * -- --
Steven R. Schwarz....... 120,628(20) 1.0 -- 120,628 * -- --
Joel D. Spungin......... 33,004 * -- 33,004 * -- --
Albert Shaw............. 60,078(21) * -- 60,078 * -- --
Thomas W. Sturgess...... 6,245,823(22) 53.6 1,988,740 4,257,083 25.3 4,908(23) 63.2
Ergin Uskup............. 60,126(24) * -- 60,126 * -- --
All current directors
and executive officers
as a group (17 per-
sons).................. 7,473,841(16)(25) 57.1% 2,131,876 5,341,965 30.0% 5,014(12) 64.6%
</TABLE>
- --------
*Represents less than 1.0%.
(1) All references herein to Employee Stock Options assume that (i) the
amendment to the Company's stock option plan will be approved by the
requisite vote of the holders of Common Stock at the Company's annual
meeting to be held in May 1996 and (ii) the consummation of the Offering
will constitute a Vesting Event.
(2) Information presented herein includes accrued but unpaid dividends on the
Series A Preferred Stock. All shares of Preferred Stock will be redeemed
with a portion of the proceeds of the Offering. See "Use of Proceeds."
(3) For purposes of calculating the beneficial ownership of each stockholder,
it was assumed (in accordance with the Securities and Exchange
Commission's definition of "beneficial ownership") that such stockholder
had exercised all options, conversion rights or warrants by which such
stockholder had the right, within 60 days following , 1996,
to acquire shares of such class of stock.
(4) Includes (i) 4,268,577 shares owned by Wingate Partners, (ii) 1,117,374
shares owned by Wingate II, (iii) 74,094 shares owned by Wingate
Affiliates and (iv) 19,634 shares owned by Wingate Affiliates II. Also
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<PAGE>
includes Lender Warrants exercisable for an aggregate of 419,482 shares
(or shares of Nonvoting Common Stock, at the holder's option) purchased by
such entities from one of Associated's former senior lenders and Preferred
B Warrants exercisable for an aggregate of 146,662 shares purchased by
such entities from the former holder of Series B Preferred Stock.
(5) Includes (i) 4,824 shares of Series A Preferred Stock owned by Wingate
Partners and (ii) 84 shares owned by Wingate Affiliates.
(6) Includes (i) 1,430,401 shares owned by ASI Partners, L.P., (ii) 156,304
shares owned by ASI Partners II, L.P., (iii) 40,084 shares owned by ASI
Partners III, L.P. and (iv) 154,125 shares owned by Cumberland.
Cumberland serves as the general partner of ASI Partners, L.P., ASI
Partners II, L.P. and ASI Partners III, L.P. Also includes Preferred B
Warrants exercisable for an aggregate of 18,674 shares purchased by ASI
Partners III, L.P. from the former holder of Series B Preferred Stock.
(7) Includes 1,889 shares of Series A Preferred Stock owned by ASI Partners,
L.P., as to which Cumberland serves as general partner.
(8) Includes (i) 758,994 shares owned by such holder and (ii) 476,067 shares
(or shares of Nonvoting Common Stock, at the holder's option) issuable
upon exercise of Lender Warrants which are immediately exercisable at
$0.10 per share. Subject to certain restrictions, the Nonvoting Common
Stock is convertible at any time at the option of the holder into shares
of Common Stock for no additional consideration. See "Certain
Transactions--Lender Warrants" and "Description of Capital Stock--Lender
Warrants."
(9) Includes (i) 19,538 shares owned by or for the benefit of Mr. Bushell,
(ii) 89,199 shares issuable upon exercise of Employee Stock Options which
are, subject to certain restrictions, immediately exercisable at $1.45
per share, (iii) 15,000 shares issuable upon exercise of Employee Stock
Options which are, subject to certain restrictions, immediately
exercisable at $5.12 per share and (iv) 105,000 shares issuable upon
exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $12.50 per share.
(10) Includes (i) 480 shares owned by Mr. Cornell, (ii) 7,500 shares issuable
upon exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $5.12 per share and (iii) 52,500
shares issuable upon exercise of Employee Stock Options which are,
subject to certain restrictions, immediately exercisable at $12.50 per
share.
(11) Includes Lender Warrants exercisable for an aggregate of 42,804 shares
(or shares of Nonvoting Common Stock, at the holder's option) purchased
by Mr. Good from one of Associated's former senior lenders. Also includes
Preferred B Warrants exercisable for an aggregate of 16,852 shares
purchased by trusts for which Mr. Good serves as trustee from the former
holder of Series B Preferred Stock and 36,173 shares of Common Stock held
by such trusts. Does not include 363,899 shares owned by Good Capital.
Mr. Good is Chairman and a controlling stockholder of Good Capital and,
accordingly, may be deemed to beneficially own the shares owned of record
by Good Capital.
(12) Does not include 287 shares owned by Good Capital. Mr. Good is Chairman
and a controlling stockholder of Good Capital and, accordingly, may be
deemed to beneficially own the shares owned of record by Good Capital.
(13) Includes (i) 240 shares owned by Mr. Halleen, (ii) 3,750 shares issuable
upon exercise of Employee Stock Options which are subject to certain
restrictions, immediately exercisable at $5.12 per share and (iii) 26,250
shares issuable upon exercise of Employee Stock Options which are,
subject to certain restrictions, immediately exercisable at $12.50 per
share.
(14) Includes (i) 2,076 shares owned by Mr. Hewson and (ii) 4,882 shares
issuable upon exercise of Employee Stock Options which are, subject to
certain restrictions, immediately exercisable at $5.12 per share. Does
not include 9,766 shares issuable upon exercise of Employee Stock Options
that are not exercisable within 60 days.
(15) Includes shares owned directly and by an individual retirement account
for the sole benefit of such individual.
(16) Does not include shares owned by ASI Partners, L.P., ASI Partners II,
L.P., ASI Partners III, L.P. or Cumberland. Mr. Miller is President and a
stockholder of Cumberland and, accordingly, may be deemed
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<PAGE>
to beneficially own the shares owned of record by ASI Partners, L.P., ASI
Partners II, L.P., ASI Partners III, L.P. and Cumberland.
(17) Includes (i) 240 shares owned by Mr. Pribel, (ii) 2,500 shares issuable
upon exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $5.12 per share and (iii) 17,500
shares issuable upon exercise of Employee Stock Options which are,
subject to certain restrictions, immediately exercisable at $12.50 per
share.
(18) Includes (i) 84,557 shares owned by or for the benefit of Mr. Rowsey,
(ii) 94,506 shares issuable upon exercise of Employee Stock Options which
are, subject to certain restrictions, immediately exercisable at $1.45
per share, (iii) 15,000 shares issuable upon exercise of Employee Stock
Options which are, subject to certain restrictions, immediately
exercisable at $5.12 per share and (iv) 105,000 shares issuable upon
exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $12.50 per share.
(19) Includes (i) 1,350 shares owned by or for the benefit of Mr. Rzeszuto,
(ii) 3,750 shares issuable upon exercise of Employee Stock Options which
are, subject to certain restrictions, immediately exercisable at $5.12
per share and (iii) 26,250 shares issuable upon exercise of Employee
Stock Options which are, subject to certain restrictions, immediately
exercisable at $12.50 per share.
(20) Includes (i) 628 shares owned by Mr. Schwarz, (ii) 15,000 shares issuable
upon exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $5.12 per share and (iii)
105,000 shares issuable upon exercise of Employee Stock Options which
are, subject to certain restrictions, immediately exercisable at $12.50
per share.
(21) Includes (i) 78 shares owned by Mr. Shaw, (ii) 7,500 shares issuable upon
exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $5.12 per share and (iii) 52,500
shares issuable upon exercise of Employee Stock Options which are,
subject to certain restrictions, immediately exercisable at $12.50 per
share.
(22) Includes (i) 120,000 shares issuable upon exercise of Employee Stock
Options which are, subject to certain restrictions, immediately
exercisable at $5.12 per share and (ii) 80,000 shares issuable upon
exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $12.50 per share. Does not
include 160,000 shares issuable upon exercise of Employee Stock Options
that are not exercisable within 60 days. Also includes all 6,045,823
shares beneficially owned by Wingate Partners. Mr. Sturgess serves as a
general partner of various Wingate entities, including the indirect
general partner of Wingate Partners. Although Mr. Sturgess has not
actively participated in the management of such entities since December
31, 1995, as a result of such relationship, Mr. Sturgess may be deemed to
beneficially own shares held by Wingate Partners.
(23) Includes all 4,908 shares beneficially owned by Wingate Partners. Mr.
Sturgess serves as a general partner of various Wingate entities,
including the indirect general partner of Wingate Partners. Although Mr.
Sturgess has not actively participated in the management of such entities
since December 31, 1995, as a result of such relationship, Mr. Sturgess
may be deemed to beneficially own shares held by Wingate Partners.
(24) Includes (i) 126 shares owned by Mr. Uskup, (ii) 7,500 shares issuable
upon exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at $5.12 per share and (iii) 52,500
shares issuable upon exercise of Employee Stock Options which are,
subject to certain restrictions, immediately exercisable at $12.50 per
share.
(25) Includes all securities beneficially owned by the current directors and
executive officers of the Company, including an aggregate of (i)
5,839,453 shares of Common Stock, (ii) 1,008,587 shares issuable upon
exercise of Employee Stock Options which are, subject to certain
restrictions, immediately exercisable at exercise prices ranging between
$1.45 and $12.50 per share and (iii) 625,801 shares issuable upon
exercise of Warrants.
SELLING STOCKHOLDERS
The following table sets forth the number of shares of Common Stock (on a
fully diluted basis) (i) owned by the Selling Stockholders as of the date of
this Prospectus, (ii) to be sold by the Selling Stockholders in the Offering
and (iii) to be owned by the Selling Stockholders immediately following the
Offering.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT
SHARES OWNED SHARES TO BE SHARES OWNED BENEFICIALLY
SELLING STOCKHOLDER BEFORE OFFERING SOLD IN OFFERING AFTER OFFERING OWNED
- ------------------- --------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Wingate Partners, L.P... 4,491,164 1,477,343 3,013,821 17.9%
Wingate Partners II,
L.P.................... 1,451,153 477,349 973,804 5.8%
Wingate Affiliates,
L.P.................... 77,957 25,644 52,313 *
Wingate Affiliates II,
L.P.................... 25,549 8,404 17,145 *
PAT Investments......... 2,385 619 1,766 *
James A. Johnson(2)..... 19,171 4,977 14,194 *
ASI Partners, L.P....... 1,430,401 371,350 1,059,051 6.3%
ASI Partners II, L.P.... 156,304 40,578 115,726 *
ASI Partners III, L.P... 58,757 29,080 29,677 *
Cumberland Capital Cor-
poration............... 154,125 40,013 114,112 *
Daniel J. Good.......... 204,918 84,891 120,027 *
Good Capital Co., Inc... 363,899 94,473 269,426 1.6%
Julie Good Mora Grantor
Trust.................. 26,513 13,122 13,391 *
Laura Good Stathos
Grantor Trust.......... 26,513 13,122 13,391 *
Chase Manhattan Invest-
ment Holdings, Inc..... 1,235,061 673,111 561,950 3.3%
Daniel H. Bushell(1).... 228,737 5,072 223,665 1.3%
Robert W.
Eberspacher(1)(2)...... 214,947 5,000 209,947 1.2%
John D. Kennedy(1)...... 70,845 1,014 69,831 *
Lawrence E. Mill-
er(1)(2)............... 151,633 16,068 135,565 *
Duane J. Ratay(2)....... 43,468 11,285 32,183 *
Michael D.
Rowsey(1)(2)........... 299,063 21,952 277,111 1.6%
Daniel J.
Schleppe(1)(2)......... 168,905 21,952 146,953 *
Neal Bailey(1)(2)....... 16,426 4,264 12,162 *
William R. Bazant....... 12,461 3,235 9,226 *
Theresa K. Blake(1)(2).. 8,930 2,059 6,871 *
Robert Deiters(2)....... 16,426 4,264 12,162 *
William Figurelli....... 12,461 3,235 9,226 *
Jeff Frantz............. 12,461 3,235 9,226 *
David M. Grove(1)....... 4,266 588 3,678 *
Thomas M. Hupp(2)....... 12,461 3,235 9,226 *
Thomas Koppelman(1)(2).. 16,426 4,264 12,162 *
Kenneth Larson(2)....... 16,426 4,265 12,161 *
James Lyon.............. 1,133 294 839 *
Rudy Mayo(1)(2)......... 36,426 4,264 32,162 *
Paul Pisarski(1)(2)..... 36,426 4,264 32,162 *
Roger Richey(2)......... 16,426 4,264 12,162 *
Glenn E. Stephens....... 16,426 4,264 12,162 *
Ralph P. Swiatek(2)..... 12,461 3,000 9,461 *
Thomas Trost(2)......... 16,426 4,264 12,162 *
Cheryl Zupke(1)(2)...... 7,930 2,059 5,871 *
Craig Zupke(1).......... 36,426 4,264 32,162 *
</TABLE>
- --------
*Represents less than 1.0%.
(1) Such person was employed by the Company as of February 12, 1996.
(2) Includes shares owned directly and/or by an individual retirement account
for the sole benefit of such individual.
See "Management--Directors and Executive Officers" and "Certain Transactions"
for a description of material relationships between the Company and the
Selling Stockholders during the past three years. The Company will pay all
expenses of the Offering attributable to the Selling Stockholders (excluding
underwriting discounts and commissions relating to shares of Common Stock to
be sold by the Selling Stockholders). The Selling Stockholders have granted
the Underwriters an option to purchase up to an additional 1,050,000 shares of
Common Stock solely to cover over-allotments in the sale of the shares in the
Offering. Such shares will be sold by the Selling Stockholders on a pro-rata
basis in the same proportion to the number of shares reflected in the table.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
approximately 16,825,839 shares of Common Stock. In addition, 289,088 shares
of Common Stock will be issuable upon exercise of outstanding Warrants and
2,591,768 shares will be issuable upon exercise of Employee Stock Options. Of
the shares that will be outstanding after this Offering, approximately
10,470,832 shares (not including 289,088 shares issuable upon exercise of
Lender Warrants) will be freely tradable without restriction or further
registration under the Securities Act. All of the remaining 6,355,007 shares
of Common Stock held by existing stockholders and 2,591,768 shares issuable
upon exercise of Employee Stock Options will be "restricted" securities within
the meaning of the Securities Act as a result of the issuance thereof in
private transactions not involving a public offering. The "restricted"
securities may not be resold unless they are registered under the Securities
Act or are sold pursuant to an available exemption from registration,
including Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner except an
"affiliate" (as that term is defined in Rule 144)) is entitled to sell, within
any three-month period, a number of those shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock
(approximately 168,258 shares immediately after this Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
requirements as to the availability of current public information concerning
the Company. Rule 144 provides that a person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who has beneficially owned
shares for at least three years (including the holding period of any prior
owner except an "affiliate") is entitled to sell those shares under Rule
144(k) without regard to the limitation described above. In June 1995, the
Commission proposed reducing the two-year and three-year holding periods
described above to one year and two years, respectively.
After completion of the Offering and expiration of the 180-day lockup
agreement described below, 6,355,007 shares (5,305,007 shares if the
Underwriters' over-allotment options are exercised in full) of Common Stock
held by stockholders prior to the consummation of the Offering will be
eligible for sale on the open market under Rule 144 (as currently in effect),
subject to the volume and manner of sales limitations referred to above,
commencing March 31, 1997.
Certain stockholders and holders of Warrants have been granted certain
rights with respect to registration under the Securities Act of shares of
Common Stock held by them. Pursuant to the Lender Registration Rights
Agreement, the Company has effected a shelf registration with respect to all
289,088 shares of Common Stock issuable upon exercise of the Lender Warrants.
See "Certain Transactions--Certain Agreements Regarding the Common Stock" and
"--Lender Warrants." The Company also intends to register under the Securities
Act the shares of Common Stock issuable upon exercise of certain Employee
Stock Options after the plan under which such options were granted has
received stockholder approval, which is expected to be obtained at the
Company's annual meeting to be held in May 1996.
The Company's directors and executive officers, the Selling Stockholders and
certain other significant stockholders of the Company have agreed that, for
the period of up to 180 days following the date of this Prospectus, each will
not (i) directly or indirectly, offer to sell, contract to sell or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition"), of any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, the
"Securities"), now owned or hereafter acquired by the undersigned or with
respect to which the undersigned has or hereafter acquires the power of
disposition, otherwise than (a) the shares offered hereby by such persons, (b)
as a bona fide gift or gifts, provided the donee or donees thereof agree to be
bound in writing by the terms of the "lock-up" agreement, (c) as a
distribution to limited partners or stockholders of the undersigned, provided
that the distributees thereof agree in writing to be bound by the terms of the
"lock-up" agreement, or (d) with prior written consent of the Representatives
or (ii)
63
<PAGE>
make any demand for or exercise any right with respect to the registration of
any Securities. In addition, the Company has agreed that, during the period of
up to 180 days from the date of this Prospectus, it will not, without the
prior written consent of the Representatives, either directly or indirectly,
effect a Disposition with respect to any Securities, other than the shares
offered hereby and the Company's issuance of Common Stock upon the exercise of
the Employee Stock Options.
The Company can make no prediction as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
for the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely
affect prevailing market prices. See "Risk Factors--Impact of Shares Eligible
for Future Sale."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 46,500,000 shares,
consisting of (a) 1,500,000 shares of a class designated as Preferred Stock,
$0.01 par value ("preferred stock"), (b) 40,000,000 shares of a class
designated as Common Stock, par value $0.10 per share (the "Common Stock"),
and (c) 5,000,000 shares of a class designated as Nonvoting Common Stock,
$0.01 par value (the "Nonvoting Common Stock"). Of the authorized shares of
capital stock, 11,446,306 shares of Common Stock, 758,994 shares of Nonvoting
Common Stock and an aggregate of 15,862 shares of preferred stock, consisting
of 5,000 shares of Series A Preferred Stock, no shares of Series B Preferred
Stock and 10,862 shares of Series C Preferred Stock were outstanding as of
February 12, 1996. In addition, as of such date, dividends on the Series A
Preferred Stock consisting of an aggregate of 2,600 shares of Series A
Preferred Stock had accrued and not been paid, and Employee Stock Options
exercisable for an aggregate of 2,591,768 shares of Common Stock and Warrants
exercisable for an aggregate of 1,409,627 shares of Common Stock were
outstanding.
Holders of shares of Common Stock and Nonvoting Common Stock are entitled to
share ratably in such dividends as may be declared by the Board of Directors
and paid by the Company out of funds legally available therefor, subject to
prior rights of outstanding shares of any preferred stock and certain
restrictions under agreements governing the Company's indebtedness. See
"Common Stock Price Range and Dividend Policy" and "Description of
Indebtedness." In the event of any dissolution, liquidation or winding up of
the Company, holders of shares of Common Stock and Nonvoting Common Stock are
entitled to share ratably in assets remaining after payment of all liabilities
and liquidation preferences, if any.
Except as otherwise required by law, the holders of Common Stock are
entitled to one vote per share on all matters voted on by stockholders,
including the election of directors. The holders of a majority of shares of
Common Stock represented at a meeting of stockholders can elect all of the
directors to be elected at such a meeting.
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The currently outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be outstanding upon completion of the Offering will be fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to the rights of any series of preferred stock which
the Company may issue in the future. Shares of Nonvoting Common Stock are
entitled to all rights granted to, and subject to all restrictions imposed on,
shares of Common Stock, other than the right to vote. Subject to certain
restrictions, shares of Nonvoting Common Stock are convertible at any time at
the option of the holder thereof into shares of Common Stock for no additional
consideration.
Preferred Stock
The Company intends to redeem all outstanding shares of Preferred Stock with
a portion of the proceeds from this Offering. See "Use of Proceeds." The Board
of Directors may, without further action by the Company's stockholders, from
time to time, authorize the issuance of shares of preferred stock in series
and may, at the time of issuance, determine the powers, rights, preferences
and limitations of any such series. Satisfaction of any dividend preferences
on outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
preferred stock may be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the Company before any
payment is made to the holders of Common Stock. Under certain circumstances,
the issuance of such preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent directors.
LENDER WARRANTS
The Company expects that Lender Warrants exercisable for an aggregate of
289,088 shares of Common Stock will remain outstanding after the Offering. The
Lender Warrants contain customary antidilution provisions and are exercisable
through January 31, 2002. In addition, the Company is entitled to repurchase
the Lender
65
<PAGE>
Warrants at any time after January 31, 1999 at the greater of the then fair
market value of the shares of Common Stock (less the applicable exercise price
for the Lender Warrants) or the Equity Value (which is defined generally as (i)
five times the Company's and its consolidated subsidiaries' earnings before
interest, taxes and depreciation and amortization minus (ii) non-convertible
debt of the Company and its consolidated subsidiaries minus (iii) preferred
stock of the Company plus (iv) cash and cash equivalents). In the event the
Company repurchases Lender Warrants or shares of Common Stock pursuant to the
call option granted under the Lender Warrants and, within twelve months after
the date of such repurchase, the Company, any subsidiary of the Company, or
Wingate Partners, Cumberland or Good Capital or their subsidiaries, or
affiliates (but excluding any limited partners of Wingate Partners as such) or
associates has entered into any contract relating to a merger of the Company or
sale of all or substantially all of the assets of the Company or any subsidiary
of the Company (a "Look Back Event"), then the Company is required to make a
payment to each holder whose Lender Warrants or shares of Common Stock were
repurchased in an amount generally equal to (i) the excess of the fair market
value of the consideration received by the Company, the subsidiaries and the
stockholders of the Company (on a per share basis) in connection with the Look
Back Event over (ii) the sum of (a) the amount paid to such holder pursuant to
the exercise by the Company of its call option plus (b) imputed interest on
such amount through the date of repurchase at the base rate under the Company's
existing senior credit agreement.
The Lender Warrants also contain certain put rights which require the Company
to repurchase such Lender Warrants upon the earlier of January 31, 1997 or the
occurrence of certain extraordinary corporate events. The purchase price
payable by the Company or USSC upon the exercise of the put rights is the
greater of the then fair market value of the shares of Common Stock (less the
applicable exercise price of the Lender Warrants) or the Equity Value. Because
Associated refinanced all of its existing indebtedness and triggered the put
rights in connection with the Acquisition, the Lender Warrant Agreement was
amended to provide that no put rights may be exercised thereunder until
February 10, 1996. The Lender Warrants may be put to the Company at any time
prior to consummation of the Offering, at which time such put rights will
terminate.
The Lender Warrants provide the holders with certain "tag along rights" which
entitle such holders to participate, on a pro rata basis, in certain sales of
shares of Common Stock by Wingate Partners, Cumberland, Good Capital or any of
their subsidiaries, affiliates (but excluding any limited partners of Wingate
Partners as such) or associates. Pursuant to the Lender Warrants, Wingate
Partners has been granted certain "go along rights" which are triggered
(subject to certain exceptions) in the event (i) Wingate Partners sells 100% of
its equity interest in the Company in a private offering, (ii) all or
substantially all of the assets of the Company are sold and the proceeds of
such sale are distributed to the stockholders of the Company or (iii) the
Company participates in a merger or consolidation. In the event Wingate
Partners exercises its "go along rights" in connection with the occurrence of
one of the events described above, each holder of Lender Warrants would become
obligated to sell all Lender Warrants and shares of Common Stock held by such
holders in the applicable transaction and to vote all shares of Common Stock in
favor of such transaction.
The Lender Warrants contain a mechanism whereby after the Lender Warrants (or
a portion thereof) have been sold pursuant to the put rights, tag along rights
or go along rights under the Lender Warrants (provided that such events have
occurred prior to January 31, 1999), each holder of Tranche B Warrants is
required to refund to the Company a portion of the aggregate amount earned by
such holder on its Tranche B Warrant investment (the "Refunded Amount"). The
Refunded Amount is only required to be paid in the event the amount earned by
all holders of the Tranche B Warrants exceeds $6,500,000 and such holders
received an internal rate of return on their investment represented by the
Tranche B portion of the Associated term loans in effect prior to the Merger of
at least 25%. The Refunded Amount ranges from 10% of amounts earned on the
Tranche B Warrants to 40% of such amounts, depending upon the amount by which
the aggregate amount earned by all holders of the Tranche B Warrants exceeds
$6,500,000 and the internal rate of return received by such holders on their
investment represented by the Tranche B portion of the Associated term loans in
effect prior to the Merger exceeds 25%.
Pursuant to the terms of the Lender Warrants, if, at any time, the Company
does not have securities registered under Section 12(b) or 12(g) of the
Exchange Act and is not required to file reports under Section
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<PAGE>
15(d) of the Exchange Act, the holders of the Lender Warrants will be entitled
to preemptive rights with respect to certain issuances of shares of Common
Stock by the Company and to board observation rights for meetings of the
Boards of Directors of the Company and its subsidiaries. The Lender Warrants
also contain certain covenants and agreements with respect to, among other
things, (i) transactions with affiliates (other than the payment of a limited
amount of management fees to Wingate Partners, Cumberland and Good Capital),
(ii) certain mergers, reorganizations, recapitalization and other events with
respect to the shares of Common Stock, (iii) the redemption of shares of
Common Stock, (iv) changes of the fiscal year of the Company, (v) the taking
of actions that would cause the Company or any subsidiary of the Company to
own less than 80% of any subsidiary of the Company, except that the Company
and each subsidiary of the Company may own a percentage of the stock of any
such subsidiary not lower than the percentage owned at the effective time of
the Merger, (vi) delivery of financial statements of the Company and (vii)
indemnification.
PREFERRED B WARRANTS
The Company expects that all Preferred B Warrants will be exercised
immediately prior to the Offering. The Preferred B Warrants contain customary
antidilution provisions and are exercisable through January 31, 2002. The
Preferred B Warrants provide the holders thereof with certain "tag along
rights" which entitle such holders to participate, on a pro rata basis, in
certain sales of shares of Common Stock by Wingate Partners, Cumberland, Good
Capital or any other controlling stockholder of the Company. Pursuant to the
Preferred B Warrants, Wingate Partners has been granted certain "go along
rights" which are triggered (subject to certain exceptions) in the event (i)
Wingate Partners sells 100% of its equity interest in the Company in a private
offering, (ii) all or substantially all of the assets of the Company are sold
and the proceeds of such sale are distributed to the stockholders of the
Company or (iii) the Company participates in a merger or consolidation. In the
event Wingate Partners exercises its "go along rights" in connection with the
occurrence of one of the events described above, each holder of Preferred B
Warrants would become obligated to sell all Preferred B Warrants and shares of
Common Stock held by such holders in the applicable transaction and to vote
all shares of Common Stock in favor of such transaction.
Pursuant to the terms of the Preferred B Warrants, if, at any time, the
Company does not have securities registered under Section 12(b) or 12(g) of
the Exchange Act and is not required to file reports under Section 15(d) of
the Exchange Act, the holders of the Preferred B Warrants will be entitled to
preemptive rights with respect to certain issuances of shares of Common Stock
by the Company and to board observation rights for meetings of the Boards of
Directors of the Company and its subsidiaries. The Preferred B Warrants also
contain certain covenants and agreements with respect to, among other things,
(i) transactions with affiliates (other than certain specified transactions
with Wingate Partners, Cumberland and Good Capital), (ii) certain mergers,
reorganizations, recapitalizations and other events with respect to the shares
of Common Stock, (iii) the repurchase or redemption of shares of Common Stock,
(iv) changes of the fiscal year of the Company, (v) the taking of actions that
would cause the Company or any subsidiary of the Company to own less than 80%
of any subsidiary of the Company, except that the Company and each subsidiary
of the Company may own a percentage of the stock of any such subsidiary not
lower than the percentage owned at the effective time of the Merger, (vi)
delivery of financial statements of the Company and (vii) indemnification.
SPECIAL PROVISIONS OF THE CHARTER AND BYLAWS
The Charter and Bylaws provide include certain provisions that could have
anti-takeover effects. The provisions are intended to enhance the likelihood
of continuity and stability in the composition of, and in the policies
formulated by, the Board of Directors. These provisions are also intended to
help ensure that the Board of Directors, if confronted by an unsolicited
proposal from a third party that has acquired a block of stock of the Company,
will have sufficient time to review the proposal, to develop appropriate
alternatives to the proposal, and to act in what the Board of Directors
believes to be the best interests of the Company and its stockholders. The
provisions of the Charter described under "Classified Board of Directors" and
"Vote Required for Certain Business Combinations" below may not be amended or
repealed unless approved by holders of at least 80% of the voting power of the
then outstanding Common Stock.
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<PAGE>
The following is a summary of the provisions of the Charter and Bylaws and
is qualified in its entirety by reference to such documents in their
respective forms filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
Classified Board of Directors. The Charter provides for three classes of
directors, which serve staggered three-year terms and which shall be elected
by the holders of the Common Stock. Under certain circumstances, the
classification of directors has the effect of making it more difficult for
stockholders to change the composition of the Board of Directors in a
relatively short period of time. Given the current structure of the Company's
Board of Directors, at least two annual meetings of stockholders, instead of
one, will generally be required to effect a change in a majority of the Board
of Directors at any time when the Company has seven or more directors.
Vote Required for Certain Business Combinations. The Company is subject to
Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"),
which prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless one of the following events occurs: (i) prior
to the date of the business combination, the transaction is approved by the
board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (iii) on or after such date the business combination is
approved by the board and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" for purposes of the DGCL is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of the corporation's voting stock.
In addition, the Charter provides that certain transactions involving an
"interested stockholder" require the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding Common Stock. Such
transactions include certain (i) mergers or consolidations of the Company,
(ii) sales, leases, pledges and similar transactions involving the Company's
assets, (iii) issuances or transfers of the Company's securities, (iv)
adoptions of a plan of liquidation or dissolution of the Company and (v)
reclassifications and recapitalizations of the Company. Such vote requirement
is in addition to that required by the DGCL as described in the preceding
paragraph. An "interested stockholder" for purposes of the Charter is a person
who beneficially owns 20% or more of the Company's voting stock or an
affiliate of the Company who at any time within the previous two years
beneficially owned 20% or more of the Company's voting stock. Wingate
constitutes an "interested stockholder for purposes of both the DGCL and the
Charter.
Limitations on Directors' Liability. The Charter provides that, to the
fullest extent permitted by Delaware law, no director shall be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director. By virtue of these provisions, a director of the Company is not
personally liable for monetary damages for a breach of such director's
fiduciary duty except for liability for (i) breach of the duty of loyalty to
the Company or to its stockholder, (ii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii)
dividends or stock repurchases or redemptions that are unlawful under the DGCL
and (iv) any transaction from which such director receives an improper
personal benefit. In addition, the Charter provides that if the DGCL is
amended to authorize the further elimination or limitation of the liability of
a director, then the liability of the directors will be eliminated or limited
to the fullest extent permitted by the DGCL.
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<PAGE>
DESCRIPTION OF INDEBTEDNESS
CREDIT FACILITIES
Immediately prior to acceptance for payment of shares of Common Stock in the
Tender Offer, Associated and ASI entered into the Credit Agreement with Chase
Bank, as agent, and a group of banks and financial institutions (including
Chase Bank, the "Senior Lenders"), providing for (i) the Term Loan Facilities
consisting of the Tranche A Facility in an aggregate principal amount of
$125.0 million and the Tranche B Facility in an aggregate principal amount of
$75.0 million and (ii) the Revolving Credit Facility in an aggregate principal
amount of up to $300.0 million, including a $90.0 million sublimit available
for issuance of letters of credit. Upon consummation of the Merger, the
obligations of Associated and ASI in respect of the Credit Agreement were
assumed by the Company and USSC, respectively. The Revolving Credit Facility
was amended as of December 21, 1995 to increase the amount available
thereunder to an aggregate of $325.0 million. A portion of the Term Loan
Facilities was repaid with a portion of the proceeds from the Notes. See "--
Notes."
The following is a summary of the principal terms of the Credit Agreement,
which summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Credit
Agreement, a copy of which is available upon request to the Company. See
"Available Information."
The loans outstanding under the Term Loan Facilities and the Revolving
Credit Facility bear interest, at USSC's option, equal to (i) the Base Rate
(as hereinafter defined) plus 2.25% (if the Tranche B Facility) or 1.75% (if
either the Tranche A Facility or the Revolving Credit Facility) or (ii) LIBOR
(as defined), based on one, two, three or six month periods, plus 3.25% (if
the Tranche B Facility) or 2.75% (if the Tranche A Facility or the Revolving
Credit Facility), with the applicable margins for all but the Tranche B
Facility being subject to reductions based on a debt to cash flow ratio test.
Amounts outstanding under the Tranche A Facility are required to be repaid
in 20 consecutive quarterly installments, the first four of which (each in the
aggregate principal amount of $3.63 million) are due on the last day of each
of the first four calendar quarters commencing with the quarter ending June
30, 1995. Subsequent quarterly payments under the Tranche A Facility are each
in the aggregate principal amount of $6.05 million for each of the eight
consecutive calendar quarters commencing with the quarter ending June 30, 1996
and $7.26 million for each of the eight consecutive calendar quarters
commencing with the quarter ending June 30, 1998. Amounts outstanding under
the Tranche B Facility will be repaid in 28 consecutive quarterly
installments, the first twenty of which (in the aggregate principal amount of
$0.24 million each) will be due on the last day of each of the first twenty
calendar quarters which commenced with the quarter ended June 30, 1995. The
remaining eight installments in the aggregate principal amount of $8.47
million each will be due on the last day of each calendar quarter commencing
with the quarter ending June 30, 2000. The final installments under the
Tranche A Facility and the Tranche B Facility will be payable on March 31,
2000 and March 31, 2002, respectively. The Revolving Credit Facility will
mature on March 31, 2000. As of December 31, 1995, $87.4 million remained
available for borrowing under the Revolving Credit Facility.
The Revolving Credit Facility is subject to (i) a borrowing base equal to
80% of Eligible Receivables (as defined) plus 50% of Eligible Inventory (as
defined in the Credit Agreement) (provided that no more than 60% or, during
certain periods 65%, of the Borrowing Base may be attributable to Eligible
Inventory) plus the aggregate amount of cover for Letter of Credit Liabilities
(as defined) and (ii) the requirement that, for each fiscal year commencing
January 1, 1996, USSC must repay revolving loans so that for a consecutive
period of 30 days in each fiscal year the aggregate revolving loans do not
exceed $200.0 million.
Loans under the Term Loan Facilities and the Revolving Credit Facility may
be prepaid at any time and are subject to certain mandatory prepayments out of
(i) net proceeds in excess of $15.0 million received from the issuance of
equity by USSC or any of its subsidiaries after the consummation of the
Merger, (ii) net proceeds from certain asset sales in excess of $10.0 million
and (iii) 50% of USSC's Excess Cash Flow (as defined) if the
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<PAGE>
Debt to Cash Flow Ratio (as defined) as of the last day of the fiscal year is
less than 3 to 1 and otherwise 75% of USSC's Excess Cash Flow. A waiver under
the Credit Agreement has been obtained with respect to the application of the
Company's net proceeds from the Offering as described herein. Optional
prepayments under the Term Loan Facilities will be applied, pro rata to loans
outstanding under the Tranche A Facility and the Tranche B Facility (pro rata
to the remaining installments). Mandatory prepayments will be applied first,
pro rata to loans outstanding under the Tranche A Facility and the Tranche B
Facility (pro rata to the remaining installments), and second, to the
permanent reduction of commitments (and the payment of loans outstanding)
under, the Revolving Credit Facility.
The Term Loan Facilities and the Revolving Credit Facility are guaranteed,
on a joint and several basis, by the Company, and will be guaranteed by all of
the direct and indirect domestic subsidiaries of USSC (if any).
The Term Loan Facilities and the Revolving Credit Facility are secured by
perfected first priority pledges of the stock of USSC, all of the stock of the
domestic direct and indirect subsidiaries of USSC and certain of the stock of
all of the foreign direct and indirect subsidiaries of USSC and security
interests in and liens upon all accounts receivable, inventory, contract
rights and other personal and certain real property of USSC and its domestic
subsidiaries.
The Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of the
type.
The Company and USSC are obligated under the Credit Agreement to indemnify
the Senior Lenders (and their respective officers, directors, employees and
affiliates) against certain liabilities in connection with the Acquisition and
the Credit Facilities.
At the closing of the Acquisition, shares of Associated nonvoting common
stock representing 278,949 shares of Nonvoting Common Stock were issued to
CMIHI, an affiliate of Chase Bank. See "Certain Transactions--Certain
Interests of Chase Bank."
NOTES
The Notes were issued on May 3, 1995 pursuant to the Indenture. As of
February 12, 1996, the aggregate outstanding principal amount of Notes was
$150.0 million. The Notes are unsecured senior subordinated obligations of
USSC, and payment of the Notes is fully and unconditionally guaranteed by the
Company on a senior subordinated basis. The Notes mature on May 1, 2005, and
bear interest at the rate of 12 3/4% per annum, payable semiannually on May 1
and November 1 of each year.
The net proceeds to the Company from the sale of the Notes were $145.5
million (after an underwriter discount of $4.5 million). Such net proceeds
were used to (i) repay the Subordinated Bridge Facility, scheduled to mature
on March 29, 1996, in the principal amount of $130.0 million, plus accrued
interest thereon (at an annual rate of 13%) of approximately $1.6 million,
(ii) repay approximately $4.1 million of the outstanding amounts under the
Tranche A Facility, scheduled to mature serially through March 31, 2000, plus
accrued interest thereon (at an annual rate of 8.9%) of approximately $0.02
million, (iii) repay approximately $2.4 million of the outstanding amounts
under the Tranche B Facility, scheduled to mature serially through March 31,
2002, plus accrued interest thereon (at an annual rate of 9.4%) of
approximately $0.01 million, (iv) pay a dividend to the Company in the
aggregate amount of $7.0 million to effect the Series B Repurchase and (v) pay
certain expenses.
The Indenture provides that, on or prior to May 1, 1998, USSC may redeem, at
its option (the "Equity Clawback Option"), up to $50.0 million aggregate
principal amount of Notes with the proceeds of one or more Public Equity
Offerings (as defined) at 112.75% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of redemption; provided,
that Notes having an aggregate principal amount of
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$100.0 million remain outstanding immediately after any such redemption. The
Company intends to contribute a portion of the proceeds from this Offering to
USSC, so that USSC may redeem $50.0 million aggregate principal amount of
Notes and pay the redemption premium thereon of approximately $6.4 million in
accordance with this provision. Such redemption shall be made on a pro rata
basis.
In addition, the Notes are redeemable at the option of USSC at any time on
or after May 1, 2000, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000.............................................................. 106.375%
2001.............................................................. 104.781%
2002.............................................................. 103.188%
2003.............................................................. 101.594%
</TABLE>
and thereafter at 100.0% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control (which term includes the
acquisition by any person or group of more than 50% of the voting power of the
outstanding Common Stock or certain significant changes in the composition of
the Board of Directors), each holder of a Note may require USSC to redeem all
or a portion of such holder's Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of such
redemption. Such obligation, if it arose, could have a material adverse effect
on the Company. Furthermore, such provision could delay, deter or prevent a
takeover attempt.
The Indenture governing the Notes contains certain covenants, including
limitations on the incurrence of indebtedness, the making of restricted
payments, transactions with affiliates, the existence of liens, disposition of
proceeds of asset sales, the making of guarantees by restricted subsidiaries,
transfer and issuances of stock of subsidiaries, the imposition of certain
payment restrictions on restricted subsidiaries and certain mergers and sales
of assets. Such covenants may interfere with USSC's ability to pay dividends
to the Company. See "Risk Factors--Restrictions on Payment of Dividends."
Upon consummation of the sale of the Notes, certain pre-Merger holders of
Associated common stock and securities exercisable for such shares contributed
to the Company shares of Common Stock and securities exercisable or
convertible into Common Stock representing an aggregate of 278,949 shares of
Common Stock, in exchange for which the Company issued 278,949 shares of
Nonvoting Common Stock to CMIHI, an affiliate of Chase Bank, for services
rendered by CMIHI in connection with the Acquisition. See "Certain
Transactions--Certain Interests of Chase Bank."
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<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Bear, Stearns &
Co. Inc., Dean Witter Reynolds Inc. and Goldman, Sachs & Co. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the
Company the number of shares of Common Stock set forth below opposite their
respective names. The Underwriters are obligated to purchase and pay for all
of such shares of Common Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Bear, Stearns & Co. Inc. ..........................................
Dean Witter Reynolds Inc. .........................................
Goldman, Sachs & Co. ..............................................
---------
Total........................................................ 7,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Common Stock to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain selected dealers (who may
include the Underwriters) at such public offering price less a concession not
to exceed $ per share. The selected dealers may reallow a concession to
certain other dealers not to exceed $ per share. After the Offering, the
public offering price, the concession to selected dealers and the reallowance
to other dealers may be changed by the Representatives.
The Selling Stockholders have granted to the Underwriters an option
exercisable for 30 days from the date of this Prospectus to purchase up to
1,050,000 additional shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus less the underwriting discount. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the shares of Common Stock offered hereby.
If the Underwriters exercise such option in part, each Selling Stockholder
will sell shares in the proportion that the number of shares of such Selling
Stockholder subject to option bears to the total number of shares subject to
the option granted by the Selling Stockholders. To the extent the Underwriters
exercise their option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of additional shares proportionate to
such Underwriter's initial commitment as indicated in the preceding table.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
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<PAGE>
Pursuant to the Underwriting Agreement, the Company's directors and
executive officers, the Selling Stockholders and certain other significant
stockholders of the Company have agreed that, for the period of 180 days
following the date of this Prospectus, each will not (i) directly or
indirectly, make a Disposition of any Securities now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, otherwise than (a) the shares
offered hereby by such persons, (b) as a bona fide gift or gifts, provided the
donee or donees thereof agree to be bound in writing by the terms of the
"lock-up" agreement, (c) as a distribution to limited partners or stockholders
of the undersigned, provided that the distributees thereof agree in writing to
be bound by the terms of the "lock-up" agreement, or (d) with prior written
consent of the Representatives or (ii) make any demand for or exercise any
right with respect to the registration of any Securities. In addition, the
Company has agreed that, during the period of 180 days from the date of this
Prospectus, it will not, without the prior written consent of the
Representatives, either directly or indirectly, offer to sell, contract to
sell or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any Securities, other than the shares offered hereby and the
Company's issuance of Common Stock upon the exercise of the Employee Stock
Options.
In general, the rules of the Commission prohibit the Underwriters from
making a market in the Common Stock immediately preceding the commencement of
sales in the Offering. The Commission has, however, adopted exemptions from
these rules that permit passive market making under certain conditions. These
rules permit an Underwriter to continue to make a market subject to the
conditions, among others, that its bid not exceed the highest bid by a market
maker not connected with the Offering and that its net purchases on any one
trading day not exceed prescribed limits. Pursuant to these exemptions,
certain Underwriters may engage in passive market making in the Common Stock
during the cooling off period.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New
York, and for the Underwriters by Kirkland & Ellis, Chicago, Illinois (a
partnership which includes professional corporations).
EXPERTS
The consolidated financial statements of the Company as of and for the year
ended December 31, 1995, and the consolidated financial statements of United
as of and for the seven months ended March 30, 1995, included in this
Prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Associated as of December 31, 1994
and for the years ended December 31, 1993 and 1994 included in this Prospectus
and the consolidated financial statements of United as of August 31, 1993 and
1994 and for the years ended August 31, 1992, 1993 and 1994 included in this
Prospectus have been audited by Arthur Andersen LLP, as indicated in its
reports with respect thereto, and are included herein in reliance upon the
authority of such firm as an expert in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
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<PAGE>
reference is made to the Registration Statement, including the exhibits
thereto, which may be inspected without charge at the public reference
facility maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission at
prescribed rates. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete. With respect
to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is 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
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected without charge and copied, at
prescribed rates, at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 2549, and the
Regional Offices of the Commission at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048.
The Common Stock is listed on the Nasdaq National Market, and such reports,
proxy statements and other information can also be inspected and copied at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference documents that are not presented
herein or delivered herewith. The Company undertakes to provide without charge
to each person to whom a copy of this Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents incorporated by reference herein, other than the exhibits to such
documents, unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates. Written or oral
requests for such copies should be directed to: United Stationers Inc., 2200
East Golf Road, Des Plaines, Illinois 60016-1267, Attention: Investor
Relations, telephone number (847) 699-5000.
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference in this Prospectus:
Transition Report on Form 10-K for the seven-month period ended March 30,
1995; and
All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the period covered by the Transition
Report referred to above.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this
Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNITED STATIONERS INC. (THE COMPANY, PREVIOUSLY ASSOCIATED HOLDINGS, INC.) AND
SUBSIDIARY
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Report of Independent Public Accountants.................................. F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995.............. F-4
Consolidated Statements of Income for the Years Ended December 31, 1993,
1994 and 1995............................................................ F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993, 1994
and 1995................................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995...................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
UNITED STATIONERS INC. AND SUBSIDIARIES
Report of Independent Auditors............................................ F-22
Report of Independent Public Accountants.................................. F-23
Consolidated Balance Sheets as of August 31, 1993, August 31, 1994 and
March 30, 1995............................................................ F-24
Consolidated Statements of Operations for the years ended August 31, 1992,
August 31, 1993, August 31, 1994 and for the seven months ended March 31,
1994 (unaudited) and March 30, 1995...................................... F-26
Consolidated Statements of Changes in Stockholders' Investment for the
years ended August 31, 1992, August 31, 1993, August 31, 1994 and for the
seven months ended March 30, 1995........................................ F-27
Consolidated Statements of Cash Flows for the years ended August 31, 1992,
August 31, 1993, August 31, 1994 and for the seven months ended March 31,
1994 (unaudited) and March 30, 1995...................................... F-28
Notes to Consolidated Financial Statements................................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of United Stationers Inc.:
We have audited the accompanying consolidated balance sheet of United
Stationers Inc. and Subsidiary as of December 31, 1995 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements 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 financial position of United
Stationers Inc. and Subsidiary at December 31, 1995 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, in 1995 the
Company changed its method of valuing inventory from the first-in, first-out
(FIFO) method to the last-in, first-out (LIFO) method.
Chicago, Illinois
January 29, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Associated Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of ASSOCIATED
HOLDINGS, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Associated
Holdings, Inc. and subsidiary as of December 31, 1994, and the results of
their operations and their cash flows for the years ended December 31, 1993
and 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 23, 1995 (except with
respect to the matters discussed
in Note 1 as to which the date
is February 13, 1995)
F-3
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 1,849 $ 11,660
Accounts receivable, less allowance for doubtful accounts
of $3,496 in 1994 and $7,315 in 1995..................... 45,139 265,827
Inventories............................................... 88,197 381,618
Other..................................................... 3,795 30,903
-------- ----------
Total Current Assets.................................... 138,980 690,008
-------- ----------
Property, Plant and Equipment, at cost
Land...................................................... 7,315 24,856
Buildings................................................. 27,976 105,136
Fixtures and equipment.................................... 18,470 96,467
Leasehold improvements.................................... 1,514 1,634
Assets under capital lease................................ 3,002 3,002
-------- ----------
Total property, plant and equipment....................... 58,277 231,095
Less--accumulated depreciation and amortization........... 12,830 31,114
-------- ----------
Net Property, Plant and Equipment......................... 45,447 199,981
-------- ----------
Goodwill, net.............................................. 4,948 77,786
-------- ----------
Other...................................................... 3,104 33,608
-------- ----------
Total Assets............................................ $192,479 $1,001,383
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt and capital leases... $ 5,901 $ 23,886
Accounts payable.......................................... 54,351 194,567
Accrued expenses.......................................... 20,473 107,622
Accrued income taxes...................................... 1,801 8,468
-------- ----------
Total Current Liabilities............................... 82,526 334,543
-------- ----------
Deferred Income Taxes...................................... -- 34,380
-------- ----------
Long-Term Obligations
Long-term debt............................................ 55,467 526,198
Deferred obligations and other liabilities................ 4,872 18,505
-------- ----------
Total Long-Term Obligations............................. 60,339 544,703
-------- ----------
Redeemable Preferred Stock
Preferred Stock Series A, $0.01 par value; 15,000
authorized; 5,000 issued and outstanding; 1,788 and
2,437, respectively, accrued............................. 6,788 7,437
Preferred Stock Series B, $0.01 par value; 15,000
authorized; 6,560 issued and outstanding in 1994......... 6,560 --
Preferred Stock Series C, $0.01 par value; 15,000
authorized; 9,841 and 10,604, respectively, issued and
outstanding.............................................. 9,841 10,604
-------- ----------
Total Redeemable Preferred Stock........................ 23,189 18,041
-------- ----------
Redeemable Warrants........................................ 1,650 39,692
-------- ----------
Stockholders' Equity
Additional preferred stock, $0.01 par value; 200,000 and
1,455,000, respectively, authorized; 0 issued and
outstanding.............................................. -- --
Common Stock (voting), $0.10 par value; 40,000,000
authorized; 954,911 issued and outstanding; 5,435
accrued in 1994; 11,446,306 issued and outstanding in
1995 $0.01 par value .................................... 10 1,145
Common Stock (nonvoting), $0.01 par value; 5,000,000
authorized; 758,994 issued and outstanding in 1995....... -- 8
Capital in excess of par value............................ 18,139 28,871
Retained earnings......................................... 6,626 --
-------- ----------
Total Stockholders' Equity.............................. 24,775 30,024
-------- ----------
Total Liabilities and Stockholders' Equity.............. $192,479 $1,001,383
======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
--------- --------- ----------
<S> <C> <C> <C>
Net Sales..................................... $ 455,731 $ 470,185 $1,751,462
Cost of Goods Sold............................ 350,251 357,276 1,370,522
--------- --------- ----------
Gross profit................................ 105,480 112,909 380,940
Operating Expenses:
Warehousing, marketing and administrative
expenses................................... 94,502 94,788 313,624
Restructuring charge........................ -- -- 9,759
--------- --------- ----------
Total operating expenses.................... 94,502 94,788 323,383
--------- --------- ----------
Income from operations...................... 10,978 18,121 57,557
Interest Expense, net......................... 7,235 7,725 46,186
--------- --------- ----------
Income before income taxes and extraordinary
item....................................... 3,743 10,396 11,371
Income Taxes.................................. 781 3,993 5,128
--------- --------- ----------
Income before extraordinary item............ 2,962 6,403 6,243
Extraordinary Item--loss on early retirement
of debt, net of tax benefit of $967.......... -- -- (1,449)
--------- --------- ----------
Net Income.................................... 2,962 6,403 4,794
Preferred Stock Dividends Issued and Accrued.. 2,047 2,193 1,998
--------- --------- ----------
Net Income Attributable to Common
Stockholders................................. $ 915 $ 4,210 $ 2,796
========= ========= ==========
Net Income Per Common and Common Equivalent
Share
(Primary and Fully Diluted):
Income before extraordinary item............ $ 0.11 $ 0.51 $ 0.33
Extraordinary item.......................... -- -- (0.11)
--------- --------- ----------
Net income per common and common equivalent
share...................................... $ 0.11 $ 0.51 $ 0.22
========= ========= ==========
Average Number of Common Shares Used in
Primary Calculation.......................... 8,071,202 8,250,586 12,809,212
========= ========= ==========
Average Number of Common Shares Used in Fully
Diluted Calculation.......................... 8,071,202 8,308,780 12,913,229
========= ========= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
UNITED STATIONERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF CAPITAL
REDEEMABLE PREFERRED STOCK REDEEMABLE COMMON COMMON COMMON COMMON IN
------------------------------ WARRANTS SHARES STOCK SHARES STOCK EXCESS RETAINED
A B C TOTAL OUTSTANDING (VOTING) (VOTING) (NONVOTING) (NONVOTING) OF PAR EARNINGS
------ ------ ------- ------- ----------- ---------- -------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1992.. $5,488 $5,384 $ 8,077 $18,949 $ 1,435 896,258 $ 9 -- $-- $ 8,956 $1,501
Net income........ -- -- -- -- -- -- -- -- -- -- 2,962
Stock dividends
issued or accrued
on preferred
stock............. 650 559 838 2,047 -- -- -- -- -- -- (2,047)
Other............. -- -- -- -- -- -- -- -- -- 41 --
------ ------ ------- ------- ------- ---------- ------ ------- ---- ------- ------
DECEMBER 31, 1993.. 6,138 5,943 8,915 20,996 1,435 896,258 9 -- -- 8,997 2,416
Net income........ -- -- -- -- -- -- -- -- -- -- 6,403
Stock dividends
issued or accrued
on preferred
stock............. 650 617 926 2,193 -- -- -- -- -- -- (2,193)
Other............. -- -- -- -- -- -- -- -- -- 51 --
Issuance of
common shares..... -- -- -- -- -- 58,653 1 -- -- 8,999 --
Common shares
accrued........... -- -- -- -- -- 5,435 -- -- -- 63 --
Warrants
accrued........... -- -- -- -- 215 -- -- -- -- 29 --
------ ------ ------- ------- ------- ---------- ------ ------- ---- ------- ------
DECEMBER 31, 1994.. 6,788 6,560 9,841 23,189 1,650 960,346 10 -- -- 18,139 6,626
Net income........ -- -- -- -- -- -- -- -- -- -- 4,794
Stock dividends
issued or accrued
on Preferred
Stock............. 649 332 763 1,744 -- -- -- -- -- -- (1,744)
Repurchase of
Series B
Preferred Stock... -- (6,892) -- (6,892) -- -- -- -- -- -- --
Cash dividends.... -- -- -- -- -- -- -- -- -- -- (360)
Accretion of
warrants to fair
market value...... -- -- -- -- 37,275 -- -- -- -- (28,538) (8,737)
Issuance of
warrants
resulting from
option grant...... -- -- -- -- 2,900 -- -- -- -- (2,900) --
Nonvoting common
stock issued for
services related
to financing the
Acquisition
issued in
exchange for
common stock,
warrants and
options........... -- -- -- -- (460) (109,159) (11) 139,474 1 2,749 --
Increase in value
of stock option
grants............ -- -- -- -- -- -- -- -- -- 2,449 --
Common stock
issued:
Acquisition..... -- -- -- -- -- 4,831,873 563 215,614 3 35,223 --
Issuance of
common stock
from exercise of
warrants........ -- -- -- -- (1,673) 58,977 6 -- -- 1,673 --
100% stock
dividend........ -- -- -- -- -- 5,683,463 575 403,906 4 -- (579)
Stock option
exercises....... -- -- -- -- -- 20,806 2 -- -- 28 --
Other........... -- -- -- -- -- -- -- -- -- 48 --
------ ------ ------- ------- ------- ---------- ------ ------- ---- ------- ------
DECEMBER 31, 1995.. $7,437 $ -- $10,604 $18,041 $39,692 11,446,306 $1,145 758,994 $ 8 $28,871 $ --
====== ====== ======= ======= ======= ========== ====== ======= ==== ======= ======
<CAPTION>
TOTAL
STOCK-
HOLDERS'
EQUITY
---------
<S> <C>
DECEMBER 31, 1992.. $10,466
Net income........ 2,962
Stock dividends
issued or accrued
on preferred
stock............. (2,047)
Other............. 41
---------
DECEMBER 31, 1993.. 11,422
Net income........ 6,403
Stock dividends
issued or accrued
on preferred
stock............. (2,193)
Other............. 51
Issuance of
common shares..... 9,000
Common shares
accrued........... 63
Warrants
accrued........... 29
---------
DECEMBER 31, 1994.. 24,775
Net income........ 4,794
Stock dividends
issued or accrued
on Preferred
Stock............. (1,744)
Repurchase of
Series B
Preferred Stock... --
Cash dividends.... (360)
Accretion of
warrants to fair
market value...... (37,275)
Issuance of
warrants
resulting from
option grant...... (2,900)
Nonvoting common
stock issued for
services related
to financing the
Acquisition
issued in
exchange for
common stock,
warrants and
options........... 2,739
Increase in value
of stock option
grants............ 2,449
Common stock
issued:
Acquisition..... 35,789
Issuance of
common stock
from exercise of
warrants........ 1,679
100% stock
dividend........ --
Stock option
exercises....... 30
Other........... 48
---------
DECEMBER 31, 1995.. $30,024
=========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income....................................... $ 2,962 $ 6,403 $ 4,794
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 6,475 6,356 30,272
Deferred income taxes.......................... -- -- 2,709
Compensation expense on stock option grants.... -- -- 2,407
Changes in operating assets and liabilities, net
of Acquisition:
Increase in accounts receivable................ (3,247) (128) (32,330)
(Increase) decrease in inventory............... (14,998) (5,579) 31,656
Increase in other assets....................... (3,990) (598) (107)
Increase (decrease) in accounts payable........ 615 3,806 (5,104)
Increase (decrease) in accrued liabilities..... 1,381 2,260 (3,474)
Increase (decrease) in other liabilities....... (1,282) 1,261 (4,795)
Other.......................................... -- 307 301
------- ------- --------
Net cash provided by (used in) operating
activities.................................. (12,084) 14,088 26,329
------- ------- --------
Cash Flows from Investing Activities:
Acquisition of United--net of cash acquired of
approximately $14,500........................... -- -- (258,274)
Capital expenditures, net........................ (3,273) (554) (8,017)
Other............................................ (3) -- --
------- ------- --------
Net cash used in investing activities........ (3,276) (554) (266,291)
------- ------- --------
Cash Flows from Financing Activities:
Net borrowings (repayment) under revolver........ 9,500 (7,900) (3,608)
Retirements and principal payments of debt....... (3,446) (4,827) (412,342)
Borrowings under financing agreements............ 2,000 -- 686,854
Financing costs.................................. -- -- (25,290)
Issuance of common stock......................... -- -- 12,006
Repurchase of Series B Preferred Stock........... -- -- (6,892)
Cash dividend.................................... -- -- (360)
Other............................................ 41 51 (595)
------- ------- --------
Net cash provided by (used in) financing
activities.................................... 8,095 (12,676) 249,773
------- ------- --------
Net Change in Cash and Cash Equivalents............ (7,265) 858 9,811
Cash and Cash Equivalents, Beginning of Year....... 8,256 991 1,849
------- ------- --------
Cash and Cash Equivalents, End of Year............. $ 991 $ 1,849 $ 11,660
======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5%
of the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million
in the aggregate pursuant to a tender offer (the "Tender Offer"). Immediately
thereafter, Associated merged with and into United (the "Merger" and,
collectively with the Tender Offer, the "Acquisition"), and Associated
Stationers, Inc., a wholly-owned subsidiary of Associated ("ASI") merged with
and into United Stationers Supply Co., a wholly-owned subsidiary of United
("USSC"), with United and USSC continuing as the respective surviving
corporations. United, as the surviving corporation following the Merger, is
referred to herein as the "Company." As a result of share conversions in the
Merger, immediately after the Merger, (i) the former holders of common stock
and common stock equivalents of Associated owned shares of Common Stock and
warrants or options to purchase shares of Common Stock constituting in the
aggregate approximately 80% of the shares of Common Stock on a fully diluted
basis, and (ii) holders of pre-Merger United common stock owned in the
aggregate approximately 20% of the shares of Common Stock on a fully diluted
basis. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
The Acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The purchase price has been allocated to the net assets
of United based on estimated fair values at the date of acquisition with the
excess of cost over fair value allocated to goodwill. The purchase price
allocation to property, plant and equipment is amortized over the estimated
useful lives ranging from 3 to 40 years. Goodwill is amortized over 40 years.
The total purchase price of United by Associated and its allocation to
assets and liabilities acquired are as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchase price:
Price of United shares purchased by Associated............... $ 266,629
Fair value of United shares not acquired in Offer............ 21,618
Transaction costs............................................ 6,309
---------
Total purchase price....................................... $ 294,556
=========
Allocation of purchase price:
Current assets............................................... $ 542,993
Property, plant and equipment................................ 151,012
Goodwill..................................................... 74,503
Other assets................................................. 7,699
Liabilities assumed.......................................... (481,651)
---------
Total purchase price....................................... $ 294,556
=========
</TABLE>
Immediately following the Merger, the number of outstanding shares of Common
Stock was 11,996,154 (or 13,947,440 on a fully diluted basis), of which (i)
the former holders of Class A Common Stock, $0.01 par value, and Class B
Common Stock, $0.01 par value, of Associated (collectively "Associated Common
Stock") and warrants or options to purchase Associated Common Stock in the
aggregate owned 9,206,666 shares constituting approximately 76.7% of the
outstanding shares of Common Stock and outstanding warrants or options for
1,951,286 shares (collectively 80.0% on a fully diluted basis) and (ii) pre-
Merger holders of shares of Common
F-8
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock (other than Associated-owned and treasury shares) in the aggregate owned
2,789,488 shares of Common Stock constituting approximately 23.3% of the
outstanding shares (or 20.0% on a fully diluted basis). As used in this
paragraph, the term "Common Stock" includes shares of Nonvoting Common Stock,
$0.01 par value, of the Company, which are immediately convertible into Common
Stock for no additional consideration.
The financial information for the year ended December 31, 1995 includes
Associated only for the three months ended March 30, 1995 and the results of
the Company for the nine months ended December 31, 1995. Financial information
prior to 1995 reflects that of Associated only. All common and common
equivalent shares have been adjusted to reflect the 100% stock dividend
effective November 9, 1995.
2. ORGANIZATION
The Company is a national general line business products wholesaler. The
Company stocks and distributes more than 25,000 items, including traditional
office supplies, office furniture and desk accessories; computer supplies,
peripherals and hardware, and facilities management supplies. The Company
markets its products primarily through catalogs with a total annual circulation
of more than 7.5 million copies. The Company markets and distributes products
to a broad range of approximately 12,000 resellers, consisting primarily of
office products dealers (including commercial, contract and retail), computer
resellers, office furniture dealers, office products superstores, mail order
companies and mass merchandisers. The Company's distribution capability is
supported by a nationwide network of 43 strategically located and fully
integrated distribution centers.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company.
Investments in 20% to 50% owned companies are accounted for by the equity
method. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with current
year presentations.
REVENUE RECOGNITION
Sales and provisions for estimated sales returns and allowances are recorded
at the time of shipment.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments that have original maturities of three
months or less are considered to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
INVENTORIES
Inventories constituting approximately 94% of total inventories at December
31, 1995 have been valued under the last-in, first-out (LIFO) method. Prior to
1995, all inventories were valued under the first-in, first-out (FIFO) method.
Effective January 1, 1995, Associated changed its method of accounting for the
cost of inventory from the FIFO method to the LIFO method. Associated made this
change in contemplation of its acquisition of United (accounted for as a
reverse acquisition) so that its method would conform to that of United.
Associated believes that in an inflationary environment the LIFO method
provides a better matching of current costs and
F-9
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
current revenues and that earnings reported under the LIFO method are more
easily compared to that of other companies in the wholesale industry where the
LIFO method is common. This change resulted in a charge to pre-tax income of
the Company of approximately $8.8 million ($5.3 million net of tax benefit of
$3.5 million) or $0.37 per common and common equivalent share for the year
ended December 31, 1995. The cumulative effect of this accounting change for
years prior to 1995 is not determinable, nor are the pro forma effects of
retroactive application of the LIFO method to prior years. Inventory valued
under the FIFO and LIFO accounting methods are recorded at the lower of cost
or market. If the lower of FIFO cost or market method of inventory accounting
had been used by the Company for all inventories, merchandise inventories
would have been approximately $8.8 million higher than reported at December
31, 1995.
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are determined by using the straight-line
method over the estimated useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to
ten years; the estimated useful life assigned to buildings does not exceed 40
years; leasehold improvements and assets under capital leases are amortized
over the lesser of their useful lives or the term of the applicable lease.
GOODWILL
Goodwill represents the excess cost over the value of net assets of
businesses acquired and is amortized on a straight-line basis over 40 years.
The Company continually evaluates whether events or circumstances have
occurred indicating that the remaining estimated useful life of goodwill may
not be appropriate. When factors indicate that goodwill should be evaluated
for possible impairment, the Company will use an estimate of undiscounted
future operating income compared to the carrying value of goodwill to
determine if a write-off is necessary. The cumulative amount of goodwill
amortized at December 31, 1994 and 1995 is $295,000 and $1,953,000,
respectively.
SOFTWARE CAPITALIZATION
The Company capitalizes major internal and external systems development
costs determined to have benefits for future periods. Amortization is
recognized over the periods in which the benefits are realized, generally not
to exceed three years. Systems development costs capitalized were $767,000,
$780,000 and $516,000 in 1993, 1994 and 1995, respectively. Amortization
expense was $128,000, $157,000 and $2,298,000 in 1993, 1994 and 1995,
respectively.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based on net income
after preferred stock dividend requirements. Net income per common and common
equivalent share on a primary and fully diluted basis are computed using the
weighted average number of shares outstanding adjusted for the effect of stock
options and warrants considered to be dilutive common stock equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial
Statements and accompanying notes. Actual results could differ from these
estimates.
F-10
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTIONS
The Company accounts for stock options in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees.
4. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
The following summarized unaudited pro forma operating data for the years
ended December 31, 1994 and 1995 is presented giving effect to the Acquisition
as if it had been consummated at the beginning of the respective periods and,
therefore, reflects the results of United and Associated on a consolidated
basis. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations that actually
would have resulted had the combination been in effect on the dates indicated,
or which may result in the future. The pro forma results exclude one-time
nonrecurring charges or credits directly attributable to the transaction
(dollars in thousands, except share data):
<TABLE>
<CAPTION>
PRO FORMA
TWELVE MONTHS
---------------------
ENDED DECEMBER 31,
---------------------
1994 1995
---------- ----------
<S> <C> <C>
Net sales......................................... $1,990,363 $2,201,860
Income before income taxes........................ 4,237 22,737
Net income........................................ 2,581 13,063
Net income per primary and fully diluted common
and common equivalent share...................... 0.07 0.80
</TABLE>
The pro forma income statement adjustments consist of (i) increased
depreciation expense resulting from the write-up of certain fixed assets to
fair value, (ii) additional incremental goodwill amortization, (iii) additional
incremental interest expense due to debt issued, net of debt retired, and (iv)
reduction in preferred stock dividends due to the repurchase of the Series B
Preferred Stock.
In the first quarter of 1995, the Company recorded a restructuring charge of
$9.8 million ($5.9 million net of tax benefit of $3.9 million). The
restructuring charge includes severance costs totaling $1.8 million. The
consolidation plan specifies that 330 distribution, sales and corporate
positions, 180 of which relate to pre-Merger Associated, will be eliminated
substantially within a one-year period following the Merger. As of December 31,
1995, approximately 90 former Associated employees had been terminated, with
related costs of approximately $1.0 million charged against the reserve. The
restructuring charge also includes distribution center closing costs totaling
$6.7 million and stockkeeping unit reduction costs totaling $1.3 million. The
consolidation plan calls for the closing of eight redundant distribution
centers, six of which relate to pre-Merger Associated facilities, and the
elimination of overlapping inventory items from the Company's catalogs
substantially within a one-year period following the Merger. Distribution
center closing costs include (i) the net occupancy costs of leased facilities
after they are vacated until the expiration of the leases and (ii) the losses
on the sale of owned facilities and the facilities' furniture, fixtures and
equipment. Stockkeeping unit reduction costs include losses on the sale of
inventory items which have been discontinued solely as a result of the
Acquisition and Merger. As of December 31, 1995, $0.4 million relating to
distribution center closing costs have been charged against the reserve. The
consolidation plan is scheduled to be substantially completed by March 31,
1996.
The historical results for 1995 include an extraordinary charge of
approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) of
financing costs and original issue discount relating to the debt retired. In
addition, the historical results for 1995 include compensation expense relating
to an increase in the value of employee stock options of approximately $1.5
million ($0.9 million net of tax benefit of $0.6 million) as a result of the
Acquisition and Merger. The pro forma twelve months ended December 31, 1995 do
not include the extraordinary writeoff.
F-11
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Revolver................................................... $39,910 $185,000
Term Loans
Tranche A, due in installments until March 31, 2000...... -- 110,053
Tranche B, due in installments until March 31, 2002...... -- 71,837
Tranche A, due in installments until December 1996....... 11,000 --
Tranche B, due in installments from January 1997 until
December 1998........................................... 10,000 --
Original Issue Discount Tranche B due in 1997............ (443) --
Senior Subordinated Notes.................................. -- 150,000
Mortgage at 9.4%, due in installments until 1999........... -- 2,174
Industrial development bonds, at market interest rates,
maturing at various dates through 2011.................... -- 14,300
Industrial development bonds, at 66% to 79% of prime,
maturing at various dates through 2004.................... -- 15,500
Other long-term debt....................................... -- 313
------- --------
60,467 549,177
Less--current maturities................................. (5,000) (22,979)
------- --------
$55,467 $526,198
======= ========
</TABLE>
The prevailing prime interest rate at the end of 1995 and 1994 was 8.5%.
In connection with the Acquisition, Associated received an equity investment
of $12.0 million and borrowed an aggregate of $416.5 million under the Credit
Facilities and $130.0 million under the Subordinated Bridge Facility. The
proceeds of these investments and borrowings were used to (i) finance the
purchase of shares of United common stock pursuant to the Offer, (ii)
refinance certain existing indebtedness of Associated (including all amounts
outstanding under the existing old Associated credit facilities) and
indebtedness of the Company (including certain amounts outstanding under
United and USSC credit facilities), (iii) repurchase United employee stock
options, and (iv) pay fees and expenses relating to the Acquisition.
The Credit Facilities as of December 31, 1995, consist of $200.0 million of
term loan borrowings ("Term Loan Facilities") and up to $325.0 million of
revolving loan borrowings ("Revolving Credit Facility"). The loans outstanding
under the Term Loan Facilities and the Revolving Credit Facility bear
interest, at the Company's option, equal to the prime rate plus 2.25% (if the
Tranche B Facility) or 1.75% (if either the Tranche A Facility or the
Revolving Credit Facility) or LIBOR, based on one, two, three or six month
periods.
On May 3, 1995, USSC completed the issuance of $150.0 million of 12 3/4%
Senior Subordinated Notes due 2005 (the "Notes"). The net proceeds of the
Notes (after discount and fees of approximately $7.9 million) were used to pay
certain expenses to repay the $130.0 million Subordinated Bridge Facility
(together with $1.6 million in accrued and unpaid interest thereon), to repay
a portion of the Tranche A and Tranche B term loans and accrued interest
(totaling approximately $6.5 million), to repurchase all outstanding shares of
the Company's Series B Preferred Stock and to provide working capital.
The Revolving Credit Facility is limited to the lesser of $325.0 million or
a borrowing base equal to 80% of Eligible Receivables (as defined in the
Credit Agreement); plus 50% of Eligible Inventory (as defined in the Credit
Agreement) (provided that no more than 60% or, during certain periods 65%, of
the Borrowing Base may
F-12
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
be attributable to Eligible Inventory); plus the aggregate amount of cover for
Letter of Credit Liabilities (as defined). The Revolving Credit Facility
provides that, for each fiscal year commencing January 1, 1996, the Company
must repay revolving loans so that for a consecutive period of 30 consecutive
days in each fiscal year the aggregate revolving loans do not exceed $200.0
million. The Revolving Credit Facility matures on March 31, 2000.
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate collar agreements to reduce the impact of
fluctuations in interest rates on a portion of its variable rate debt. Such
agreements generally require the Company to pay to or entitle the Company to
receive from the other party the amount, if any, by which the Company's
interest payments fluctuate beyond the rates specified in the agreements. The
Company is subject to the credit risk that the other party may fail to perform
under such agreements. The Company's allocated cost of such agreements is
amortized to interest expense over the term of the agreements, and the
unamortized cost is included in other assets. Payments received or made as a
result of the agreements, if any, are recorded as an addition or a reduction
of interest expense. At December 31, 1995, the Company had agreements which
collar $200.0 million of the Company's borrowings under the Credit Facilities
and expire in April 1998.
The agreement governing the Credit Facilities (the "Credit Agreement")
contains representations and warranties, affirmative and negative covenants
and events of default customary for financings of this type. Substantially all
assets of the Company are pledged as collateral under the Credit Agreement and
other long-term debt.
Debt maturities for the years subsequent to December 31, 1995, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996............................ $ 22,979
1997............................ 27,630
1998............................ 31,273
1999............................ 34,172
2000............................ 221,695
Later years..................... 211,428
--------
$549,177
========
</TABLE>
Outstanding letters of credit totaled $56.0 million at December 31, 1995.
The letters of credit were issued to support various activities of the
Company.
F-13
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES
The Company has entered into several non-cancelable long-term leases for
property and equipment. Future minimum lease payments for non-cancelable
leases in effect at December 31, 1995 having initial remaining terms of more
than one year are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES
--------------------------
NET
CAPITAL LEASE SUBLEASE LEASE
YEAR LEASE PAYMENTS INCOME PAYMENTS
- ---- ------- -------- -------- --------
<S> <C> <C> <C> <C>
1996....................................... $1,181 $13,950 $372 $13,578
1997....................................... 1,479 11,085 199 10,886
1998....................................... 487 9,245 146 9,099
1999....................................... -- 7,502 61 7,441
2000....................................... -- 5,462 -- 5,462
Later years................................ -- 18,801 -- 18,801
------ ------- ---- -------
Total minimum lease payments............... 3,147 $66,045 $778 $65,267
======= ==== =======
Less amount representing interest.......... 334
------
Present value of net minimum lease payments
(including current portion of $907)....... $2,813
======
</TABLE>
Rental expense for all operating leases was approximately $2.7 million, $3.0
million and $14.2 million in 1993, 1994 and 1995, respectively.
7. PENSION PLANS AND PROFIT SHARING PLANS
PENSION PLANS
In connection with the Merger and Acquisition, the Company assumed the
pension plans of United. Associated did not have a pension plan. Former
Associated employees will enter the pension plan on July 1, 1996. At that
time, the Company will have pension plans covering substantially all of its
employees. Non-contributory plans covering non-union employees provide pension
benefits that are based on years of credited service and a percentage of
annual compensation. Non-contributory plans covering union members generally
provide benefits of stated amounts based on years of service. The Company
funds the plans in accordance with current tax laws.
The following table sets forth the plans' funded status at December 31, 1995
(dollars in thousands). This exhibit does not include the projected benefit
obligation of $680,000 for the former Associated employees as of December 31,
1995.
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Actuarial Present Value of Benefits Obligation
Vested benefits.................................................... $18,776
Non-vested benefits................................................ 1,996
-------
Accumulated benefits obligation...................................... 20,772
Effect of projected future compensation levels....................... 2,861
-------
Projected benefits obligation........................................ 23,633
Plan assets at fair value............................................ 26,713
-------
Plan assets in excess of projected benefits obligation............... 3,080
Unrecognized net gain due to past experience different from
assumptions......................................................... (507)
-------
Prepaid pension asset recognized in Consolidated Balance Sheets...... $ 2,573
=======
</TABLE>
F-14
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The plans' assets consist of debt securities, equity securities and
government securities. Net periodic pension cost for 1995 for pension and
supplemental benefits plans includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Service cost-benefits earned during the period................... $ 1,142
Interest cost on projected benefits obligation................... 1,157
Actual return on assets.......................................... (2,711)
Net amortization and deferral.................................... 1,382
-------
Net periodic pension cost........................................ $ 970
=======
</TABLE>
The projected benefit obligation for 1995 was determined using an assumed
discount rate of 7.25%. In 1995, the assumed rate of compensation increase
ranged from 0.0% to 5.5%. The expected long-term rate of return on assets used
in determining net periodic pension cost was 7.5%.
PROFIT SHARING PLANS
In connection with the Merger and Acquisition, the Company assumed the profit
sharing plan of United; thus, the Company currently has two profit sharing
plans which cover all salaried employees and certain hourly employees. The
plans provide for annual contributions by the Company in an amount determined
by the Board of Directors. The plans also permit employees to have
contributions made as 401(k) salary deferrals on their behalf and to make
after-tax voluntary contributions. The plans provide that the Company may match
employee contributions as 401(k) salary deferrals. Company contributions for
matching of employee contributions were approximately $0.4 million, $0.3
million and $0.6 million in 1993, 1994 and 1995, respectively.
8. POSTRETIREMENT BENEFITS
In connection with the Merger, the Company assumed the postretirement plan of
United on March 30, 1995. Associated did not have a postretirement plan. The
plan is unfunded and provides health care benefits to substantially all retired
non-union employees and their dependents. Eligibility requirements are based on
the individual's age (minimum age of 55), years of service and hire date. The
benefits are subject to retiree contributions, deductibles, co-payment
provisions and other limitations.
The assumed health care average cost trend rate used in measuring the
accumulated postretirement benefit obligation ("APBO") at December 31, 1995 was
11.0% and 3.0% in 1996 and beyond, respectively. Beginning in 1996, retirees
will pay the difference between actual plan costs and the portion of costs paid
by the Company which is limited to a cost trend rate of 3%. The assumed
discount rate was 7.5%. A 1% increase in the health care cost trend rate would
increase the APBO as of December 31, 1995 by approximately $396,000 and annual
service cost and interest cost by approximately $46,000.
The cost of postretirement health care benefits for the year ended December
31, 1995 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995
----
<S> <C>
Service cost........................................................ $161
Interest on accumulated benefits obligation......................... 109
----
Net postretirement benefit cost..................................... $270
====
</TABLE>
F-15
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheet as of December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Retirees........................................................ $ (762)
Other active plan participants.................................. (2,059)
-------
Total APBO...................................................... (2,821)
Unrecognized net loss........................................... 76
-------
Accrued postretirement benefit obligation....................... $(2,745)
=======
</TABLE>
9. STOCK PLAN INCENTIVES
The Management Stock Option Plan (the "Plan"), as amended, is administered
by the Board of Directors, although the Plan provides that the Board of
Directors of the Company may designate an option committee to administer the
Plan. Options outstanding under the Plan as of the Merger date became
exercisable for a number of Shares equal to the number of such Shares that
would have been received in respect of such option if it had been exercised
immediately prior to March 30, 1995 (the "Effective Time").
In September 1995, the Company's Board of Directors approved an amendment to
the Plan, subject to stockholder approval, which provided for the issuance of
options to key management employees of the Company exercisable for up to 2.2
million additional shares of its Common Stock. Subsequently, approximately 2.2
million options were granted to management employees subject to stockholder
approval. The options were granted at an option price below market value and
the option price of certain of such options is subject to increases on a
quarterly basis beginning in 1996.
The stock options granted under the Plan do not vest to the employee until
the occurrence of an event (a "Vesting Event") that causes the present non-
public equity investors to have received at least a full return of their
investment (at cost) in cash, fully tradable, marketable securities or the
equivalent. A Vesting Event will cause the Company to recognize compensation
expense based upon the difference between the fair market value of the Common
Stock and the exercise price of the stock options.
The Company is contemplating a public offering of its Common Stock (see Note
16 to the Consolidated Financial Statements). Therefore, the Company may
recognize a nonrecurring charge and related tax effect during the first
quarter of 1996 of $31.7 million in compensation expense ($19.0 million net of
tax benefit of $12.7 million) based on a stock price of $22.75. Each $1.00
change in the Common Stock price will result in an adjustment to such
compensation expense of approximately $2.6 million ($1.6 million net of tax
benefit of $1.0 million).
An optionee under the Plan must pay the full option price upon exercise of
an option (i) in cash, (ii) with the consent of the Board of Directors of the
Company, by delivering shares of Common Stock already owned by such optionee
(including shares to be received upon exercise of the option) and having a
fair market value at least equal to the exercise price or (iii) in any
combination of the foregoing. The Company may require the optionee to satisfy
federal tax withholding obligations with respect to the exercise of options by
(i) additional withholding from the employee's salary, (ii) requiring the
optionee to pay in cash or (iii) reducing the number of shares of Common Stock
to be issued (except in the case of incentive options).
F-16
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the transactions of the Plan for the last
three years (dollars in thousands):
<TABLE>
<CAPTION>
STOCK INCENTIVE AWARD OPTION PRICE OPTION PRICE OPTION PRICE
PLAN ------------- --------------- -----------------------
(EXCLUDING RESTRICTED
STOCK) 1993 RANGE 1994 RANGE 1995 RANGE
- --------------------- ------- ----- -------- ----- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the
period................. 367,160 $1.45 367,160 $1.45 217,309 $1.45
Granted................. -- 28,694 $1.45 1,840,000 $5.12-$12.50
Exercised............... -- -- -- (20,804) $1.45
Canceled................ -- (178,545) $1.45 (20,158) $1.45
------- -------- ---------
Options outstanding at
end of the period...... 367,160 $1.45 217,309 $1.45 2,016,347 $1.45-$12.50
======= ======== =========
</TABLE>
All share and per share data has been restated to reflect the 100% stock
dividend effective November 9, 1995 and reflects the conversion of Associated
stock as a result of the Merger.
On January 1, 1996, the Company granted, subject to stockholder approval,
options exercisable for an aggregate of 240,000 shares of Common Stock at an
exercise price of $12.50 per share (subject to quarterly increases) and
120,000 shares of Common Stock at a fixed exercise price of $5.12 per share.
Further, the Company intends to grant options for an aggregate of 202,772
shares of Common Stock at an exercise price of $1.45 per share.
10. REDEEMABLE PREFERRED STOCK
At December 31, 1994, the Company had 245,000 authorized shares of preferred
stock (nonvoting), consisting of 15,000 shares of $0.01 par value Class A
Preferred Stock, 15,000 shares of $0.01 par value Class B Preferred Stock,
15,000 shares of $0.01 par value Class C Preferred Stock and 200,000 shares of
$0.01 par value additional preferred stock. At December 31, 1995, the Company
had 1,500,000 authorized shares of $0.01 par value preferred stock, of which
15,000 were designated as Series A Preferred Stock, 15,000 shares were
designated as Series B Preferred Stock, 15,000 shares were designated as
Series C Preferred Stock and the remaining 1,455,000 shares remained
undesignated. All preferred stock issued at the date of inception was valued
at the amount of cash paid or assets received for the stock at $1,000 per
share. On July 28, 1995 the Company repurchased all 6,892 shares of Series B
preferred stock issued and outstanding for $7.0 million, including accrued and
unpaid dividends thereon. All outstanding shares of preferred stock are senior
in preference to the Common Stock of the Company.
Series A preferred stock must be redeemed by the Company on July 31, 1999.
Dividends are cumulative at a rate of 10% per annum, payable quarterly on
April 30, July 31, October 31 and January 31. In the event that the Company
does not pay dividends in cash, the dividend rate increases to 13% per annum
and is payable in stock. Series B and C preferred stock are junior in relation
to the Series A preferred stock. During each of the years ended December 31,
1993, 1994 and 1995, 649 shares of Series A preferred stock were accrued but
not issued. As of December 31, 1994 and 1995, 1,788 and 2,437 shares of Series
A preferred stock have been accrued as dividends but not issued.
Series C preferred stock is redeemable in four equal quarterly installments
on April 30, 2001, July 31, 2001, October 31, 2001, and January 31, 2002.
Dividends for both Series B and C are cumulative at a rate of 9% per annum.
Dividends are payable quarterly on April 30, July 31, October 31 and January
31. In the event that the Company does not pay dividends in cash, the dividend
rate increases to 10% per annum and is payable in stock. During the year ended
December 31, 1993, noncash dividends were declared and issued for both Series
B and C preferred stock in the amount of 559 and 838 shares, respectively.
During the year ended December 31, 1994, noncash dividends were declared and
issued for both Series B and C preferred stock in the amount of 617 and
F-17
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
926 shares, respectively. During the year ended December 31, 1995, noncash
dividends were declared and issued for both Series B and C preferred stock in
the amounts of 332 and 763 shares, respectively. In addition, during 1995 a
cash dividend of approximately $254,000 was paid to Series C preferred
stockholders in connection with the repurchase of Series B Preferred Stock.
All series of preferred stock may be redeemed at the option of the issuer at
any time. All series of preferred stock have a redemption and liquidation value
of $1,000 per share plus the aggregate of accrued and unpaid dividends on such
shares to date. Required redemption of preferred stock for the five years
following the year ended December 31, 1995 is $7.4 million in 1999 for the
Series A preferred stock.
11. REDEEMABLE WARRANTS
The Company had 1,430,468 and 1,311,091 warrants ("Lender Warrants")
outstanding as of December 31, 1994 and 1995, respectively, which allow holders
thereof to buy shares of Common Stock at an exercise price of $0.10 per share.
Outstanding Lender Warrants as of December 31, 1995 were valued at $27.75 per
warrant, the fair value of the Common Stock at December 31, 1995. During 1995,
117,954 warrants were exercised and 47,153 were contributed back to the Company
and terminated in connection with fees paid by the Company relating to the
issuance of the Notes. Of the Lender Warrants outstanding as of December 31,
1994, 1,036,229 were valued at the date of inception at the negotiated amount
of $0.97 per warrant while the remaining 274,862 warrants were valued at $1.58
per warrant. In addition, 129,725 additional Lender Warrants were accrued but
not issued, as of December 31, 1994. The exercise period expires January 31,
2002. These warrants were valued at $1.66 per warrant.
The Lender Warrants contain certain put rights which allow the holders
thereof to put the warrants to the Company commencing on February 10, 1996. The
purchase price payable upon the exercise of the put rights is the greater of
the then fair market value or equity value of the warrants, as defined, less
the applicable exercise price of the warrants. Payment of the Lender Warrants
can only occur after repayment of all debt outstanding under the Credit
Agreement or with the consent of the lenders and/or agent under the Credit
Agreement.
12. TRANSACTIONS WITH RELATED PARTIES
The Company has management advisory services agreements with three investor
groups. These investor groups provide certain advisory services to the Company
in connection with the Acquisition as defined below.
Pursuant to an agreement, Wingate Partners, L.P. ("Wingate Partners") has
agreed to provide certain oversight and monitoring services to the Company in
exchange for an annual fee of up to $725,000, payment (but not accrual) of
which is subject to restrictions under the New Credit Agreement related to
certain Company performance criteria. At the Effective Time, the Company paid
aggregate fees to Wingate Partners of $2.3 million for services rendered in
connection with the Acquisition. Wingate Partners earned an aggregate of
$210,000, $350,000 and $603,000 with respect to each of the fiscal years ended
1993, 1994 and 1995, respectively, for such oversight and monitoring services.
Under the agreement, the Company is obligated to reimburse Wingate Partners for
its out-of-pocket expenses and indemnify Wingate Partners and its affiliates
from loss in connection with these services. The agreement expires on January
31, 2002, provided that the agreement continues in effect on a year to year
basis thereafter unless terminated in writing by one of the parties at least
180 days before the expiration of the primary term or any subsequent yearly
term.
Pursuant to an agreement, Cumberland Capital Corporation ("Cumberland") has
agreed to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500 payment (but not accrual) of
which is subject to restrictions under the Credit Agreement related to certain
Company performance criteria and (ii) previously issued shares of Associated
Common Stock that converted in the Merger
F-18
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
into 154,126 shares. Subject to certain exceptions, the issuance of such shares
is subject to rescission if the agreement is terminated before January 31,
2002. At the Effective Time, the Company paid aggregate fees to Cumberland of
$100,000 for services rendered in connection with the Acquisition. Pursuant to
the agreement, Cumberland earned $45,000, $75,000 and $129,000 with respect to
the fiscal years ended 1993, 1994 and 1995, respectively, for such oversight
and monitoring services. The Company is also obligated to reimburse Cumberland
for its out-of-pocket expenses and indemnify Cumberland and its affiliates from
loss in connection with these services. The agreement expires on January 31,
2002, provided that the agreement continues in effect on a year to year basis
thereafter unless terminated in writing by one of the parties at least 180 days
before the expiration of the primary term for any subsequent yearly term.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") has agreed
to provide certain oversight and monitoring services to the Company in exchange
for (i) an annual fee of up to $137,500, payment (but not accrual) of which is
subject to restrictions under the Credit Agreement related to certain Company
performance criteria and (ii) previously issued shares of Associated Common
Stock that converted in the Merger into 154,126 shares. Subject to certain
exceptions, the issuance of such shares is subject to rescission if the
agreement is terminated before January 31, 2002. At the Effective Time, the
Company paid aggregate fees to Good Capital of $100,000 for services rendered
in connection with the Acquisition. Pursuant to the agreement, Good Capital
earned an aggregate $45,000, $75,000 and $129,000 in each of the fiscal years
ended 1993, 1994 and 1995, respectively, for such oversight and monitoring
services. The Company is also obligated to reimburse Good Capital for its out-
of-pocket expenses and indemnify Good Capital and its affiliates from loss in
connection with these services. The agreement expires on January 31, 2002,
provided that the agreement continues in effect thereafter on a year to year
basis unless terminated in writing by one of the parties at least 180 days
before the expiration of the primary term or any subsequent yearly term.
13. INCOME TAXES
The provision for (benefit from) income taxes consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Currently payable--
Federal......................................... $ 227 $3,090 $4,172
State........................................... 554 903 1,119
------ ------ ------
Total currently payable....................... 781 3,993 5,291
Deferred, net--
Federal......................................... 1,012 166 (142)
State........................................... 148 24 (21)
Valuation allowance reduction................... (1,160) (190) --
------ ------ ------
Total deferred, net........................... -- -- (163)
------ ------ ------
Provision for income taxes........................ $ 781 $3,993 $5,128
====== ====== ======
</TABLE>
F-19
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's effective income tax rates for the period ended December 31,
1993, 1994 and 1995 varied from the statutory Federal income tax rate as set
forth in the following table (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
-------------- -------------- -------------
% OF % OF % OF
PRE- PRE- PRE-
TAX TAX TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on the
federal statutory rate.......... $1,273 34.0% $3,535 34.0% $3,980 35.0%
State and local income taxes--net
of federal income tax benefit... 492 13.2 607 5.8 705 6.2
Non-deductible and other......... 176 4.7 41 0.4 443 3.9
Valuation allowance reduction.... (1,160) (31.0) (190) (1.8) -- --
------ ----- ------ ---- ------ ----
Provision for income taxes....... $ 781 20.9% $3,993 38.4% $5,128 45.1%
====== ===== ====== ==== ====== ====
</TABLE>
The deferred tax assets and liabilities result from timing differences in the
recognition of certain income and expense items for financial and tax
accounting purposes. The sources of these differences and the related tax
effects were as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1994 1995
------------------- -------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------- -----------
<S> <C> <C> <C> <C>
Accrued expenses...................... $4,566 $-- $20,351 $ --
Allowance for doubtful accounts....... 1,664 -- 10,645 --
Inventory reserves and adjustments.... 1,264 -- -- 14,756
Depreciation and amortization......... -- 390 -- 42,300
Reserve for restructuring charges and
other................................ 1,869 -- 13,970 331
------ ---- ------- -------
9,363 390 44,966 57,387
Valuation allowance................... (8,973) -- -- --
------ ---- ------- -------
Total............................... $ 390 $390 $44,966 $57,387
====== ==== ======= =======
</TABLE>
As a result of the Acquisition and Merger, the Company determined that the
valuation allowance for deferred tax assets was no longer necessary and it has
been eliminated.
In the Consolidated Balance Sheets, these deferred assets and deferred
liabilities are classified as deferred tax assets or deferred income tax
liabilities, based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to
an asset or liability for financial reporting, including deferred tax assets
related to carryforwards, are classified according to the expected reversal
date of the temporary difference.
14. SUPPLEMENTAL CASH FLOW INFORMATION
In addition to the information provided in the Consolidated Statement of Cash
Flows, the following are supplemental disclosures of cash flow information for
the twelve months ended December 31, 1993, 1994 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Cash paid during the year for--
Interest......................................... $6,119 $6,588 $36,120
Income taxes..................................... 630 2,118 8,171
</TABLE>
F-20
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The following are supplemental disclosures of noncash investing and
financing activities for the twelve months ended December 31, 1993, 1994 and
1995 (dollars in thousands):
. In 1994, Associated accrued $244 for warrants which had an exercise
price less than the fair market value of the common stock.
. In 1994, Associated accrued $63 for common stock shares to be issued at
less than fair market value.
. In 1994, Associated issued $9,000 of common stock to retire a $9,000
deferred obligation related to a transition services agreement.
. On March 30, 1995, Associated issued stock valued at $2,162 in exchange
for services related to financing the Acquisition of the Company.
. On May 3, 1995, the Company issued stock valued at $2,406 in exchange
for services related to the issuance of the Notes.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1994 DECEMBER 31, 1995
---------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 1,849 $ 1,849 $ 11,660 $ 11,660
Current maturities of long-term
obligations......................... 5,901 5,901 23,886 23,886
Long-term debt:
Notes.............................. -- -- 150,000 163,875
All other.......................... 55,467 55,467 376,198 376,198
</TABLE>
The fair value of Notes is based on quoted market prices. The fair value of
the interest rate collar, estimated as a $3.9 million payable, is based on
quotes from counterparties.
16. ANTICIPATED COMMON STOCK OFFERING
The Company is anticipating a public offering of shares of Common Stock. The
contemplated offering includes both a primary component of 3.5 million shares
and a secondary component of 3.5 million shares. The Company intends to use
the net proceeds from the primary component of the offering to redeem all of
the outstanding shares of the Company's preferred stock and to redeem a
portion of the Notes. There is no certainty that the Company will proceed with
the contemplated offering.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of
Directors of United Stationers Inc.:
We have audited the accompanying consolidated balance sheet of UNITED
STATIONERS INC. and SUBSIDIARY as of March 30, 1995 and the related
consolidated statements of operations, changes in stockholders' investment and
cash flows for the seven months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements 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 financial position of United
Stationers Inc. and Subsidiary at March 30, 1995 and the consolidated results
of their operations and their cash flows for the seven months then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
June 27, 1995
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors of United Stationers Inc.:
We have audited the accompanying consolidated balance sheets of UNITED
STATIONERS INC. (a Delaware Corporation) AND SUBSIDIARIES as of August 31,
1993 and 1994, and the related consolidated statements of income, changes in
stockholders' investment and cash flows for fiscal years ended August 31,
1992, 1993 and 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Stationers Inc. and Subsidiaries as of August 31, 1993 and 1994, and the
results of its operations and its cash flows for the fiscal years ended August
31, 1992, 1993 and 1994, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Chicago, Illinois,
October 6, 1994.
F-23
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31,
----------------- MARCH 30,
ASSETS 1993 1994 1995
------ -------- -------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................ $ 7,889 $ 6,920 $ 14,515
Accounts receivable, less reserves for doubtful
accounts of $3,964 in 1993, $4,010 in 1994 and
$4,775 in 1995.................................. 188,396 187,565 188,672
Inventories...................................... 229,760 225,794 306,741
Deferred income taxes and prepaid expenses....... 16,426 15,512 22,987
-------- -------- --------
Total current assets........................... 442,471 435,791 532,915
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings............................... 90,147 92,099 92,907
Fixtures and equipment........................... 144,625 151,793 152,059
Leasehold improvements........................... 46 36 85
-------- -------- --------
Total property, plant and equipment............ 234,818 243,928 245,051
Less -- Accumulated depreciation and amortization
................................................ 97,182 114,364 118,219
-------- -------- --------
Net property, plant and equipment.............. 137,636 129,564 126,832
-------- -------- --------
GOODWILL, NET...................................... 43,484 42,369 41,719
-------- -------- --------
OTHER ASSETS....................................... 11,195 10,826 10,373
-------- -------- --------
Total assets................................... $634,786 $618,550 $711,839
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-24
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31,
------------------ MARCH 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1993 1994 1995
---------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities of long-
term obligations.............................. $ 3,448 $ 6,338 $ 43,501
Accounts payable............................... 150,374 121,793 146,222
Accrued expenses............................... 69,175 65,055 77,219
Accrued income taxes........................... 3,400 2,778 8,373
-------- -------- --------
Total current liabilities.................... 226,397 195,964 275,315
-------- -------- --------
DEFERRED INCOME TAXES............................ 14,484 17,427 13,494
-------- -------- --------
LONG-TERM OBLIGATIONS:
Long-term debt................................. 146,735 149,465 173,933
Other liabilities.............................. 9,473 9,684 15,972
-------- -------- --------
Total long-term obligations.................. 156,208 159,149 189,905
-------- -------- --------
STOCKHOLDERS' INVESTMENT:
Preferred stock, no par value, authorized
1,500,000 shares, no shares issued or
outstanding................................... -- -- --
Common stock, $0.10 par value, authorized
40,000,000 shares, issued 18,586,627 shares in
1993, 18,592,054 shares in 1994 and 18,610,929
shares in 1995................................ 1,859 1,859 1,861
Capital in excess of par value................. 91,687 91,729 91,912
Retained earnings.............................. 144,292 152,448 139,495
Less -- 9,993 shares, 1,828 shares and 14,347
shares of common stock in treasury at cost in
1993, 1994 and 1995, respectively............. (141) (26) (143)
-------- -------- --------
Total stockholders' investment............... 237,697 246,010 233,125
-------- -------- --------
Total liabilities and stockholders'
investment.................................. $634,786 $618,550 $711,839
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-25
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31, SEVEN MONTHS ENDED
---------------------------------- -----------------------
MARCH 31, MARCH 30,
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............... $1,094,275 $1,470,115 $1,473,024 $ 871,585 $ 980,575
COST OF SALES........... 848,588 1,125,596 1,150,123 675,720 773,857
---------- ---------- ---------- ---------- ----------
Gross profit on
sales............... 245,687 344,519 322,901 195,865 206,718
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSE:
Warehousing, marketing
and administrative
expenses............. 213,372 298,405 286,607 170,420 174,021
Merger-related costs.. -- -- -- -- 27,780
Restructuring charge.. 5,913 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 219,285 298,405 286,607 170,420 201,801
---------- ---------- ---------- ---------- ----------
Income from
operations......... 26,402 46,114 36,294 25,445 4,917
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense...... (6,980) (9,849) (10,722) (6,095) (7,640)
Interest income....... 477 299 261 258 140
Other, net............ 364 355 225 117 41
---------- ---------- ---------- ---------- ----------
Total other income
(expense).......... (6,139) (9,195) (10,236) (5,720) (7,459)
---------- ---------- ---------- ---------- ----------
Income before income
taxes.............. 20,263 36,919 26,058 19,725 (2,542)
INCOME TAXES............ 8,899 15,559 10,309 8,185 4,692
---------- ---------- ---------- ---------- ----------
Net Income.......... $ 11,364 $ 21,360 $ 15,749 $ 11,540 $ (7,234)
========== ========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 16,088,450 18,559,600 18,587,282 18,585,451 18,593,614
========== ========== ========== ========== ==========
NET INCOME PER COMMON
SHARE.................. $ 0.71 $ 1.15 $ 0.85 $ 0.62 $ (0.39)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-26
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL
IN
NUMBER OF EXCESS TOTAL
COMMON COMMON OF PAR RETAINED TREASURY STOCKHOLDERS'
SHARES STOCK VALUE EARNINGS STOCK INVESTMENT
---------- ------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31,
1991................... 15,535,013 $1,554 $54,557 $125,704 $(231) $181,584
Net Income............ -- -- -- 11,364 -- 11,364
Issuance of common
shares............... 3,016,169 301 36,643 -- -- 36,944
Cash dividends--$0.40
per share on common
stock................ -- -- -- (6,535) -- (6,535)
Disposition of
treasury stock....... -- -- -- -- 30 30
---------- ------ ------- -------- ----- --------
BALANCE, AUGUST 31,
1992................... 18,551,182 1,855 91,200 130,533 (201) 223,387
Net Income............ -- -- -- 21,360 -- 21,360
Issuance of common
shares............... 35,445 4 487 -- -- 491
Cash dividends--$0.40
per share on common
stock................ -- -- -- (7,601) -- (7,601)
Disposition of
treasury stock....... -- -- -- -- 60 60
---------- ------ ------- -------- ----- --------
BALANCE, AUGUST 31,
1993................... 18,586,627 1,859 91,687 144,292 (141) 237,697
Net Income............ -- -- -- 15,749 -- 15,749
Issuance of common
shares............... 5,427 -- 42 -- -- 42
Cash dividends--$0.40
per share on common
stock................ -- -- -- (7,593) -- (7,593)
Disposition of
treasury stock....... -- -- -- -- 115 115
---------- ------ ------- -------- ----- --------
BALANCE, AUGUST 31,
1994................... 18,592,054 1,859 91,729 152,448 (26) 246,010
Net Loss.............. -- -- -- (7,234) -- (7,234)
Issuance of common
shares............... 18,875 2 183 -- -- 185
Cash dividends--$0.30
per share on common
stock................ -- -- -- (5,719) -- (5,719)
Acquisition of
treasury stock....... -- -- -- -- (117) (117)
---------- ------ ------- -------- ----- --------
BALANCE, MARCH 30,
1995................... 18,610,929 $1,861 $91,912 $139,495 $(143) $233,125
========== ====== ======= ======== ===== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-27
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUG.
31, SEVEN MONTHS ENDED
------------------------- --------------------------
MARCH 31, MARCH 30,
1992 1993 1994 1994 1995
------- ------- ------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.............. $11,364 $21,360 $15,749 $11,540 $ (7,234)
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities,
net of SDC purchase in
1992--
Loss on sale of fixed
assets............... 55 476 579 494 200
Depreciation and
amortization......... 19,879 21,243 21,236 12,103 12,595
(Decrease)/increase in
deferred taxes....... (8,240) 2,261 2,943 1,298 (3,933)
Increase/(decrease) in
accounts payable..... 7,195 15,259 (28,581) (64,918) 24,429
(Decrease)/increase in
accrued liabilities.. (2,896) 3,655 (7,522) (14,407) 17,260
(Increase)/decrease in
accounts receivable.. (12,681) (20,016) 831 8,062 (1,107)
(Increase)/decrease in
inventories.......... (15,776) (7,353) 3,966 (7,818) (80,947)
Decrease in prepaid
expenses............. 3,940 1,392 914 (752) (7,475)
Increase in other
assets............... (5,378) (2,275) (2,007) (1,359) (1,341)
------- ------- ------- ------- --------
Total adjustments... (13,902) 14,642 (7,641) (67,297) (40,319)
------- ------- ------- ------- --------
Net cash provided by
(used in) operating
activities......... (2,538) 36,002 8,108 (55,757) (47,553)
------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property,
plant and equipment.... (8,342) (30,008) (10,719) (4,487) (7,799)
Proceeds from
disposition of
property, plant and
equipment.............. 51 50 220 200 35
Payment for purchase of
SDC, net of cash
acquired of $2,480..... (37,338) -- -- -- --
------- ------- ------- ------- --------
Net cash used in
investing
activities......... (45,629) (29,958) (10,499) (4,287) (7,764)
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase/(decrease) in
short-term debt........ 1,636 (481) (2,855) 33 5,660
Payments on long-term
obligations............ (4,213) (4,537) (1,533) (1,269) (4,541)
Additions to long-term
obligations............ 57,460 1,971 13,246 69,348 67,444
Issuance of common
shares................. 164 491 42 25 185
Payment of dividends.... (6,535) (7,601) (7,593) (5,738) (5,719)
Disposition of treasury
stock.................. 30 60 115 115 (117)
------- ------- ------- ------- --------
Net cash provided by
(used in) financing
activities......... 48,542 (10,097) 1,422 62,514 62,912
------- ------- ------- ------- --------
NET INCREASE/(DECREASE) IN
CASH AND CASH
EQUIVALENTS.............. 375 (4,053) (969) 2,470 7,595
CASH AND CASH EQUIVALENTS
at the beginning of the
year..................... 11,567 11,942 7,889 7,889 6,920
------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS
at the end of the year... $11,942 $ 7,889 $ 6,920 $10,359 $ 14,515
======= ======= ======= ======= ========
Supplemental Disclosures
of Cash Flow Information:
Cash paid during the
year for:
Interest (net of
amount capitalized).. $ 6,722 $ 8,972 $10,199 $ 5,943 $ 6,851
Income taxes.......... 14,489 18,395 6,229 6,054 9,257
------- ------- ------- ------- --------
Supplemental Schedule of
Noncash Investing and
Financing Activities:
Fair value of assets
acquired............... 175,359 -- -- -- --
Cash paid............... (39,818) -- -- -- --
Common stock issued..... (36,780) -- -- -- --
------- ------- ------- ------- --------
Liabilities
assumed/incurred......... 98,761 -- -- -- --
------- ------- ------- ------- --------
Investment in business
venture.................. -- 742 -- -- --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-28
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUBSEQUENT EVENT
On March 30, 1995, pursuant to an Agreement and Plan of Merger, dated as of
February 13, 1995 (the "Merger Agreement"), between Associated Holdings, Inc.,
a Delaware corporation ("Associated") and United Stationers Inc., a Delaware
corporation (the "Company") and Associated's related Offer to Purchase dated
February 21, 1995 (the "Offer"), Associated purchased 17,201,839 shares of
Common Stock, $0.10 par value (the "Shares"), of the Company at a purchase
price of $15.50 per share, or approximately $266.6 million, from the Company's
stockholders. On March 30, 1995, pursuant to the terms of the Merger
Agreement, Associated was merged with and into the Company, with the Company
surviving (the "Merger"), and immediately thereafter, Associated Stationers,
Inc., a Delaware corporation and wholly owned subsidiary of Associated ("ASI")
was merged with and into United Stationers Supply Co., an Illinois corporation
and wholly owned subsidiary of the Company ("USSC"), with USSC surviving. The
acquisition of the Shares by Associated pursuant to the Offer together with
the Merger is referred to herein as the "Acquisition." Although the Company
was the surviving corporation in the Merger, the transaction was treated as a
reverse acquisition for accounting purposes with Associated as the acquiring
corporation.
Immediately following the Merger, the number of outstanding Shares was
5,998,117 (or 6,973,720 on a fully diluted basis), of which (i) the former
holders of Class A Common Stock, $0.01 par value, and Class B Common Stock,
$0.01 par value, of Associated ("Associated Common Stock") and warrants or
options to purchase Associated Common Stock in the aggregate owned 4,603,373
Shares constituting approximately 76.8% of the outstanding Shares and
outstanding warrants or options for 975,603 Shares (collectively 80.0% on a
fully diluted basis) and (ii) pre-Merger holders of Shares (other than
Associated-owned Shares and treasury Shares) in the aggregate owned 1,394,744
Shares constituting approximately 23.2% of the outstanding Shares (or 20.0% on
a fully diluted basis). As used in this paragraph, the term "Shares" includes
shares of Nonvoting Common Stock, $0.01 par value, of the Company, which are
immediately convertible into Shares for no additional consideration.
To finance the Offer, refinance existing debt of ASI, the Company and USSC,
repurchase stock options and pay related fees and expenses, Associated, ASI,
USSC and the Company entered into (i) new credit facilities ("New Credit
Facilities") with a group of banks and financial institutions providing for
term loan borrowings of $200.0 million and revolving loan borrowings of up to
$300.0 million and (ii) a senior subordinated bridge loan facility in the
aggregate principal amount of $130.0 million (the "Subordinated Bridge
Facility"). In addition, simultaneously with the consummation of the Offer,
Associated obtained $12.0 million from the sale of additional shares of
Associated Common Stock, which proceeds were used to finance the purchase of a
portion of the Shares pursuant to the Offer.
On May 3, 1995, USSC completed the issuance of $150.0 million of 12 3/4%
Senior Subordinated Notes (the "Notes") due 2005. The net proceeds of the
Notes (after discount and fees of approximately $5.5 million) were used to pay
certain expenses, to repay the $130.0 million Subordinated Bridge Facility
(together with $1.6 million in accrued and unpaid interest thereon), to repay
a portion of the Tranche A and Tranche B term loans (totaling approximately
$6.5 million) and provide working capital. In the event the necessary consents
are obtained, the Company expects to repurchase the Series B Preferred Stock,
together with accrued and unpaid dividends thereon (approximately $7.0
million).
The New Credit Facilities contain certain financial covenants covering the
Company and its subsidiaries on a consolidated basis, including, without
limitation, covenants relating to tangible net worth, capitalization, fixed
charge coverage, capital expenditures and payment of dividends by the Company.
F-29
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective for 1995, the Company changed its fiscal year from a year end of
August 31 to December 31. The financial statements included herein represent
the final financial statements of the Company through the date of the
consummation of the Merger. Future financial statements of the Company will
reflect Associated and its acquisition of the Company, and will be on the
basis of a December 31 fiscal year end.
As part of the Merger, the Company incurred approximately $27.8 million of
merger-related costs. The amount consisted of severance payments under
employment contracts ($9.6 million); insurance benefits under employment
contracts ($7.4 million); legal, accounting and other professional services
fees ($5.2 million); retirement of stock options ($3.0 million); and fees for
letters of credit related to employment contracts and other costs ($2.6
million).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of United
Stationers Inc. and its wholly owned subsidiaries ("the Company"). Investments
in 20% to 50% owned companies are accounted for by the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior-year amounts have been reclassified to conform
with current-year presentations.
Revenue Recognition
Sales and provisions for estimated sales returns and allowances are recorded
at the time of shipment.
Cash and Cash Equivalents
Investments in low-risk instruments which have an original maturity of three
months or less are considered to be cash equivalents. Cash equivalents are
stated at cost which approximates market value. The Company's cash equivalent
policy conforms to the requirements of Financial Accounting Standard No. 95.
Inventories
Inventories constituting approximately 82% of total inventories at August
31, 1993, August 31, 1994 and March 30, 1995 have been valued under the last-
in, first-out (LIFO) method with the remainder of the inventory valued under
the first-in, first-out (FIFO) method. Inventory valued under the FIFO and
LIFO accounting methods are recorded at the lower of cost or market. If the
lower of FIFO cost or market method of inventory accounting had been used by
the Company for all inventories, merchandise inventories would have been
approximately $16,679,000, $18,854,000 and $21,797,000 higher than reported at
August 31, 1993, 1994 and March 30, 1995, respectively.
In 1994, liquidations of certain LIFO inventories had the effect of
increasing net earnings by $830,000 or $0.04 per share.
Depreciation and Amortization
Depreciation and amortization are determined by using the straight-line
method over the estimated useful lives of the assets.
F-30
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated useful life assigned to fixtures and equipment is from two to
10 years; the estimated useful life assigned to buildings does not exceed 40
years; leasehold improvements and assets under capital leases are amortized
over the lesser of their useful lives or the term of the applicable lease.
Goodwill reflecting the excess of cost over the value of net assets of
businesses acquired is being amortized on a straight-line basis over 40 years.
The cumulative amount of goodwill amortized at August 31, 1993, 1994 and March
30, 1995 is $1,200,000, $2,315,000 and $2,965,000, respectively.
Software Capitalization
The Company capitalizes major internal and external systems development
costs determined to have benefits for future periods. Amortization expense is
recognized over the periods in which the benefits are realized, generally not
to exceed three years. Systems development costs capitalized were $4,202,000,
$1,955,000, $2,166,000 and $1,896,000 in 1992, 1993, 1994 and 1995,
respectively. Amortization expense was $3,384,000, $2,946,000, $2,376,000 and
$1,795,000 in 1992, 1993, 1994 and 1995, respectively.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
value of cash and cash equivalents, trade receivables and trade payables are
considered to be representative of their respective fair values.
Borrowings under the Company's Reducing Revolving Credit and Term Loan
Agreement are considered to be at fair market value. The Company had
approximately $66.1 million, $62.7 million and $62.4 million of long-term debt
(excluding borrowings under the Company's Reducing Revolving Credit and Term
Loan Agreement) outstanding as of August 31, 1993, 1994 and March 30, 1995,
respectively. The approximate fair value was $68.0 million, $59.8 million and
$61.3 million as of August 31, 1993, 1994 and March 30, 1995, respectively.
The fair value is based on the current rates offered to the Company for debt
of similar maturities. The fair values on the long-term debt financial
instruments are not necessarily indicative of the amounts that would be
realized in a current market exchange and exclude any liquidation or
origination costs.
Foreign Currency Translation
All assets and liabilities of the Company's foreign operations are
translated at current exchange rates. Revenues and expenses are translated at
average exchange rates for the year in accordance with Statement of Financial
Accounting Standard No. 52. The amounts for all years presented were
immaterial.
Earnings Per Share
Earnings per share and the effect on earnings per share of potentially
dilutive stock options are computed by the treasury stock method. This
computation takes into account the weighted average number of shares
outstanding during each year, outstanding stock options and their exercise
prices, and the market price of the stock throughout the year. The exercise of
outstanding stock options would not result in a material dilution of earnings
per share.
F-31
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
On June 24, 1992, the Company acquired all of the outstanding capital stock
of SDC Distributing Corp., parent of Stationers Distributing Company, Inc.
("SDC"). The results of operations of SDC have been included in the Company's
consolidated financial statements since June 25, 1992.
The following summarized unaudited pro forma results of operations for the
years ended August 31, 1991 and 1992 assume the acquisition occurred at the
beginning of the respective periods. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations that actually would have resulted had the
combination been in effect on the dates indicated, or which may result in the
future.
<TABLE>
<CAPTION>
1991 1992
---------- ----------
(IN THOUSANDS OF
DOLLARS, EXCEPT SHARE
DATA) (UNAUDITED)
<S> <C> <C>
Net Sales........................................... $1,378,734 $1,445,900
Net Income.......................................... 14,070 20,444
Net Income per Share................................ 0.76 1.10
</TABLE>
In the fourth quarter of 1992, the Company recorded a $5.9 million pre-tax
restructuring charge related to severance payments and closing of certain
facilities associated with the acquisition.
4. LONG-TERM DEBT
Long-term debt consists of the following amounts (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Mortgages, 9.0% to 12.5%, due in installments until
2002, secured by the Regional Distribution Centers
in Livonia, Michigan; Pennsauken, New Jersey;
Dallas, Texas; Woburn, Massachusetts; and The City
of Industry, California............................ $ 13,615 $ 13,182 $ 12,908
Industrial development bonds, interest at 69% of
prime, maturing in 2015, secured by land, buildings
and certain equipment located in Edison, New
Jersey............................................. 8,000 8,000 8,000
Industrial development bonds, at market interest
rates, maturing at various dates through 2011...... 14,300 14,300 14,300
Industrial development bonds, at 66% to 79% of
prime, maturing at various dates through 2005...... 15,500 15,500 15,500
Unsecured loan, at 9.65%, maturing at various dates
through 1998....................................... 14,300 11,450 11,450
Other long-term debt................................ 356 303 276
Term Loan........................................... 30,000 30,000 30,000
Revolver............................................ 54,000 63,000 125,000
-------- -------- --------
150,071 155,735 217,434
-------- -------- --------
Less--current maturities............................ 3,336 6,270 43,501
-------- -------- --------
$146,735 $149,465 $173,933
======== ======== ========
</TABLE>
The prevailing prime interest rate at August 31, 1993, August 31, 1994 and
March 30, 1995 was 6.0%, 7.8% and 9.0%, respectively.
F-32
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a $160.0 million Reducing Revolving Credit and Term Loan
Agreement ("Credit Agreement") with a group of seven lenders (the "Lenders").
The Credit Agreement consists of a $130.0 million revolving credit facility
("Revolver") and a $30.0 million term loan ("Term Loan"). Proceeds are used to
finance working capital requirements and capital expenditures of the Company.
The Revolver provides for revolving credit loans up to the amount of the
commitment until August 31, 1997, at the Company's option. The initial $130.0
million commitment decreases to $83.6 million as of August 31, 1997 based on
quarterly decreases which began in May 1994 as specified in the Credit
Agreement. As of August 31, 1994, the Revolver commitment is $126.0 million.
Under the terms of the Credit Agreement, the Company is required to pay a
facility fee of 3/16 of 1% of the total available Revolver. The Term Loan (as
amended) matures on September 30, 1995 (or earlier upon certain subsequent
offerings by the Company of debt or equity). The Term Loan can be prepaid
without penalty. Interest on both loans is payable at varying rates provided
for in the Credit Agreement.
On February 28, 1995, the Company entered into a $30.0 million line of
credit with a major bank. This credit facility was entered into to meet
seasonal requirements after the Revolver and Term Loan was fully utilized, and
bore interest at agreed upon market rates. The Company had $6.0 million
outstanding under this agreement immediately prior to the Merger. This
agreement was terminated in connection with the Merger.
The Credit Agreement contains certain financial covenants covering the
Company and its subsidiary on a consolidated basis, including, without
limitation, covenants relating to the consolidated current ratio, tangible net
worth, capitalization, fixed charge coverage, capital expenditures and payment
of dividends by the Company.
The net book value of assets subject to secured mortgages and industrial
development bonds as of August 31, 1993 and 1994 and March 30, 1995 was
$28,962,000, $28,610,000 and $28,128,000, respectively.
Maturities of long-term debt (excluding amounts borrowed under the Credit
Agreement), for the following periods as indicated, are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
YEAR (EXCEPT 1995) AMOUNT
------------------ -------
<S> <C>
Nine Months Ending December 31, 1995............................. $ 6,125
1996............................................................. 8,167
1997............................................................. 8,218
1998............................................................. 8,824
1999............................................................. 6,129
Later years...................................................... 24,971
-------
$62,434
=======
</TABLE>
As part of the Merger, approximately $180 million of debt at March 30, 1995
was refinanced. The refinanced debt consisted of various mortgages, the
Edison, New Jersey industrial development bonds, the private placement loan,
and the Term Loan and Revolver.
5. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has pension plans in effect for substantially all employees.
Non-contributory plans covering non-union employees provide pension benefits
that are based on years of credited service and a percentage of annual
compensation. Non-contributory plans covering union members generally provide
benefits of stated amounts based on years of service. The Company funds the
plans in accordance with current tax laws.
F-33
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also has a non-contributory, non-qualified plan ("Supplemental
Benefits Plan") in effect for certain executives. The Company has not funded
this plan.
Pension expense in 1992, 1993, 1994 and 1995 was approximately $866,000,
$1,269,000, $1,755,000, $1,707,000, respectively.
The following table sets forth the plans' funded status at August 31, 1993,
August 31, 1994 and March 30, 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
SUPPLEMENTAL
PENSION PLANS BENEFIT PLANS
------------------------- ---------------------
1993 1994 1995 1993 1994 1995(1)
------- ------- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Actuarial Present Value of
Benefits Obligation
Vested benefits............. $15,063 $15,215 $16,446 $ 442 $ 549 $ 0
Non-vested benefits......... 1,702 1,887 1,682 4 16 0
------- ------- ------- ----- ----- ---
Accumulated benefits
obligation................... 16,765 17,102 18,128 446 565 0
Effect of projected future
compensation levels.......... 2,356 2,982 2,511 119 328 0
------- ------- ------- ----- ----- ---
Projected benefits
obligation................... 19,121 20,084 20,639 565 893 0
Plan assets at fair value..... 20,875 21,000 22,683 -- -- 0
------- ------- ------- ----- ----- ---
Projected benefits obligation
less than (in excess of) plan
assets....................... 1,754 916 2,044 (565) (893) 0
Unrecognized net gain due to
past experience different
from assumptions............. (279) 266 (914) (9) 189 0
Unrecognized prior service
cost......................... 1,270 1,347 1,101 160 131 0
Unrecognized net obligation
(asset) at September 1, 1985
to be amortized over 3 to 12
years in 1994 and 4 to 13
years in 1993................ (561) (467) (412) 120 90 0
------- ------- ------- ----- ----- ---
Prepaid (accrued) pension
liability recognized in
Consolidated Balance
Sheets..................... $ 2,184 $ 2,062 $ 1,819 $(294) $(483) $ 0
======= ======= ======= ===== ===== ===
</TABLE>
- --------
(1) The Supplemental Benefit Plan was funded and paid out as a result of the
merger.
The plans' assets consist of debt securities, equity securities and
government securities. Net periodic pension cost for 1992, 1993, 1994 and 1995
for pension and supplemental benefits plans includes the following components
(in thousands of dollars):
<TABLE>
<CAPTION>
1992 1993 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Service cost--benefits earned during the
period....................................... $1,055 $1,293 $1,863 $1,084
Interest cost on projected benefits
obligation................................... 952 1,209 1,436 909
Actual return on assets....................... (983) (3,235) 263 (780)
Net amortization and deferral................. (158) 2,002 (1,807) 494
------ ------ ------ ------
Net periodic pension cost................... $ 866 $1,269 $1,755 $1,707
====== ====== ====== ======
</TABLE>
The projected benefit obligations for 1992, 1993, 1994 and 1995 were
determined using an assumed discount rate of 7.5%, 7.25%, 7.5% and 7.5%,
respectively. In 1992, 1993, 1994 and 1995, the assumed rate of compensation
increase ranged from 0% to 5.5%. The expected long-term rate of return on
assets used in determining net periodic pension cost was 7.5%.
F-34
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company provides an unfunded health care plan to substantially all
retired non-union employees and their dependents. Eligibility requirements are
based on the individual's age (minimum age of 55), years of service and hire
date. The benefits are subject to retiree contributions, deductibles, co-
payment provisions and other limitations.
During the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standard No. 106 (SFAS 106), "Employer's Accounting for
Postretirement Benefits Other Than Pensions." SFAS 106 requires companies to
accrue the expected cost of postretirement health care and life insurance
benefits throughout the employee's active service period. Previously,
postretirement health care costs were recognized as claims were paid. The
Company elected to amortize the unfunded Accumulated Postretirement Benefit
Obligation (APBO) over 20 years.
The assumed health care average cost trend rate used in measuring the APBO
at March 30, 1995 was 11.0% in 1995 and 3% in 1996 and beyond. Beginning in
1996, retirees will pay the difference between actual plan costs and the
portion of cost paid by the Company which is limited to a cost trend rate of
3%. The assumed discount rate was 7.75%. A 1% increase in the care cost trend
rate would increase the APBO as of March 30, 1995 by approximately $339,000
and the sum of the 1995 annual service cost and interest cost by approximately
$35,000.
The cost of postretirement health care benefits for the year ended August
31, 1994 and seven months ended March 30, 1995 are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Service cost.................................................... $246 $109
Interest on accumulated benefits obligation..................... 146 106
Amortization of transition obligation........................... 100 58
---- ----
Net postretirement benefit cost............................... $492 $273
==== ====
</TABLE>
The following table sets forth the amounts recognized in the Company's
Balance Sheet at August 31, 1994 and March 30, 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
AUG. 31, MARCH 30,
1994 1995
-------- ---------
<S> <C> <C>
Retirees................................................ $ (601) $ (781)
Other active plan participants.......................... (1,634) (1,758)
------ ------
Total APBO.............................................. (2,235) (2,539)
Unrecognized transition obligation...................... 1,897 1,838
Unrecognized net (gain)................................. (76) 63
------ ------
Accrued postretirement benefit obligation............... $ (414) $ (638)
====== ======
</TABLE>
Prior to 1994, the cost of providing postretirement health care benefits net
of retiree contributions was $33,396 in 1992 and $46,777 in 1993.
The Company has a qualified Profit Sharing Plan in which all salaried
employees and certain hourly paid employees of the Company are eligible to
participate upon completion of six consecutive months of employment. The
Profit Sharing Plan provides for annual contributions by the Company in an
amount determined by the Board
F-35
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Directors. The Plan also permits employees to have contributions made as
401(k) salary deferrals on their behalf and to make after-tax voluntary
contributions. The Plan provides that the Company may match employee
contributions as 401(k) salary deferrals. Company contributions to the Plan
for both profit sharing and matching of employee contributions were
approximately $1.0 million in 1992, $1.4 million in 1993, $0.5 million in 1994
and $0.8 million in 1995.
6. STOCK INCENTIVE PLANS
As a result of the change in control of the Company, the Company paid out
approximately $3.0 million to option holders representing the difference
between the tender offer price of the stock ($15.50 per share) and the option
exercise price. The amount was included in merger-related costs in 1995.
Under the Directors' Stock Option Plan, the Company granted options for
7,500 shares at a price of $19.25 per share in 1993, 7,500 shares at a price
of $15.25 per share in 1994 and 7,500 shares at a price of $13.75 per share in
1995. The Directors' Option Plan provides for the granting of options covering
up to 100,000 shares of the Company's common stock, subject to anti-dilution
adjustments. Options are exercisable at any time after they are granted, but
for not more than ten years after the option's grant. As of the period ended
1993, 1994, and 1995, 45,500, 41,000 and 0 options, respectively, were
outstanding at a price range of $8.75 to $22.13 per share.
During fiscal 1995, options for a total of 100,000 shares at $10.50 were
granted to certain officers. The grant was approved at the 1995 Annual Meeting
held in January.
Under the Company's 1981 Stock Incentive Award Plan, options outstanding had
an exercisable life of either five, six or ten years from the date of grant.
The Company granted certain officers 16,700 and 15,000 shares of restricted
stock in 1991 and 1992, respectively. There have been no restricted stock
grants since 1992. The grants of restricted shares resulted in deferred
compensation expense of $699,000 of which $185,000, $132,000, $39,000 and
$16,000 was recognized in 1992, 1993, 1994 and 1995, respectively. The
unrecognized portion of deferred compensation was $55,000, $16,000 and $0 as
of August 31, 1993, August 31, 1994 and March 30, 1995, respectively. Under
the terms of the grant, the stock does not vest to the employee until
completion of three years of employment after the date of grant. The 1981
Stock Incentive Award Plan was terminated by the Company's Board of Directors
on March 30, 1995.
In 1989, the Board of Directors terminated the 1985 Non-qualified Stock
Option Plan so that no further stock options would be issued under this plan.
The termination of the plan did not affect the options previously granted and
outstanding. No option could have been exercised more than ten years after its
grant.
F-36
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the transactions of the 1981 and 1985 Option
Plans for 1993, 1994 and 1995.
<TABLE>
<CAPTION>
1981 STOCK INCENTIVE
AWARD PLAN
(EXCLUDING RESTRICTED OPTION PRICE OPTION PRICE OPTION PRICE
STOCK) 1993 RANGE 1994 RANGE 1995 RANGE
--------------------- ------- ------------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the
period................. 995,520 $ 8.64-$19.39 891,350 $ 8.64-$19.39 1,135,060 $ 8.64-$19.39
Granted................. 18,000 $13.75-$14.00 401,050 $10.00-$16.25 100,000 $10.50
Exercised............... (37,040) $ 8.64-$17.48 (3,520) $ 8.64-$13.75 (22,860) $ 8.64-$ 9.29
Cancelled............... (85,130) $ 8.64-$19.39 (153,820) $ 8.64-$19.39 (1,212,200) $ 8.64-$19.39
------- --------- ----------
Options outstanding at
end of the period...... 891,350 1,135,060 --
======= ========= ==========
<CAPTION>
1985 NON-QUALIFIED OPTION PRICE OPTION PRICE OPTION PRICE
STOCK OPTION PLAN 1993 RANGE 1994 RANGE 1995 RANGE
- ------------------------ ------- ------------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the
period................. 143,000 $14.78-$18.09 109,500 $14.78-$18.09 109,500 $14.78-$18.09
Granted................. -- -- -- -- -- --
Exercised............... (5,000) $18.09 -- -- -- --
Cancelled(1)............ (28,500) $14.78-$18.09 -- -- (109,500) $14.78-$18.09
------- --------- ----------
Options outstanding at
end of the period...... 109,500 109,500 --
======= ========= ==========
</TABLE>
- --------
(1) As a result in change in control of the Company, the Company paid out to
option holders the difference between the tender offer price of the stock
($15.50 per share) and the option exercise price. The total amount was
included in merger-related costs in 1995.
7. LEASES
The Company has entered into several non-cancelable long-term leases on
property and equipment. Future minimum lease payments for non-cancelable
leases in effect at March 30, 1995 having initial remaining terms of more than
one year are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
OPERATING LEASES
---------------------------
LEASE SUBLEASE NET LEASE
YEAR (EXCEPT 1995) PAYMENTS INCOME PAYMENTS
- ------------------ -------- -------- ---------
<S> <C> <C> <C>
Nine months ending December 31, 1995................ $ 9,165 $ 617 $ 8,548
1996................................................ 9,894 269 9,625
1997................................................ 7,712 199 7,513
1998................................................ 5,811 146 5,665
1999................................................ 4,275 61 4,214
Later years......................................... 14,263 -- 14,263
------- ------ -------
Total minimum lease payments........................ $51,120 $1,292 $49,828
======= ====== =======
</TABLE>
Rental expense for all operating leases was approximately $11,546,000,
$14,917,000, $13,549,000 and $7,731,000 in 1992, 1993, 1994 and 1995,
respectively.
8. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes," which
was adopted in 1992.
The Company does not intend to provide Federal income taxes on the
undistributed earnings for its foreign subsidiaries. The Company's policy is
to leave the income in the country of origin until such time as all Federal
income tax due upon its distribution will be fully offset by foreign tax
credits. As of March 30, 1995, neither foreign subsidiary had undistributed
earnings.
F-37
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The Company provides for income taxes at statutory rates based on income
reported for financial statement purposes. A summary of income tax expense is
shown below (in thousands of dollars):
<TABLE>
<CAPTION>
1992 1993 1994 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Taxes currently payable
Federal.................................. $ 8,565 $ 7,972 $ 7,059 $ 14,122
Other tax credits........................ (37) (10) (5) --
State.................................... 2,501 2,274 1,591 2,584
Prepaid and deferred taxes................. (2,130) 5,323 1,664 (12,014)
------- ------- ------- --------
$ 8,899 $15,559 $10,309 $ 4,692
======= ======= ======= ========
</TABLE>
The deferred tax assets and liabilities result from timing differences in
the recognition of certain income and expense items for financial and tax
accounting purposes. The sources of these differences and the related tax
effects were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31, 1993 AUGUST 31, 1994 MARCH 30, 1995
------------------- ------------------- -------------------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reserves for returns,
rebates and
allowances............. $14,250 $ -- $14,593 $ -- $18,869 $ --
Reserves for direct
acquisition costs...... 3,887 -- 1,700 -- 1,477 --
Reserves for
restructuring charges.. 1,720 -- 332 -- 10 --
Merger-related costs.... -- -- -- -- 6,737 --
Reserves for worker's
compensation
insurance.............. 3,818 -- 3,905 -- 3,814 --
Accelerated
depreciation........... -- 15,252 -- 17,360 -- 17,716
Software
capitalization......... -- 1,913 -- 1,595 -- 1,465
Inventory reserves and
related purchase
accounting
differences............ -- 7,738 -- 7,143 -- 6,142
All other............... 3,613 1,836 4,843 2,472 4,554 2,629
------- ------- ------- ------- ------- -------
Total................... $27,288 $26,739 $25,373 $28,570 $35,461 $27,952
======= ======= ======= ======= ======= =======
</TABLE>
In the consolidated balance sheets, these deferred assets and deferred
liabilities are classified as deferred tax assets or deferred income tax
liabilities, based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to
an asset or liability for financial reporting, including deferred tax assets
related to carryforwards, are classified according to the expected reversal
date of the temporary difference.
A valuation allowance of $1,504,000 was recorded at August 31, 1993. No
valuation allowance was recorded in 1994 or 1995.
The table below records the differences between the statutory income tax
rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1992 1993 1994 1995
---- ---- ---- ------
<S> <C> <C> <C> <C>
Statutory Federal income tax....................... 34.0% 34.7% 35.0% 35.0%
State income taxes, net of the Federal income tax
benefit........................................... 6.6 6.1 4.8 (4.9)
Losses from foreign subsidiaries................... 3.3 1.3 1.9 --
Liquidation of a foreign subsidiary................ -- -- (3.9) --
Non-deductible goodwill amortization............... -- .9 1.5 (9.0)
Non-deductible merger-related expenses............. -- -- -- (208.3)
Other, net......................................... -- (.9) .3 2.6
---- ---- ---- ------
Effective income tax rate.......................... 43.9% 42.1% 39.6% (184.6)%
==== ==== ==== ======
</TABLE>
F-38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
The Company.............................................................. 15
Use of Proceeds.......................................................... 16
Common Stock Price Range and Dividend Policy............................. 17
Capitalization........................................................... 18
Unaudited Pro Forma Financial Statements................................. 19
Selected Consolidated Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 39
Management............................................................... 50
Certain Transactions..................................................... 53
Principal and Selling Stockholders....................................... 59
Shares Eligible for Future Sale.......................................... 63
Description of Capital Stock............................................. 65
Description of Indebtedness.............................................. 69
Underwriting............................................................. 72
Legal Matters............................................................ 73
Experts.................................................................. 73
Available Information.................................................... 73
Incorporation of Certain Documents by Reference.......................... 74
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
LOGO
UNITED STATIONERS INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the registrant in
connection with this registration statement. All such expenses are estimates,
other than the filing fees payable to the Commission and the National
Association of Securities Dealers, Inc.
<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission................. $ 63,150
Filing and Listing Fee--National Association of Securities
Dealers, Inc.................................................. 36,500
Fees and Expenses of Accountants............................... 200,000
Fees and Expenses of Legal Counsel............................. 75,000
Printing and Engraving Expenses................................ 70,000
Blue Sky Fees and Expenses..................................... 15,000
Fees of Transfer Agent and Registrar........................... 3,000
Miscellaneous Expenses......................................... 12,350
--------
Total...................................................... $475,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Charter and Restated Bylaws of the Company provide for the
indemnification of directors and officers to the fullest extent permitted by
the General Corporation Law of the State of Delaware ("DGCL"). Pursuant to the
provisions of Section 145 of the DGCL, the Company has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company against any and all
expenses, judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to
the best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification is not available if such person has been adjudged to have
been liable to the Company, unless and only to the extent the court in which
such action was brought determines that, despite the adjudication of
liability, but in view of all the circumstances, the person is reasonably and
fairly entitled to indemnification for such expenses as the court shall deem
proper. The Company has the power to purchase and maintain insurance for such
persons. The statutes also expressly provide that the power to indemnify
authorized thereby is not exclusive of any rights granted under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
The above discussion of the Charter and Restated Bylaws of the Company and
of Section 145 of the DGCL is not intended to be exhaustive and is qualified
in its entirety by such Charter and Restated Bylaws of the Company and the
DGCL.
The Company also carries director and officer liability insurance policies.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director,
II-1
<PAGE>
officer, or controlling person thereof in the successful defense of any
action, suit or proceeding) is asserted by a director, officer, or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 16. EXHIBITS.
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1.1 --Form of Underwriting Agreement.**
4.1 --Charter (Exhibit 3(a) to the Company's Annual Report on Form 10-K
dated November 19, 1987)(3).
4.2 --Certificate of Ownership and Merger merging Associated into United(2).
4.3 --Restated Bylaws(1).
5.1 --Opinion of Weil, Gotshal & Manges LLP as to the validity of the
securities registered hereby.**
9.1 --Voting Trust Agreement, dated as of January 31, 1992, among the
Company, the stockholders party thereto and Messrs. Sturgess, Hegi,
Miller, Good and Johnson, as voting trustees(1).
9.2 --First Amendment to Voting Trust Agreement, dated as of March 30, 1995,
among the Company, the stockholders party thereto and Messrs. Sturgess,
Hegi, Miller, Good and Johnson, as voting trustees(1).
10.1 --Credit Agreement, dated as of March 30, 1995, among USSC, the Company,
certain Lenders named therein and Chase Bank, as Agent and Lender
(Exhibit 4.A.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995)(3).
10.2 --Waiver and Amendment No. 1, dated as of April 13, 1995, among USSC,
the Company, each of the lenders party thereto and Chase Bank(1).
10.3 --Waiver and Amendment No. 2, dated as of December 21, 1995, among the
Company, United, each of the lenders party thereto and Chase Bank**.
10.4 --Assumption Agreement, dated as of March 30, 1995, among USSC, the
Company and Chase Bank, as agent (included in Exhibit 10.1, Exhibit F).
10.5 --Form of Revolving Credit Note, issuable under the Credit Agreement
(included in Exhibit 10.1, Exhibit A-I).
10.6 --Form of Tranche A Term Loan Note, issuable under the Credit Agreement
(included in Exhibit 10.1, Exhibit A-2).
10.7 --Form of Tranche B Term Loan Note, issuable under the Credit Agreement
(included in Exhibit 10.1, Exhibit A-3).
10.8 --Security Agreement, dated as of March 30, 1995, between USSC and Chase
Bank, as agent (included in Exhibit 10.1, Exhibit C).
10.9 --Form of Indenture of Mortgage, Assignment of Rents, Security Agreement
and Fixture Filing, dated as of March 30, 1995, by USSC in favor of
Chase Bank (included in Exhibit 10.1, Exhibit E).
10.10 --Registration Rights Agreement, dated as of April 26, 1995, among the
Company, USSC and the Initial Purchaser(1).
10.11 --Purchase Agreement, dated April 26, 1995, among the Company, USSC, and
the Initial Purchaser(1).
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10.12 --Registration Rights Agreement, dated as of January 31, 1992, between
the Company and CMIHI (included in Exhibit 10.15, Annex 2).
10.13 --Amendment No. 1 to Registration Rights Agreement, dated as of March
30, 1995, among the Company, CMIHI and certain other holders of Lender
Warrants(1).
10.14 --Amended and Restated Registration Rights Agreement, dated as of March
30, 1995, among the Company, Wingate Partners, Cumberland, Good Capital
Co., Inc. and certain other Company stockholders(1).
10.15 --Warrant Agreement, dated as of January 31, 1992, among the Company,
USSC and CMIHI(1).
10.16 --Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992,
among the Company, USSC, CMIHI and the other parties thereto(1).
10.17 --Letter Agreement dated as of February 10, 1995, amending certain
provisions of the Warrant Agreement, among the Company, USSC, CMIHI and
the other parties thereto.**
10.18 --Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995,
among the Company, USSC, CMIHI and the other parties thereto(1).
10.19 --Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995, among
the Company, USSC, CMIHI and the other parties thereto.**
10.20 --Amendment No. 4 to Warrant Agreement, dated as of February , 1996,
among the Company, USSC, CMIHI and the other parties thereto.**
10.21 --Warrant Agreement, dated as of January 31, 1992, between the Company
and Boise Cascade Corporation(1).
10.22 --Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995,
between the Company and Boise Cascade Corporation(1).
10.23 --Indenture, dated as of May 3, 1995, among USSC, the Company and The
Bank of New York(1).
10.24 --First Supplemental Indenture, dated as of July 28, 1995, among USSC,
the Company, and the Bank of New York(1).
10.25 --Investment Banking Fee and Management Agreements, dated as of January
31, 1992, among the Company, USSC and each of Wingate Partners,
Cumberland and Good Capital Co., Inc.(1).
10.26 --Amendment No. 1 to Investment Banking Fee and Management Agreements,
dated as of March 30, 1995, among USSC, the Company and each of Wingate
Partners, Cumberland and Good Capital Co., Inc.(1).
10.27 --1992 Management Stock Option Plan, dated as of January 31, 1992(1).
10.28 --Amendment No. 1 to 1992 Management Stock Option Plan, dated as of
March 30, 1995(1).
10.29 --Amendment No. 2 to 1992 Management Stock Option Plan, dated as of
September 27, 1995.*
10.30 --Letter agreements, dated January 31, 1992, between the Company (as
successor-in-interest to Associated) and each of Michael D. Rowsey,
Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J.
Ratay and Daniel H. Bushell regarding grants of stock options(1).
10.31 --Amendment to Stock Option Grants, dated as of March 30, 1995, between
the Company and each of Michael D. Rowsey, Robert W. Eberspacher,
Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay and Daniel H.
Bushell(1).
10.32 --Forms of Stock Option Agreements dated October 2, 1995 granting
options to certain management employees, subject to stockholder
approval of Amendment No. 2 to Stock Option Plan.*
10.33 --Forms of Amendments to Stock Option Grants, dated September 29, 1995
between the Company and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller, Daniel J. Schleppe and Daniel H.
Bushell.**
10.34 --Stock Option Agreements dated as of January 1, 1996 between the
Company and Thomas W. Sturgess, granting options subject to stockholder
approval of Amendment No. 2 to Stock Option Plan.*
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10.35 --Executive Stock Purchase Agreements, dated as of January 31, 1992,
among the Company, Wingate Partners, ASI Partners, L.P. and each of
Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and Daniel
J. Schleppe(1).
10.36 --First Amendments to Executive Stock Purchase Agreements, dated as of
March 30, 1995, among the Company, Wingate Partners, ASI Partners, L.P.
and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E.
Miller and Daniel J. Schleppe(1).
10.37 --Executive Bonus Plan (Exhibit 10(a)(i)(F) to the Company's Report on
Form 10-K dated November 17, 1988)(3).
10.38 --Amendment to Executive Bonus Plan adopted February 13, 1995(2).
10.39 --Supplemental Benefits Plan as amended and restated as of July 13, 1988
(Exhibit 10(a)(H)(1) to the Company's Report on Form 10-K dated
November 17, 1988)(3).
10.40 --Management Incentive Plan (Exhibit 10(a)(i)(L) to the Company's Report
on Form 10-K dated November 17, 1988)(3).
10.41 --Amendment to Management Incentive Plan (Exhibit 10(a)(i)(C)(1) to the
Company's Report on Form 10-K dated November 23, 1994)(3).
10.42 --Amendment to Management Incentive Plan adopted February 13, 1995(2).
10.43 --Management Incentive Plan for period 4/1/95 through 12/31/95.**
10.44 --Management Incentive Plan for 1996.**
10.45 --Profit Sharing PluSavings Plan (Exhibit 10(a)(i)(F)(2)(f) to the
Company's Report on Form 10-K dated November 20, 1989)(3).
10.46 --United Stationers Supply Co. Pension Plan as amended (See the
Company's Reports on Form
10-K for the fiscal years ended August 31, 1985, 1986, 1987 and
1989)(3).
10.47 --Amendment to Pension Plan adopted February 10, 1995(2).
10.48 --One Time Merger Integration Bonus Plan.*
10.49 --Employment Agreements, dated as of January 31, 1992, among the
Company, USSC and each of Michael D. Rowsey, Robert W. Eberspacher,
Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay and Daniel H.
Bushell(1).
10.50 --Amended and Restated Employment and Consulting Agreement dated April
15, 1993 among the Company, USSC and Joel D. Spungin (Exhibit 10(b) to
the Company's Report on Form 10-K dated November 22, 1993)(3).
10.51 --Amendment dated February 13, 1995 to the Amended and Restated
Employment and Consulting Agreement among the Company, USSC and Joel D.
Spungin(2).
10.52 --Form of Employment and Consulting Agreement among the Company, USSC
and certain officers (Exhibit 10(j) to the Company's Report on Form 10-
K dated November 19, 1987)(3).
10.53 --Amendment dated February 13, 1995 to Employment and Consulting
Agreement among the Company, USSC and Jerold A. Hecktman(2).
10.54 --Amendment dated February 13, 1995 to Employment and Consulting
Agreement among the Company, USSC and Ted S. Rzeszuto(2).
10.55 --Amendment dated February 13, 1995 to Employment and Consulting
Agreement among the Company, USSC and Otis H. Halleen(2).
10.56 --Amendment dated February 13, 1995 to Employment and Consulting
Agreement among the Company, USSC and Robert H. Cornell(2).
10.57 --Amendment dated February 13, 1995 to Employment and Consulting
Agreement among the Company, USSC and Steven R. Schwarz(2).
</TABLE>
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<PAGE>
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10.58 --Employment and Consulting Agreement dated March 1, 1990 between the
Company, USSC and Jeffrey K. Hewson (Exhibit 10(1) to the Company's
Report on Form 10-K dated November 20, 1990)(3).
10.59 --Amendment dated April 10, 1991 of Employment and Consulting Agreement
between the Company, USSC and Jeffrey K. Hewson (Exhibit 10(1)(i) to
the Company's Report on Form 10-K dated November 25, 1991)(3).
10.60 --Amendment dated September 1, 1994 of Hewson Employment and Consulting
Agreement (Exhibit 10(e)(ii) to the Company's Report on Form 10-K dated
November 23, 1994)(3).
10.61 --Amendment to Employment and Consulting Agreement dated February 13,
1995 between the Company, USSC and Jeffrey K. Hewson(2).
10.62 --Amendment dated May 25, 1995 to Employment and Consulting Agreement
between the Company, USSC and Jeffrey K. Hewson.*
10.63 --Severance Agreement between the Company, USSC and James A. Pribel
dated February 13,
1995(2).
10.64 --Letter Agreement dated February 13, 1995 between the Company and Ergin
Uskup(2).
10.65 --Amendment dated August 30, 1995 to Employment and Consulting Agreement
between the Company, USSC and Steven R. Schwarz.*
10.66 --Amendment dated August 30, 1995 to Employment and Consulting Agreement
between the Company, USSC and Ted S. Rzeszuto.*
10.67 --Employment Agreements dated October 1, 1995 between USSC and each of
Daniel H. Bushell, Michael D. Rowsey, Steven R. Schwarz, Robert H.
Cornell, Ted S. Rzeszuto, and Al Shaw.*
10.68 --Employment Agreement dated November 1, 1995 between USSC and Otis H.
Halleen.*
10.69 --Employment Agreement dated as of January 1, 1996 between the Company,
USSC and Thomas W. Sturgess.*
10.70 --Deferred Compensation Plan. (Exhibit 10(f) to the Company's Annual
Report on Form 10-K dated October 6, 1994)(3).
10.71 --Consulting Agreement dated October 1, 1995 between the Company and
Jeffrey K. Hewson.*
10.72 --Letter Agreement dated November 29, 1995 granting shares of restricted
stock to Joel D. Spungin.*
10.73 --Option Agreement dated November 29, 1995 between the Company and
Jeffrey K. Hewson.**
10.74 --Lease Agreement, dated as of March 4, 1988, between Crow-Alameda
Limited Partnership and Stationers Distributing Company, Inc., as
amended(1).
10.75 --Industrial Real Estate Lease, dated as of May 17, 1993, among Majestic
Realty Co. and Patrician Associates, Inc., as landlord, and United
Stationers Supply Co., as tenant(1).
10.76 --Standard Industrial Lease, dated as of March 15, 1991, between Shelley
B. & Barbara Detrik and Lynn Edwards Corp.(1)
10.77 --Lease Agreement, dated as of January 12, 1993, as amended, among
Stationers Antelope Joint Venture, AVP Trust, Adon V. Panattoni and
Yolanda M. Panattoni, as landlord, and United Stationers Supply Co., as
tenant(1).
10.78 --Lease, dated as of February 1, 1993, between CMD Florida Four Limited
Partnership and United Stationers Supply Co., as amended(1).
10.79 --Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
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<PAGE>
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10.80 --Lease, dated March 22, 1973, between National Boulevard Bank of
Chicago, as trustee under Trust Agreement dated March 15, 1973 and
known as Trust No. 4722, and United Supply Company, as amended(1).
10.81 --Lease Agreement, dated July 20, 1993, between OTR, acting as the duly
authorized nominee of the Board of the State Teachers Retirement
System of Ohio, and United Stationers Supply Co., as amended(1).
10.82 --Lease Agreement, dated as of December 20, 1988, between Corporate
Property Associates 8, L.P., and Stationers Distributing Company,
Inc., as amended(1).
10.83 --Industrial Lease, dated as of February 22, 1988, between Northtown
Devco and Stationers Distributing Company, as amended(1).
10.84 --Lease, dated as of April 17, 1989, between Isaac Heller and United
Stationers Supply Co ., as amended(1).
10.85 --Lease Agreement, dated as of May 10, 1984, between Westbelt Business
Park Joint Venture and Boise Cascade Corporation, as amended(1).
10.86 --Lease, dated as of January 19, 1981, between Propco, Inc. and Crown
Zellerbach Corporation, as amended(1).
10.87 --Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.88 --Lease Agreement, dated as of March 31, 1978, among Gillich O.
Traughber and J.T. Cruin, Joint Venturers, and Boise Cascade
Corporation, as amended(1).
10.89 --Lease Agreement, dated November 7, 1988, between Dalware II
Associates and Stationers Distributing Company, Inc., as amended(1).
10.90 --Lease Agreement, dated November 7, 1988, between Central East Dallas
Development Limited Partnership and Stationers Distributing Company,
Inc., as amended(1).
10.91 --Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing
Company, Inc., as amended(1).
10.92 --Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1).
10.93 --Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
10.94 --Lease Agreement, dated as of July , 1994, between Bettilyon
Mortgage Loan Company and United Stationers Supply Co.(1).
10.95 --Agreement of Lease, dated as of January 5, 1994, between the Estate
of James Campbell, deceased, and United Stationers Supply Co.(1).
10.96 --Lease Agreement dated January 5, 1996 between Robinson Properties,
L.P. and USSC.*
10.97 --Real Estate Agreement dated January 9, 1996 between USSC as seller
and Seid Street, Ltd. as purchaser.*
10.98 --Real Estate Agreement dated October 19, 1995 between USSC as seller
and Boise Cascade Office Products Corporation as purchaser.*
10.99 --Agreement for Data Processing Services, dated January 31, 1992,
between USSC (as successor-in-interest to ASI) and Affiliated Computer
Services, Inc.(1).
10.100 --Amended and Restated First Amendment to Agreement for Data Processing
Services, dated as of August 29, 1995, between USSC and Affiliated
Computer Services, Inc.(1).
10.101 --Form of Director's Agreement to Cash Out and Cancel Stock Options
dated February 13, 1995 (Exhibit 10.53 to the Company's Report on Form
10-K dated June 27, 1995)(3).
</TABLE>
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10.102 --Form of Employee's Agreement to Cash Out and Cancel Stock Options
dated February 13, 1995 (Exhibit 10.54 to the Company's Report on Form
10-K dated June 27, 1995)(3).
10.103 --US Employee Benefits Trust Agreement dated March 21, 1995 between the
Company and American National Bank and Trust Company of Chicago as
Trustee(2).
10.104 --USI Bonus Benefits Trust Agreement dated March 21, 1995 between the
Company and American National Bank and Trust Company of Chicago as
Trustee(2).
10.105 --Certificate of Insurance covering directors' and officers' liability
insurance effective November 1, 1994 through November 1, 1995 (Exhibit
10.57 to the Company's Report on Form 10-K dated June 27, 1995)(3).
10.106 --Certificate of Insurance covering directors' and officers' liability
insurance effective March 30, 1995 through March 30, 1996 (Exhibit
10.81 to the Company's Form S-3 (No. 33-62739, as amended)(3).
10.107 --Amendment to Medical Plan Document for the Company(2).
10.108 --The Company Severance Plan, adopted February 10, 1995(2).
10.109 --Securities Purchase Agreement, dated as of July 28, 1995, among the
Company, Boise Cascade, Wingate Partners, Wingate II, Wingate
Affiliates, Wingate Affiliates II, ASI Partners III, L.P., the Julie
Good Mora Grantor Trust and the Laura Good Stathos Grantor Trust(2).
21 --Subsidiaries of the Company*.
23.1 --Consent of Weil, Gotshal & Manges LLP (included in the opinion filed
as Exhibit 5 to the Registration Statement).**
23.2 --Consent of Ernst & Young LLP, independent auditors.*
23.3 --Consent of Arthur Andersen LLP, independent certified public
accountants.*
23.4 --Consent of Arthur Andersen LLP, independent certified public
accountants.*
24.1 --Powers of Attorney of directors and executive officers of the
Registrant. (Included on Page II-8 of this Registration Statement.)*
27 --Financial Data Schedule (EDGAR filing only).*
</TABLE>
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* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the Company's Form S-1 (No. 33-59811), as
amended, initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated February
21, 1995.
(3) Incorporated by reference to other prior filings of the Company as
indicated.
II-7
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liability (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DES PLAINES, STATE OF ILLINOIS, ON FEBRUARY 15,
1996.
United Stationers Inc.
By: _________________________________
DANIEL H. BUSHELL EXECUTIVE VICE
PRESIDENT, CHIEF FINANCIAL OFFICER
AND ASSISTANT SECRETARY
EACH PERSON WHOSE SIGNATURE TO THIS REGISTRATION STATEMENT APPEARS BELOW
HEREBY APPOINTS THOMAS W. STURGESS, DANIEL H. BUSHELL AND JAMES A. JOHNSON,
AND EACH OF THEM, ANY ONE OF WHOM MAY ACT WITHOUT THE JOINDER OF ANY OF THE
OTHERS, AS HIS ATTORNEY-IN-FACT TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN THE
CAPACITY STATED BELOW AND TO FILE ALL PRE- AND POST-EFFECTIVE AMENDMENTS TO
THIS REGISTRATION STATEMENT (AND, IN ADDITION, ANY REGISTRATION STATEMENT
FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR THE OFFERING TO WHICH THIS REGISTRATION STATEMENT RELATES), WHICH MAY MAKE
SUCH CHANGES IN AND ADDITIONS TO THIS REGISTRATION STATEMENT AS SUCH ATTORNEY-
IN-FACT MAY DEEM NECESSARY OR APPROPRIATE.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
Chairman of the February 15,
- ------------------------------------- Board, President 1996
THOMAS W. STURGESS and Chief Executive
Officer of the
Company (principal
executive officer
of the Company)
Executive Vice February 15,
- ------------------------------------- President, Chief 1996
DANIEL H. BUSHELL Financial Officer
and Assistant
Secretary;
(principal
financial officer)
Vice President, February 15,
- ------------------------------------- Controller and 1996
TED S. RZESZUTO Assistant Secretary
(principal
accounting officer)
Director February 15,
- ------------------------------------- 1996
JAMES T. CALLIER, JR.
II-9
<PAGE>
SIGNATURE TITLE DATE
Director February 15,
- ------------------------------------- 1996
DANIEL J. GOOD
Director February 15,
- ------------------------------------- 1996
FREDERICK B. HEGI, JR.
Director February 15,
- ------------------------------------- 1996
JEFFREY K. HEWSON
Director February 15,
- ------------------------------------- 1996
JAMES A. JOHNSON
Director February 15,
- ------------------------------------- 1996
GARY G. MILLER
Director February 15,
- ------------------------------------- 1996
MICHAEL D. ROWSEY
Director February 15,
- ------------------------------------- 1996
JOEL D. SPUNGIN
II-10
<PAGE>
EXHIBIT 10.29
AMENDMENT NO. 2 TO
UNITED STATIONERS INC.
Management Stock Option Plan
This Amendment No. 2 to United Stationers Inc. Management Stock Option Plan
(the "Plan") is dated as of September 27, 1995. Unless otherwise defined
herein, capitalized terms used herein shall have the meanings given them in the
Plan.
WHEREAS, Associated Holdings, Inc. created and adopted the Plan as of
January 31, 1992;
WHEREAS, upon the merger of Associated Holdings, Inc. with United
Stationers Inc. on March 30, 1995, the Plan was amended, by Amendment No. 1,
changing the name of the Plan, and increasing the maximum number of shares of
common stock for which options could be granted under the Plan;
WHEREAS, the Company desires to amend the Plan in certain further
respects;
THEREFORE, the Plan is amended as follows:
1. Amendment of Name of Plan.
The name of the Plan shall be "United Stationers Inc. Management Equity
Plan".
2. Amendment of Section 1.
The first sentence of Section 1 is amended by deleting the words
"Management Stock Option Plan" and substituting therefor the words
"Management Equity Plan".
3. Amendment of Section 3.
The first sentence of Section 3 is amended by deleting the number
"202,962.14" and substituting therefor "1,302,962.14".
4. Amendment of Section 5.
Section 5(b) is amended by inserting the words "at least" before the words
"six (6) months".
5. Amendments of Section 6.
<PAGE>
(a) Section 6(e) is (i) amended by inserting, before the words "within six
(6) months", the following: "within the period designated by the
Committee at the time of grant, which shall in no event be less than",
and (ii) by inserting at the end of said section the following: ", or
will become entitled to purchase during the period of exercise."
(b) Section 6(f) is amended in its entirety to read as follows:
"f. Disability or Retirement. If the employment of any optionee is
terminated because of Disability (as defined in Section 9), or because
of retirement, such optionee shall have the right, within the period
designated by the Committee at the time of grant, which shall in no
event be less that within six (6) months after the date of termination
(or within one (1) year after the date of such termination in the case
of an Incentive Option) (but in no case after the expiration of the
Option), to exercise the Option with respect to all or any part of the
shares of stock which such optionee was entitled to purchase
immediately prior to the time of such termination, or will become
entitled to purchase during the period of exercise."
6. Effect on the Plan. Except as amended hereby, the Plan shall remain in
full force and effect. All references to the "Plan" shall refer to the Plan as
amended by this Amendment.
7. Stockholder Approval. The amendments made hereby shall be subject to
approval by the stockholders of the Company no later than the next annual
meeting of stockholders.
<PAGE>
EXHIBIT 10.32
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
STOCK OPTION AGREEMENT
October 2, 1995
NAME
ADDRESS
CITY STATE ZIP
Dear :
This will confirm the following agreement made effective as of today
between you and United Stationers Inc., a Delaware corporation (the "Company"),
pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which
is attached as Exhibit A and is part of this agreement.
(1) GRANT. The Company grants to you an option to purchase from the company
XXXXXX shares of Common Stock of the Company at $10.24 per share, in
accordance with the terms of this agreement. The number of shares and the
price per share are subject to adjustment as provided in the Plan.
(2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by
the stockholders of the Company, of amendments to the Plan which will be
submitted for approval by written consent of the stockholders or, if
written consent cannot be obtained, at the next special or annual meeting
of stockholders.
(3) VESTING. This option may be exercised upon the terms and conditions of
the Plan, as supplemented by this agreement, and not otherwise. This option
may be exercised as to some or all of the shares (but not for fractional
shares) at any time or times after the occurrence of a transaction or group
of transactions (an "Event") that cause the Sponsor Holders (as defined
below) to realize a return of Liquid Proceeds (as defined below) at least
equal to their Common Stock Investment (as defined below).
(a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P.,
Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate
Affiliates II, L.P., and their affiliates.
(b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii)
negotiable instruments drawn on a bank with at least $10 billion in
assets and payable in U.S. currency; (iii) obligations issued or
assumed by the United States of America or any agency or
instrumentality thereof; or (iv) shares of stock or other securities
that are registered under the Securities Exchange Act of 1933, are
traded on the New York Stock Exchange, the American Stock Exchange or
one approved for quotation on the NASDAQ National Market System, and
can be sold on such market by the holder without significant discount
from the average of the bid and asked prices for such shares or other
securities at such time.
(c) "Common Stock Investment" shall mean the purchase price for the shares
of Common Stock, par value $0.10 per share, of the Company purchased
by the Sponsor Holders at the closing of the acquisition of the
Company by the Sponsor Holders and others on March 30, 1995.
For purposes of determining whether an Event has occurred, the good faith
determination of the Board of Directors shall be conclusive. The Company
shall notify you when the Event occurs.
(4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will
automatically and without notice terminate either (a) three years after an
Event, or (b) at 5:00 p.m. Central Time on
<PAGE>
September 26, 2002, whichever occurs first (or earlier, in the event of
termination of employment as provided in paragraph 5 below).
(5) TERMINATION OF EMPLOYMENT. Upon termination of employment:
(a) If termination is for good cause, as defined in the Plan, the options
will immediately terminate;
(b) If termination is voluntary by the optionee, all unexercised options
shall immediately terminate;
(c) If termination is the result of death, permanent disability, or
retirement, the options will terminate as provided in paragraph (4)
above;
(d) If termination is at the election of the Company (but not for good
cause) the options will immediately terminate as to 1/2 of the number
of shares covered by the option grant, and the other half of the
number of shares covered by the grant will terminate either (1) one
year after the termination or (2) upon expiration of the option as
provided in paragraph (4)(b) above, whichever occurs first.
(6) METHOD OF EXERCISE. Any exercise of an option shall be in writing
addressed to the Treasurer of the Company at its principal place of
business, specifying the number of shares for which the option is
exercised. The date of exercise shall be the date of actual receipt by
the Treasurer.
(7) PAYMENT. Payment for the stock upon exercise of this option will be made
by the Company withholding from the total number of shares to be acquired
pursuant to the exercise of the option a portion of such shares valued at
the Fair Market Value of the shares (as defined in the Plan) on the day
preceding the date of the exercise of the option.
(8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding
requirements by having the Company withhold from the shares to be acquired
upon exercise.
(9) TRANSFERABILITY. The option is not transferable by you otherwise than
by will or the laws of descent and distribution, and is exercisable, during
your lifetime, only by you. By your acceptance of this agreement you agree
that the shares to be issued upon exercise of this option may not be sold,
assigned, pledged or otherwise transferred for a period of six months after
the Event without the prior written consent of the Option Committee of the
Board of Directors of the Company.
(10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be
legended in such fashion as the Company may require and shall be subject to
such restrictions on disposition as may be required to comply with Federal
and State securities laws.
(11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the
Company or any subsidiary of the Company to continue your employment for
any particular period or on any particular basis of compensation.
(12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise
of the options, reserves the right, in its good faith discretion, either to
cause the issuance of the shares for which the option is exercised, or to
pay to you the difference between the exercise price and the Fair Market
Value of the shares for which the option is exercised (in either case net
of the number of shares needed for payment and for withholding taxes).
2
<PAGE>
(13) MISCELLANEOUS.
(a) If requested to do so by the Company at the time of exercise of an
option, in whole or in part, you agree to execute a certificate
indicating that you are purchasing the stock under such option for
investment and not with any present intention to sell the stock and
that none of such shares shall be disposed of unless a registration
statement under the Securities Act of 1933 and the regulations of the
Securities and Exchange Commission shall be effect as to such shares,
or unless an exemption from registration is available for such
disposition.
(b) This agreement is subject to all the terms, conditions, limitations
and restrictions contained in the Plan. It may not be assigned or
transferred in whole or in part except as provided in the Plan. You
shall not have any of the rights of a shareholder with respect to any
of the shares optioned under this agreement until such shares are
actually paid for and issued to you.
(c) The option and these rights shall expire if the stockholders fail for
any reason to approve the amendments to the Plan by May 8, 1996.
(d) You assume all risks incident to any change hereafter in applicable
laws or regulations or incident to any changes in the market value of
the stock after the exercise of this option in whole or in part.
(e) The terms of this option are subject to modification by action of the
Board of Directors to the extent and in the manner permitted by the
Plan.
To indicate your acceptance of the foregoing, please sign and return one
copy of this letter immediately.
Very truly yours,
UNITED STATIONERS INC.
By:
-----------------------------
Thomas W. Sturgess
Chairman of the Board and
Chief Executive Officer
Accepted as of the date written above:
- --------------------------------------
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
STOCK OPTION AGREEMENT
October 2, 1995
NAME
ADDRESS
CITY STATE ZIP
Dear :
This will confirm the following agreement made effective as of today
between you and United Stationers Inc., a Delaware corporation (the "Company"),
pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which
is attached as Exhibit A and is part of this agreement.
(1) GRANT. The Company grants to you an option to purchase from the company
XXXXX shares of Common Stock of the Company at $25.00 per share, subject to
change as provided in this agreement. The number of shares and the price
per share are subject to adjustment as provided in the Plan.
The option exercise price will increase by $1.25 per share on April
1, 1996, and on the first day of each calendar quarter thereafter until the
occurrence of the Event described below. After the occurrence of the Event,
the option price will not be subject to any further quarterly increase.
(2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by
the stockholders of the Company, of amendments to the Plan which will be
submitted for approval by written consent of the stockholders or, if
written consent cannot be obtained, at the next special or annual meeting
of stockholders.
(3) VESTING. This option may be exercised upon the terms and conditions of
the Plan, as supplemented by this agreement, and not otherwise. This option
may be exercised as to some or all of the shares (but not for fractional
shares) at any time or times after the occurrence of a transaction or group
of transactions (an "Event") that cause the Sponsor Holders (as defined
below) to realize a return of Liquid Proceeds (as defined below) at least
equal to their Common Stock Investment (as defined below).
(a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P.,
Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate
Affiliates II, L.P., and their affiliates.
(b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii)
negotiable instruments drawn on a bank with at least $10 billion in
assets and payable in U.S. currency; (iii) obligations issued or
assumed by the United States of America or any agency or
instrumentality thereof; or (iv) shares of stock or other securities
that are registered under the Securities Exchange Act of 1933, are
traded on the New York Stock Exchange, the American Stock Exchange or
one approved for quotation on the NASDAQ National Market System, and
can be sold on such market by the holder without significant discount
from the average of the bid and asked prices for such shares or other
securities at such time.
(c) "Common Stock Investment" shall mean the purchase price for the shares
of Common Stock, par value $0.10 per share, of the Company purchased
by the Sponsor Holders at the closing of the acquisition of the
Company by the Sponsor Holders and others on March 30, 1995.
For purposes of determining whether an Event has occurred, the good faith
determination of the Board of Directors shall be conclusive. The Company
shall notify you when the Event occurs.
<PAGE>
(4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will
automatically and without notice terminate either (a) three years after an
Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever
occurs first (or earlier, in the event of termination of employment as
provided in paragraph 5 below).
(5) TERMINATION OF EMPLOYMENT. Upon termination of employment:
(a) If termination is for good cause, as defined in the Plan, the options
will immediately terminate;
(b) If termination is voluntary by the optionee, all unexercised options
shall immediately terminate;
(c) If termination is the result of death, permanent disability, or
retirement, the options will terminate as provided in paragraph (4)
above;
(d) If termination is at the election of the Company (but not for good
cause) the options will immediately terminate as to 1/2 of the number
of shares covered by the option grant, and the other half of the
number of shares covered by the grant will terminate either (1) one
year after the termination or (2) upon expiration of the option as
provided in paragraph (4)(b) above, whichever occurs first.
(6) METHOD OF EXERCISE. Any exercise of an option shall be in writing
addressed to the Treasurer of the Company at its principal place of
business, specifying the number of shares for which the option is
exercised. The date of exercise shall be the date of actual receipt by the
Treasurer.
(7) PAYMENT. Payment for the stock upon exercise of this option will be made
by the Company withholding from the total number of shares to be acquired
pursuant to the exercise of the option a portion of such shares valued at
the Fair Market Value of the shares (as defined in the Plan) on the day
preceding the date of the exercise of the option.
(8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding
requirements by having the Company withhold from the shares to be acquired
upon exercise.
(9) TRANSFERABILITY. The option is not transferable by you otherwise than by
will or the laws of descent and distribution, and is exercisable, during
your lifetime, only by you. By your acceptance of this agreement you agree
that the shares to be issued upon exercise of this option may not be sold,
assigned, pledged or otherwise transferred for a period of six months after
the Event without the prior written consent of the Option Committee of the
Board of Directors of the Company.
(10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be
legended in such fashion as the Company may require and shall be subject to
such restrictions on disposition as may be required to comply with Federal
and State securities laws.
(11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the
Company or any subsidiary of the Company to continue your employment for
any particular period or on any particular basis of compensation.
(12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise
of the options, reserves the right, in its good faith discretion, either to
cause the issuance of the shares for which the option is exercised, or to
pay to you the difference between the exercise price and the Fair Market
Value of
2
<PAGE>
the shares for which the option is exercised (in either case net of the
number of shares needed for payment and for withholding taxes).
(13) MISCELLANEOUS.
(a) If requested to do so by the Company at the time of exercise of an
option, in whole or in part, you agree to execute a certificate
indicating that you are purchasing the stock under such option for
investment and not with any present intention to sell the stock and
that none of such shares shall be disposed of unless a registration
statement under the Securities Act of 1933 and the regulations of the
Securities and Exchange Commission shall be effect as to such shares,
or unless an exemption from registration is available for such
disposition.
(b) This agreement is subject to all the terms, conditions, limitations
and restrictions contained in the Plan. It may not be assigned or
transferred in whole or in part except as provided in the Plan. You
shall not have any of the rights of a shareholder with respect to any
of the shares optioned under this agreement until such shares are
actually paid for and issued to you.
(c) The option and these rights shall expire if the stockholders fail for
any reason to approve the amendments to the Plan by May 8, 1996.
(d) You assume all risks incident to any change hereafter in applicable
laws or regulations or incident to any changes in the market value of
the stock after the exercise of this option in whole or in part.
(e) The terms of this option are subject to modification by action of the
Board of Directors to the extent and in the manner permitted by the
Plan.
To indicate your acceptance of the foregoing, please sign and return one
copy of this letter immediately.
Very truly yours,
UNITED STATIONERS INC.
By:
----------------------------
Thomas W. Sturgess
Chairman of the Board and
Chief Executive Officer
Accepted as of the date written above:
- --------------------------------------
3
<PAGE>
EXHIBIT 10.34
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
STOCK OPTION AGREEMENT
January 1, 1996
Mr. Thomas W. Sturgess
c/o Wingate Partners
750 North St. Paul/ Suite #1200
Dallas, Texas 75201
Dear Tom:
This will confirm the following agreement made effective as of today
between you and United Stationers Inc., a Delaware corporation (the "Company"),
pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which
is attached as Exhibit A and is part of this agreement.
(1) GRANT. The Company grants to you an option to purchase from the company
240,000 shares of Common Stock of the Company at $12.50 per share, subject
to change as provided in this agreement. The number of shares and the price
per share are subject to adjustment as provided in the Plan.
The option exercise price will increase by $0.625 per share on April
1, 1996, and on the first day of each calendar quarter thereafter until the
occurrence of the Event described below. After the occurrence of the Event,
the option price will not be subject to any further quarterly increase.
(2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by
the stockholders of the Company, of amendments to the Plan which will be
submitted for approval by written consent of the stockholders or, if
written consent cannot be obtained, at the next special or annual meeting
of stockholders.
(3) VESTING. This option may be exercised upon the terms and conditions of the
Plan, as supplemented by this agreement, and not otherwise. This option may
be exercised as to some or all of the shares (but not for fractional
shares) at any time or times after the occurrence of a transaction or group
of transactions (an "Event") that cause the Sponsor Holders (as defined
below) to realize a return of Liquid Proceeds (as defined below) at least
equal to their Common Stock Investment (as defined below) as follows:
(i) Options for 80,000 shares after the occurrence of an Event;
(ii) Options for 80,000 shares on the later of (a) December 31,
1996, provided you are still employed as Chief Executive
Officer of the Company on such date or (b) the occurrence of an
Event; and
(iii) Options for 80,000 shares on the later of (a) March 31, 1997,
provided you are still employed as Chief Executive Officer of
the Company on such date, or (b) the occurrence of an Event.
(a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P.,
Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate
Affiliates II, L.P., and their affiliates.
(b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii)
negotiable instruments drawn on a bank with at least $10 billion in
assets and payable in U.S. currency; (iii) obligations issued or
assumed by the United States of America or any agency or
instrumentality thereof; or (iv) shares of stock or other securities
that are registered under the Securities Exchange Act of 1933, are
traded on the New York Stock Exchange, the American Stock Exchange or
one approved for quotation on the NASDAQ National Market System, and
can be sold on such market by the holder without
<PAGE>
significant discount from the average of the bid and asked prices for
such shares or other securities at such time.
(c) "Common Stock Investment" shall mean the purchase price for the shares
of Common Stock, par value $0.10 per share, of the Company purchased
by the Sponsor Holders at the closing of the acquisition of the
Company by the Sponsor Holders and others on March 30, 1995.
For purposes of determining whether an Event has occurred, the good faith
determination of the Board of Directors shall be conclusive. The Company
shall notify you when the Event occurs.
(4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will
automatically and without notice terminate either (a) three years after an
Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever
occurs first (or earlier, in the event of termination of employment as
provided in paragraph 5 below).
(5) TERMINATION OF EMPLOYMENT. Upon termination of employment:
(a) If termination is for good cause, as defined in the Plan, the options
will immediately terminate;
(b) If termination is voluntary by the optionee, all unexercised options
shall immediately terminate;
(c) If termination is the result of death, permanent disability, or
retirement, the options will terminate if not yet vested pursuant to
paragraph 3(ii) or (iii) above; otherwise as provided in paragraph (4)
above;
(d) If termination is at the election of the Company (but not for good
cause) the options will immediately terminate as to those options not
yet vested pursuant to paragraph 3(ii) or (iii) above and 1/2 of the
number of remaining shares covered by the option grant, and the other
half of the number of remaining shares covered by the grant will
terminate either (1) one year after the termination or (2) upon
expiration of the option as provided in paragraph (4)(b) above,
whichever occurs first.
(6) METHOD OF EXERCISE. Any exercise of an option shall be in writing
addressed to the Treasurer of the Company at its principal place of
business, specifying the number of shares for which the option is
exercised. The date of exercise shall be the date of actual receipt
by the Treasurer.
(7) PAYMENT. Payment for the stock upon exercise of this option will be made
by the Company withholding from the total number of shares to be acquired
pursuant to the exercise of the option a portion of such shares valued at
the Fair Market Value of the shares (as defined in the Plan) on the day
preceding the date of the exercise of the option.
(8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding
requirements by having the Company withhold from the shares to be acquired
upon exercise.
(9) TRANSFERABILITY. The option is not transferable by you otherwise than by
will or the laws of descent and distribution, and is exercisable, during
your lifetime, only by you. By your acceptance of this agreement you agree
that the shares to be issued upon exercise of this option may not be sold,
assigned, pledged or otherwise transferred for a period of six months after
the Event without the prior written consent of the Option Committee of the
Board of Directors of the Company.
2
<PAGE>
(10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be
legended in such fashion as the Company may require and shall be subject to
such restrictions on disposition as may be required to comply with Federal
and State securities laws.
(11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the
Company or any subsidiary of the Company to continue your employment for
any particular period or on any particular basis of compensation.
(12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise
of the options, reserves the right, in its good faith discretion, either to
cause the issuance of the shares for which the option is exercised, or to
pay to you the difference between the exercise price and the Fair Market
Value of the shares for which the option is exercised (in either case net
of the number of shares needed for payment and for withholding taxes).
(13) MISCELLANEOUS.
(a) If requested to do so by the Company at the time of exercise of an
option, in whole or in part, you agree to execute a certificate
indicating that you are purchasing the stock under such option for
investment and not with any present intention to sell the stock and
that none of such shares shall be disposed of unless a registration
statement under the Securities Act of 1933 and the regulations of the
Securities and Exchange Commission shall be effect as to such shares,
or unless an exemption from registration is available for such
disposition.
(b) This agreement is subject to all the terms, conditions, limitations
and restrictions contained in the Plan. It may not be assigned or
transferred in whole or in part except as provided in the Plan. You
shall not have any of the rights of a shareholder with respect to any
of the shares optioned under this agreement until such shares are
actually paid for and issued to you.
(c) The option and these rights shall expire if the stockholders fail for
any reason to approve the amendments to the Plan by May 8, 1996.
(d) You assume all risks incident to any change hereafter in applicable
laws or regulations or incident to any changes in the market value of
the stock after the exercise of this option in whole or in part.
(e) The terms of this option are subject to modification by action of the
Board of Directors to the extent and in the manner permitted by the
Plan.
To indicate your acceptance of the foregoing, please sign and return one
copy of this letter immediately.
Very truly yours,
UNITED STATIONERS INC.
By:
---------------------------------------
Gary G. Miller, Director and Member of
Compensation Committee
Accepted as of the date written above:
- --------------------------------------
Thomas W. Sturgess
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
STOCK OPTION AGREEMENT
January 1, 1996
Mr. Thomas W. Sturgess
c/o Wingate Partners
750 North St. Paul/ Suite #1200
Dallas, Texas 75201
Dear Tom:
This will confirm the following agreement made effective as of today
between you and United Stationers Inc., a Delaware corporation (the "Company"),
pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which
is attached as Exhibit A and is part of this agreement.
(1) GRANT. The Company grants to you an option to purchase from the company
120,000 shares of Common Stock of the Company at $5.12 per share, in
accordance with the terms of this agreement. The number of shares and the
price per share are subject to adjustment as provided in the Plan.
(2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by
the stockholders of the Company, of amendments to the Plan which will be
submitted for approval by written consent of the stockholders or, if
written consent cannot be obtained, at the next special or annual meeting
of stockholders.
(3) VESTING. This option may be exercised upon the terms and conditions of
the Plan, as supplemented by this agreement, and not otherwise. This option
may be exercised as to some or all of the shares (but not for fractional
shares) at any time or times after the occurrence of a transaction or group
of transactions (an "Event") that cause the Sponsor Holders (as defined
below) to realize a return of Liquid Proceeds (as defined below) at least
equal to their Common Stock Investment (as defined below).
(a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P.,
Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate
Affiliates II, L.P., and their affiliates.
(b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii)
negotiable instruments drawn on a bank with at least $10 billion in
assets and payable in U.S. currency; (iii) obligations issued or
assumed by the United States of America or any agency or
instrumentality thereof; or (iv) shares of stock or other securities
that are registered under the Securities Exchange Act of 1933, are
traded on the New York Stock Exchange, the American Stock Exchange or
one approved for quotation on the NASDAQ National Market System, and
can be sold on such market by the holder without significant discount
from the average of the bid and asked prices for such shares or other
securities at such time.
(c) "Common Stock Investment" shall mean the purchase price for the shares
of Common Stock, par value $0.10 per share, of the Company purchased
by the Sponsor Holders at the closing of the acquisition of the
Company by the Sponsor Holders and others on March 30, 1995.
For purposes of determining whether an Event has occurred, the good faith
determination of the Board of Directors shall be conclusive. The Company
shall notify you when the Event occurs.
<PAGE>
This option may also be exercised as to some or all of the options
immediately in the event of the termination of your employment (i) for Good
Reason (as defined in your employment agreement), (ii) by expiration of
your term of employment, (iii) by the Company other than for Cause, (iv)
due to a Change in Control, or (v) due to your death or permanent
disability.
(4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will
automatically and without notice terminate either (a) three years after an
Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever
occurs first (or earlier, in the event of termination of employment as
provided in paragraph 5 below).
(5) TERMINATION OF EMPLOYMENT. Upon termination of employment:
(a) If termination is for good cause, as defined in the Plan, the options
will immediately terminate;
(b) If termination is voluntary by you prior to the expiration of your
term of employment, all unexercised options shall immediately
terminate;
(c) If termination is the result of death, permanent disability, or
retirement, the options will terminate as provided in paragraph (4)
above;
(d) If termination is at the election of the Company (but not for Cause)
the options will terminate either (1) one year after the termination
or (2) upon expiration of the option as provided in paragraph (4)(b)
above, whichever occurs first.
(6) METHOD OF EXERCISE. Any exercise of an option shall be in writing
addressed to the Treasurer of the Company at its principal place of
business, specifying the number of shares for which the option is
exercised. The date of exercise shall be the date of actual receipt by the
Treasurer.
(7) PAYMENT. Payment for the stock upon exercise of this option will be made
by the Company withholding from the total number of shares to be acquired
pursuant to the exercise of the option a portion of such shares valued at
the Fair Market Value of the shares (as defined in the Plan) on the day
preceding the date of the exercise of the option.
(8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding
requirements by having the Company withhold from the shares to be acquired
upon exercise.
(9) TRANSFERABILITY. The option is not transferable by you otherwise than by
will or the laws of descent and distribution, and is exercisable, during
your lifetime, only by you. By your acceptance of this agreement you agree
that the shares to be issued upon exercise of this option may not be sold,
assigned, pledged or otherwise transferred for a period of six months after
the Event without the prior written consent of the Option Committee of the
Board of Directors of the Company.
(10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be
legended in such fashion as the Company may require and shall be subject to
such restrictions on disposition as may be required to comply with Federal
and State securities laws.
(11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the
Company or any subsidiary of the Company to continue your employment for
any particular period or on any particular basis of compensation.
2
<PAGE>
(12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise
of the options, reserves the right, in its good faith discretion, either to
cause the issuance of the shares for which the option is exercised, or to
pay to you the difference between the exercise price and the Fair Market
Value of the shares for which the option is exercised (in either case net
of the number of shares needed for payment and for withholding taxes).
(13) MISCELLANEOUS.
(a) If requested to do so by the Company at the time of exercise of an
option, in whole or in part, you agree to execute a certificate
indicating that you are purchasing the stock under such option for
investment and not with any present intention to sell the stock and
that none of such shares shall be disposed of unless a registration
statement under the Securities Act of 1933 and the regulations of the
Securities and Exchange Commission shall be effect as to such shares,
or unless an exemption from registration is available for such
disposition.
(b) This agreement is subject to all the terms, conditions, limitations
and restrictions contained in the Plan. It may not be assigned or
transferred in whole or in part except as provided in the Plan. You
shall not have any of the rights of a shareholder with respect to any
of the shares optioned under this agreement until such shares are
actually paid for and issued to you.
(c) The option and these rights shall expire if the stockholders fail for
any reason to approve the amendments to the Plan by May 8, 1996.
(d) You assume all risks incident to any change hereafter in applicable
laws or regulations or incident to any changes in the market value of
the stock after the exercise of this option in whole or in part.
(e) The terms of this option are subject to modification by action of the
Board of Directors to the extent and in the manner permitted by the
Plan.
To indicate your acceptance of the foregoing, please sign and return one
copy of this letter immediately.
Very truly yours,
UNITED STATIONERS INC.
By:
--------------------------------------
Gary G. Miller, Director and Member of
Compensation Committee
Accepted as of the date written above:
- --------------------------------------
Thomas W. Sturgess
3
<PAGE>
[LOGO OF UNITED STATIONERS] EXHIBIT 10.48
July, 1995
ONE-TIME MERGER INTEGRATION BONUS
---------------------------------
This is a one-time incentive plan aimed at rewarding participants for
accomplishing specific integration objectives of the merger:
1) Achieving an EBITDA annualized run rate of $150 million
on 9/30/96, as measured over the preceding six month
period.
2) Achieving the debt reduction goals contained in the
Company's business plans.
Eighty percent (80%) of the participant's bonus will be determined by the degree
of achievement of Goal #1; the remaining twenty percent (20%) of the
participant's bonus will be determined by the degree of achievement of Goal #2.
Goal achievement will be measured as of 9/30/96. Participants will be eligible
for a bonus when 90% achievement is reached. When the goals are met (i.e., 100%
accomplishment) or exceeded, participants will share in a $5.0 million bonus
pool. This Plan is effective immediately.
Participants
- ------------
Generally limited to a select group of Corporate Staff individuals, Region Vice
Presidents and Area Managers, as approved by the Chairman of the Board.
Award Value
- -----------
Approximate amount of award, based on current number of participants, is
approximately $100,000.
Other
- -----
1. The Chairman of the Board shall review performance against goals at the
conclusion of the plan and shall approve awards for individuals eligible to
participate in this plan.
page 1 of 2
<PAGE>
ONE-TIME MERGER INTEGRATION BONUS (cont.) July, 1995
- -----------------------------------------
2. The judgment of the Chairman of the Board in construing this plan or any
provision thereof, or in making any decision hereunder, shall be final and
binding upon all participants and their beneficiaries, heirs, executors,
personal representatives and assigns.
3. Except as expressly provided in point 6 below, nothing herein contained
shall limit or affect in any manner or degree the normal and usual powers of
management, exercised by the Officers and the Board of Directors to change
the duties or the character of employment of any employee of the Company or
to remove the individual from the employment of the Company at any time, all
of which rights and powers are expressly reserved.
4. Except as expressly provided in point 6 below, no award will be paid an
individual who is not a regular full time employee in good standing when the
plan concludes, except an award may be considered in the event of retirement
or death of a participant during the plan year, at the discretion of the
Chairman of the Board.
5. Except as expressly provided in point 6 below, the awards to participants
shall become a liability of the Company when the plan concludes, and all
payments to be made hereunder will be made as soon as practicable
thereafter.
6. In the event the involuntary termination of a participant occurs prior to
the conclusion of this plan, he or she may be entitled to payment of a reduced
award for the year at the Chairman's discretion. Such award shall be paid to
such employee as soon as practicable after awards have been approved. For
purposes of understanding, "involuntary termination" shall mean actual or
express termination of employment by the Company for its convenience, or any of
its subsidiaries, provided, however, that in no event shall it include a
termination based upon (a) any willful and continued failure to substantially
perform assigned duties (other than as a result of incapacity) after demand
giving specifics has been made for such performance, or (b) any willful
misconduct which is materially injurious to the Company or any of its
subsidiaries. As used here, the word "willful" means any act done or omitted to
be done not in good faith and without reasonable belief that such action or
omission was in the best interest of the Company.
page 2 of 2
<PAGE>
EXHIBIT 10.62
AMENDMENT TO
------------
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
This amendment is made as of the 25th day of May, 1995 between UNITED
STATIONERS INC, ("USI"), UNITED STATIONERS SUPPLY CO. ("Supply Co. ") (USI and
Supply Co. are collectively referred to as the "Company") and JEFFREY K. HEWSON
("Employee").
WHEREAS, the Company and the Employee are parties to an Employment and
Consulting Agreement dated March 1, 1990 and Amendments dated April 10, 1991,
September 1, 1994, February 13, 1995 and April 26, 1995 (collectively, "the
Agreement").
WHEREAS, the parties desire to amend the Agreement.
NOW THEREFORE, for valuable consideration which the parties acknowledge,
the parties agree as follows:
Section 2(a) line 6 of the Amendment dated February 13, 1995
stating:
"..... Company within 30 days following the date on which the
....."
shall be amended to read
"..... Company within 76 days (corresponding to June 15, 1995)
following the date on which the ...."
Except as so amended, the Agreement is in all other respects unchanged.
UNITED STATIONERS INC. UNITED STATIONERS SUPPLY CO.
By: /s/ Daniel H. Bushell By: /s/ Daniel H. Bushell
------------------------ ------------------------
Its: Chief Financial Officer Its: Chief Financial Officer
------------------------ -----------------------
EMPLOYEE
/S/ Jeffrey K. Hewson
--------------------------
Jeffrey K. Hewson
<PAGE>
November 29, 1995
Mr. Jeffrey K. Hewson
925 Walden Lane
Lake Forest, Illinois 60045
Dear Jeff:
This will confirm the agreement of United Stationers Inc., effective as of
this date, to grant to you, as a director of the Company, an option to purchase
from the Company 14,648 shares of Common Stock of the Company at $5.12 per
share, subject to adjustment as hereinafter described. In consideration of this
grant, you agree to serve as a director for a three year term.
This option may be exercised as follows:(a) up to one-third thereof may be
exercised at any time after the date hereof, (b) up to two-thirds may be
exercised on or after the first anniversary of this grant, and all of the
options may be exercised on or after the second anniversary of this grant. This
grant and all exercises shall be subject to the restrictions and provisions of
Section 16b - and the filing requirements of Section 16a - of the Securities
Exchange Act of 1934, as amended.
The unexercised portion of the option, if any, will automatically and
without notice terminate on the third anniversary of this grant.
If you cease for any reason to be a director of the Company, all options
shall be deemed vested, and the options shall expire on the earlier of (a) the
third anniversary of this grant or (b) one year after you cease to be a
director.
Any exercise of an option shall be in writing addressed to the Treasurer of
the Company, accompanied by payment in full of the exercise price. The date of
exercise shall be the date of actual receipt by the Treasurer.
Certificates representing such shares may be legended in such manner as the
Company may require and shall be subject to such restrictions on disposition as
may be required to comply with Federal and State securities laws.
The option is exercisable, during your lifetime, only by you. No option may
be transferred, assigned, pledged or hypothecated, except as provided by will or
the applicable laws of descent or distribution.
<PAGE>
If requested to do so by the Company at the time of exercise of an option,
in whole or in part, you agree to execute a certificate indicating that you are
purchasing the stock under such option for investment and not with any present
intention to sell the stock and that none of the shares shall be disposed of
unless a registration statement under the Securities Act of 1933 shall be
effective as to such shares, or unless an exemption from registration is
available for such disposition.
In the event there is any change in the common stock of the Company by
reason of any consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, combination or exchange of
shares, or any like change in the capital structure of the Company, the number
or kind of shares and the per share price or value shall be appropriately
adjusted by the Board of Directors.
To indicate your acceptance of this agreement, please sign and return one
copy of this letter immediately.
Sincerely,
Thomas W. Sturgess
Chairman of the Board and
Chief Executive Officer
ACCEPTED:
- ----------------------------
Jeffrey K. Hewson
<PAGE>
EXHIBIT 10.65
AMENDMENT TO
------------
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
This Amendment made as of this 30th day of August, 1995, between UNITED
STATIONERS INC. ("USI"), UNITED STATIONERS SUPPLY CO. ("Supply Co.") (USI and
Supply Co. are collectively referred to as the "Company"), and STEVEN R. SCHWARZ
("Employee").
WHEREAS, the Company and Employee are parties to an Employment and
Consulting Agreement dated September 1, 1989, and Amendment dated February 13,
1995 (collectively, the "Agreement"); and
WHEREAS, the parties desire to revise a portion of the Agreement;
THEREFORE, for valuable consideration which the parties acknowledge,
Employee and the Company agree that the Agreement shall be amended as follows:
1. Section 3(e) of the Agreement is amended to read as follows:
"(e) Stay Bonus. If the Term of Employment expires, is terminated by
the Company other than for cause pursuant to Section 10(c) or is terminated
voluntarily by the Employee with good reason pursuant to Section 10(a),
then, upon the execution and delivery of the Release and Agreement attached
hereto as Exhibit C, the Employee shall be entitled to and the Company
shall pay to Employee, an amount equal to Six Hundred Twenty-four Thousand,
Seven Hundred Thirty-four Dollars ($ 624,734) ("Stay Bonus") payable in an
initial installment of $302,802, in 19 equal monthly installments
thereafter in the amount of $16,323 each, and one final monthly
installment thereafter in the amount of $11,795, with the first installment
commencing within one month after the Employee becomes entitled thereto.
The Company has secured the payment to which the Employee may become
entitled pursuant to this subsection (e) by a letter of credit as described
in and held and managed in accordance with a trust agreement known as the
USI Employee Benefits Trust ("Benefits Trust") dated March 21, 1995, which
provides that the Stay Bonus described above will be paid by the Benefits
Trust as and when payable, provided the Employee has submitting to the
trustee thereof a properly completed and executed Start Notice
substantially in the form attached to the trust agreement as Schedule 4."
2. Section 3(f) is added as follows:
"(f) Parachute Limitation. If the Employee determines that any
payment pursuant to Section 3(e) would result in an Excess Parachute
Payment, then the Company agrees, upon Employee's written request, to
reduce the paments specified in Section 3(f) to the amount which will not
result, directly or indirectly, in the treatment of any amount paid or
payable by the Company to the Employee as an Excess Parachute Payment. For
purposes of this Agreement, the term "Excess Parachute Payment" shall have
the same meaning as the term has under section 280G of the Internal Revenue
Code of 1986, as amended and the regulations thereunder."
<PAGE>
3. This Amendment may be executed in multiple counterparts, each of which
shall be deemed to be an original and all of which taken together shall
constitute a single instrument.
4. Except as so amended, the Agreement is in all other respects unchanged.
UNITED STATIONERS INC.
EMPLOYEE: UNITED STATIONERS SUPPLY CO.
By:
- ------------------------ ----------------------------
Steven R. Schwarz Its
2
<PAGE>
EXHIBIT 10.66
AMENDMENT TO
------------
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
This Amendment made as of this 30th day of August, 1995, between UNITED
STATIONERS INC. ("USI"), UNITED STATIONERS SUPPLY CO. ("Supply Co.") (USI and
Supply Co. are collectively referred to as the "Company"), and TED S. RZESZUTO
("Employee").
WHEREAS, the Company and Employee are parties to an Employment and
Consulting Agreement dated April 3, 1987, and Amendment dated February 13, 1995
(collectively, the "Agreement"); and
WHEREAS, the parties desire to revise a portion of the Agreement;
THEREFORE, for valuable consideration which the parties acknowledge,
Employee and the Company agree that the Agreement shall be amended as follows:
1. Section 3(e) of the Agreement is amended to read as follows:
"(e) Stay Bonus. If the Term of Employment expires, is terminated by
the Company other than for cause pursuant to Section 10(c) or is terminated
voluntarily by the Employee with good reason pursuant to Section 10(a),
then, upon the execution and delivery of the Release and Agreement attached
hereto as Exhibit C, the Employee shall be entitled to and the Company
shall pay to Employee, an amount equal to Five Hundred One Thousand, One
Hundred Ninety-two Dollars ($501,192)("Stay Bonus") payable in an initial
installment of $228,274, in 22 equal monthly installments thereafter in the
amount of $12,305 each, and in a final installment of $2,208, with the
first installment commencing within one month after the Employee becomes
entitled thereto. The Company has secured the payment to which the Employee
may become entitled pursuant to this subsection (e) by a letter of credit
as described in and held and managed in accordance with a trust agreement
known as the USI Employee Benefits Trust ("Benefits Trust") dated March 21,
1995,which provides that the Stay Bonus described above will be paid by the
Benefits Trust as and when payable, provided the Employee has submitted a
properly completed and executed Start Notice substantially in the form
attached to the trust agreement as Schedule 4."
2. Section 3(f) is added as follows:
"(f) Parachute Limitation. If the Employee determines that any
payment pursuant to Section 3(e) would result in an Excess Parachute
Payment, then the Company agrees, upon Employee's written request, to
reduce the payments specified in Section 3(f) to the amount which will not
result, directly or indirectly, in the treatment of any amount paid or
payable by the Company to the Employee as an Excess Parachute Payment. For
purposes of this Agreement, the term "Excess Parachute Payment" shall have
the same meaning as the term has under section 280G of the Internal Revenue
Code of 1986, as amended and the regulations thereunder."
<PAGE>
3. This Amendment may be executed in multiple counterparts, each of which
shall be deemed to be an original and all of which taken together shall
constitute a single instrument.
4. Except as so amended, the Agreement is in all other respects unchanged.
UNITED STATIONERS INC.
EMPLOYEE: UNITED STATIONERS SUPPLY CO.
By:
- ------------------------------ ------------------------------
Ted S. Rzeszuto Its
2
<PAGE>
EXHIBIT 10.67
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of October 1, 1995
by and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Daniel H. Bushell ("Bushell").
In consideration of the mutual promises and agreements contained in
this Agreement, the Company hereby employs Bushell, and Bushell accepts
employment with the Company on the terms and conditions contained in this
Agreement.
1. Term of Employment. The term of employment shall commence as of
the date of this Agreement and shall continue until September 30, 1997, and
thereafter shall be extended automatically for additional one-year periods
unless written notice is given by either party to the other at least 60 days
prior to the end of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Bushell shall
serve as an Executive Vice President and Chief Financial Officer of the Company,
and, in accordance with the authority and direction of the board of directors of
the Company (the "Board") shall render such administrative, financial and other
services to the Company as may be required of such position or as the Board may
from time to time direct. Bushell shall be available at all reasonable times
for consultation with the Board on matters relating to the Company's, or its
affiliates' business.
Bushell shall devote his best efforts and his full and exclusive
business time and attention (except for reasonable periods of vacation, illness
or other incapacity) to the business and affairs of the Company and its
affiliates.
3. Compensation. During the term of employment, Bushell shall be
compensated as follows:
3.1. Base Salary. Bushell shall receive a base salary of no less
than $225,000.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Bushell shall be eligible to participate in any bonus
plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Bushell shall be included, to the extent eligible, in
all plans, programs and policies providing general employee benefits for
the Company's employees or its senior management employees (as approved by
the Board and in effect from time to time). The benefit plans, programs
and policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Bushell acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Bushell as a consequence of his employment by the Company (including information
conceived, discovered or developed by Bushell during his employment with the
Company or with Associated Stationers, Inc.) (collectively, "Confidential
Information"). Confidential Information includes, but is not limited to the
following especially sensitive types of information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly
disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Bushell or with Bushell's assistance and
all notes, memoranda and the like prepared using the Proprietary Materials
and/or Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Bushell prior to employment with the Company, or may now or
in the future be in the public domain, Bushell acknowledges that the compilation
of that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including
Bushell, a competitive advantage over persons who do not know the information or
have the compilation of the Proprietary Materials. Bushell further acknowledges
that Confidential Information and Proprietary Materials include commercially
valuable trade secrets and automatically become the Company's exclusive property
when they are conceived, created or received. Bushell shall report to the
Company fully and promptly, orally (or, at the Company's request, in writing)
all discoveries, inventions and improvements, whether or not patentable, and all
other ideas, developments, processes, techniques, designs and other information
which may be of benefit to the Company, which Bushell conceives, makes or
develops during his employment (whether or not during working hours or with use
or assistance of Company facilities, materials or personnel, and which either
(i) relate to or arise out of any part of the Company's business in which
Bushell participates, or (ii) incorporate or make use of Confidential
Information or Proprietary Materials) (all items referred to in this Section 4.3
being sometimes collectively referred to herein as the "Intellectual Property").
All Intellectual property shall be deemed Confidential Information of the
Company, and any writing or other tangible things describing, referring to, or
containing Intellectual Property shall be deemed the Company's Proprietary
Materials. At the request of the Company, during or after the term of
employment, Bushell (or after Bushell's death, Bushell's personal
representative) shall, at the expense of the Company, make, execute and deliver
all papers, assignments, conveyances, installments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Bushell shall, except as may be required by
law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
3
<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Bushell's employment for whatever reason, Bushell
(or in the event of death, Bushell's personal representative) shall promptly
surrender to the Company the original and all copies of Proprietary Materials
(including all notes, memoranda and the like concerning or derived therefrom),
whether prepared by Bushell or others, which are then in Bushell's possession or
control. Records of payments made by the Company to or for the benefit of
Bushell, Bushell's copy of this Agreement and other such things, lawfully
possessed by Bushell which relate solely to taxes payable by Bushell, employee
benefits due to Bushell or the terms of Bushell's employment with the Company,
shall not be deemed Proprietary Materials for purposes of this Section 4.
5. Non-competition.
5.1. During Bushell's employment, and during the two year period following
his employment), Bushell shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment,
Bushell may be engaged in the business of selling office products at retail and
Bushell may be engaged by any company whose principal business is the
manufacture of office products.
5.3. Bushell recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Bushell hereby agrees and submits to the
reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Bushell shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Bushell agrees that the remedy at law for any breach of the
provisions of Section 4 or this Section 5 shall be inadequate and that the
Company shall be entitled to injunctive relief in addition to any other remedies
it may have.
4
<PAGE>
6. Termination and Severance.
6.1. Resignation. If Bushell resigns on or before March 30, 1996, he shall
be entitled to receive:
6.1.1. the unpaid portion of his base salary and accrued vacation pay
attributable to all periods prior to and including the date of his
resignation, and reimbursement for reasonable reimbursable expenses
incurred on behalf of the Company prior to the date of his resignation;
plus
6.1.2. a severance amount equal to two times his current base salary
plus two times the amount of his bonuses earned from the Company for the
year 1995, payable in equal installments on the Company's regular pay
schedule commencing within 30 days from the date of resignation and
continuing for 24 months (the "Severance Period"); provided, however, such
amount shall be reduced by the amount of compensation earned by Bushell
from any other employment or consulting arrangement during the Severance
Period; and
6.1.3. in addition, Bushell shall be entitled to participate in the
Company's health plan for the Severance Period, as if he were an employee.
If Bushell resigns on or after March 31, 1996, or if Bushell gives notice
to the Company of non-extension of the term of employment pursuant to Paragraph
1, he shall be entitled to receive only the unpaid portion of his base salary
and accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Bushell For Good Reason. Bushell may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Bushell's consent, any of which shall be
deemed "Good Reason":
(a) the reduction of Bushell's base salary;
(b) the exclusion of Bushell from, or diminution in Bushell's
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company, officers or senior management
personnel of the Company, other than exclusions, changes or diminutions
applicable to all employees, officers or senior management personnel; or
(c) any diminution in expense reimbursement benefits enjoyed by
Bushell, except pursuant to a general change in the Company's reimbursement
policies; or
5
<PAGE>
(d) any material reduction in Bushell's title or duties which has the
effect of materially reducing Bushell's status within the Company;
provided, however, that any change in the office or officer to whom Bushell
reports, or in Bushell's duties or title which does not diminish Bushell's
status within the Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Bushell for Good Reason, Bushell shall
be entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of his
term of employment, payable on the Company's regular pay schedule; and
6.2.2. reimbursement for reasonable reimbursable expenses incurred
on behalf of the Company prior to the termination; and
6.2.3. a severance amount equal to two times his base salary, plus
two times his bonuses earned from the Company for the calendar year
preceding the year in which notice is given by Bushell to the Company,
payable in equal installments on the Company's regular pay schedule,
commencing within 30 days after receipt by the Company of written notice
from Bushell and continuing for 24 months; and
6.2.4. Bushell shall be entitled to continue to participate in the
Company's health plan for a period of two years following the date of the
notice from Bushell, as if he were an employee.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Bushell
shall be entitled to receive:
6.3.1 Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2 A severance amount equal to his base salary plus his bonus
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months; and
6
<PAGE>
6.3.3 in addition, Bushell shall be entitled to participate in the
Company's health plan for a period of 12 months following the expiration of
the term as if he were an employee.
6.4. By Company For Cause. "Cause" means Bushell's (a) conviction of,
or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted
theft or embezzlement, of money or property or assets of the Company or any of
its affiliates; (c) use of illegal drugs; (d) material breach of this
Agreement; (e) commission of any act or acts of moral turpitude in violation of
Company policy; (f) gross negligence or willful misconduct in the performance of
his duties; or (g) breach of any fiduciary duty owed to the Company, including,
without limitation, engaging in directly competitive acts while employed by the
Company.
6.4.1 The Company may terminate the employment at any time for Cause (as
hereinafter defined). If Bushell is terminated by the Company for
Cause, Bushell shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation attributable to all periods
prior to and including the date of his termination, and
reimbursement for reasonable reimbursable expenses incurred on
behalf of the Company prior to the date of his termination.
6.4.2 In addition, if Bushell is terminated by the Company for Cause (but
not otherwise), the Company and/or its designee(s) shall have the
option ("Option") to purchase all or any portion of the shares of
common stock of United Stationers Inc. held by Bushell. If the
Company exercises such Option, Bushell agrees to sell said shares to
the Company or its designee(s).
The Company shall give written notice to Bushell of its election
to exercise the Option within one year from the date of termination
of Bushell's employment for Cause. If no notice is given within the
time specified, the Option shall terminate.
The purchase price to be paid for the shares purchased pursuant
to the Option shall be the closing sale price of the common stock
for the day preceding the date the Option is exercised, as reported
on a national stock exchange or on the NASDAQ National Market
System, or if there were no sales on such date, the next preceding
day on which there were sales, or if the common stock is not listed
for quotation on the NASDAQ National Market System or on a national
stock exchange, the value of such common stock on such date as
determined by the Board of Directors of United Stationers Inc. in
good faith.
The purchase price shall be paid in cash. The closing of the
purchase shall take place at the Company's principal executive
offices within 10 days after the purchase price has been determined,
at which time Bushell shall deliver to the purchaser the
certificates evidencing the common shares being purchased, duly
endorsed.
7
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To ensure the enforeceability of the Company's right under this
Section, each certificate representing common stock of United
Stationers Inc. held by Bushell shall bear a conspicuous legend in
form acceptable to the Company.
6.5. By the Company. The Company may terminate Bushell's employment on
written notice to Bushell at any time. If Bushell's employment is terminated by
the Company, other than for Cause, Bushell shall be entitled to receive only:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment, payable on the Company's regular pay
schedule; and
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. either:
6.5.3.1. if the termination is prior to the first anniversary of
this Agreement, severance pay equal to two times his base salary plus
two times his bonuses earned from the Company for 1995, payable in
equal installments on the Company's regular pay schedule commencing
within 30 days after Bushell's receipt of the notice from the Company
and continuing for 24 months; provided however, such amount shall be
reduced by the amount of compensation earned by Bushell from any other
employment or consulting arrangement during the severance period; or
6.5.3.2. if the termination is on or after the first anniversary
of this Agreement, but before the second anniversary, severance pay
equal to two times his base salary plus two times his bonuses earned
from the Company for 1995, reduced (a) by 1/24th for each full month
of employment after the first anniversary of this Agreement and, (b)
by the amount of compensation earned by Bushell from any other
employment or consulting arrangement during the severance period; or
6.5.3.3. if the termination is on or after the second
anniversary of this Agreement, severance pay equal to his base pay
plus his bonuses for the year preceding the year of termination; and
6.5.4. in addition, Bushell shall be entitled to participate in the
Company's health plan for a period equal to the applicable severance
period, as if he were an employee.
6.6. By Death or Disability. If Bushell's employment is terminated due to
his death or permanent disability, Bushell shall be entitled to severance pay in
accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if
Bushell's spouse is then living, for the remainder of such spouse's life the
Company shall continue to provide health coverage for
8
<PAGE>
Bushell's spouse and dependent children in accordance with the Company's health
plans made generally available to employees of the Company, without cost to the
Bushell's spouse. Nothing in this Agreement shall affect Bushell's right to
receive death benefit payments under any policy of insurance carried by the
Company and payable to Bushell or his designated beneficiary.
6.7. Retirement. Bushell agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Bushell shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Bushell shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, provided
Bushell is either (a) still employed by the Company 6 months after the date of
the Change in Control, or (b) has been terminated by the Company during that
6-month period other than for Cause, Bushell shall be entitled to resign before
the first anniversary of the Change in Control. Upon termination of his
employment after a Change in Control, except by Bushell's resignation within six
months after the Change in Control or by the Company for Cause, Bushell shall be
entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to two times his base salary plus two times
his bonuses earned from the Company for 1995, payable in equal installments
on the Company's regular pay schedule commencing within 30 days after
termination of Bushell's employment and continuing for 24 months; provided
however, such amount shall be reduced by the amount of compensation earned
by Bushell from any other employment or consulting arrangement during the
severance period.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any Person becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of United Stationers Inc. representing
thirty percent (30%) or more of the combined voting power of United Stationers
Inc.'s then outstanding equity having the power to seat the Board generally, or
(b) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for election by
United Stationers Inc.'s stockholders, of any new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.
9
<PAGE>
8. Medical Benefits. The Company makes the following covenants to Bushell
with respect to Bushell's medical benefits ("Medical Benefits"):
8.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Bushell's employment with the Company terminates for any
reason, Bushell (and Bushell's covered dependents at the time of such
termination of employment) shall be entitled to continue to participate in
the Plan until Bushell attains age sixty-five (65), and Bushell's spouse
shall be entitled to continue to participate, in her own right, in the Plan
until Bushell's spouse attains age sixty-five (65), but not for a period in
excess of ten (10) years following Bushell's termination of employment with
the Company; provided that, in the event Bushell terminates employment
with the Company prior to attaining age fifty-five (55) Bushell (and
Bushell's covered dependents at the time of such termination of employment)
shall have the right to participate in the Plan for a period of ten (10)
years, such period to commence on either Bushell's termination of
employment with the Company or the date Bushell attains age fifty-five (55)
as Bushell shall elect in writing at the time of his termination of
employment, under the same terms and conditions applicable to persons who
are provided coverage as active employees under the Plan; provided,
however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum
Payment shall remain applicable to Bushell (and Bushell's covered
dependents at the time of the termination of employment).
8.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on September 1, 1995 (the date any such event first
occurs being referred to as the 'Coverage Cessation Date'), Bushell shall
be entitled to and the Company shall pay to Bushell THREE THOUSAND SEVENTY
DOLLARS ($3,070.00) per month for the period commencing on the first day of
the month following the month in which the Coverage Cessation Date occurs
and ending on the first to occur of:
(i) the later of the date Bushell or Bushell's spouse attains
age sixty-five (65);
(ii) in the event of the death of Bushell, the date the spouse
of Bushell attains age sixty-five (65);
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
(iv) March 30, 1998.
8.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Bushell,
subject to the following terms and conditions:
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(i) Bushell (or any of Bushell's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Bushell's then current employer or a medical plan maintained by the
employer of the spouse of Bushell, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) payment of medical expenses or reimbursement for such
claims under this subsection 8.3 shall not in the aggregate exceed
the lesser of the following amounts:
(a) a maximum of $300,000 for Bushell and all dependents
(on an aggregate basis) of Bushell as of the Coverage Cessation
Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 8.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract
Officers as of the Coverage Cessation Date) prior to the date of
the requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 8.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Bushell or Bushell's spouse
attains age sixty-five;
(b) in the event of the death of Bushell, the date the
spouse of Bushell attains age sixty-five (65);
(c) the end of the eighteen (18) month period
commencing on the Coverage Cessation Date; or
(d) March 30, 1998.
The coverage provided under this Section 8.3 shall be separate and in
addition to the coverage provided under Section 8.2 above.
8.4 In addition, if Bushell is or becomes an eligible retired officer
in accordance with the definition of a "retired officer" contained in the
Company's Officer Medical Expense Reimbursement Policy (presently LD-3)
("Policy"), or a similar policy, Bushell shall be entitled to the medical
expense reimbursement benefits thereof whether or not the Policy is later
modified or revoked.
11
<PAGE>
9. Miscellaneous.
9.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
If to the Company: United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Bushell: 1829 Morgan Circle
Naperville, IL 60565
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
9.2 This Agreement and all rights and benefits hereunder are personal
to Bushell and neither this Agreement nor any right or interest of Bushell
herein, or arising hereunder, shall be voluntarily or involuntarily sold,
transferred or assigned by Bushell. Any attempt by Bushell to assign,
execute, attach, transfer, pledge, hypothecate or otherwise dispose of any
such benefits or amounts or any rights or interests contrary to the
foregoing provisions, or the levy or attachment or similar process
thereupon, shall be null and void and of no effect and shall relieve the
Company of all liabilities hereunder. This Agreement and all of the
Company's right and obligations hereunder may be assigned and/or delegated,
as the case may be, without Bushell's consent, to any entity which merges
with the Company or which acquires substantially all of the assets of the
Company and which agrees to be bound hereby. The enforceability of
Bushell's rights under the Agreement shall not be affected by any
assignment or merger.
9.3 This Agreement shall be binding upon and inure to the benefit of
the parties and their respective heirs, personal representatives,
successors and permitted assigns.
9.4 This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof, including but not limited to the Employment
Agreement between Bushell and Associated Stationers, Inc. dated January 31,
1992.
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<PAGE>
9.5 No change or modification of this Agreement shall be valid unless
the same shall be approved by the Board and in writing and signed by
Bushell and an authorized representative of the Company other than Bushell.
No waiver of any provisions of this Agreement shall be valid unless in
writing and signed by the person or party to be charged.
9.6 If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions or portions shall
nevertheless be valid, enforceable and of full force and effect.
9.7 The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
9.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
9.9 If Bushell or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time on the
amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
10. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST:_______________________ By:__________________________
Ted S. Rzeszuto Tom Sturgess
Assistant Secretary Chairman of the Board and
Chief Executive Officer
_____________________________________
Daniel H. Bushell
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<PAGE>
EXHIBIT A
TO EMPLOYMENT AGREEMENT
DANIEL H. BUSHELL
The following are benefit plans, programs and policies in which Bushell is
entitled to participate as of October 1, 1995:
United Stationers Supply Co. Pension Plan
Associated Stationers/United Stationers Inc. Profit Sharing PluSavings
Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Stationers Inc. Management Equity Plan
United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased auto or equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
14
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of October 1, 1995
by and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Michael D. Rowsey ("Rowsey").
In consideration of the mutual promises and agreements contained in
this Agreement, the Company hereby employs Rowsey, and Rowsey accepts employment
with the Company on the terms and conditions contained in this Agreement.
1. Term of Employment. The term of employment shall commence as of
the date of this Agreement and shall continue until September 30, 1997, and
thereafter shall be extended automatically for additional one-year periods
unless written notice is given by either party to the other at least 60 days
prior to the end of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Rowsey shall
serve as an Executive Vice President of the Company, and, in accordance with the
authority and direction of the board of directors of the Company (the "Board")
shall render such administrative, sales and other services to the Company as may
be required of such position or as the Board may from time to time direct.
Rowsey shall be available at all reasonable times for consultation with the
Board on matters relating to the Company's, or its affiliates' business.
Rowsey shall devote his best efforts and his full and exclusive
business time and attention (except for reasonable periods of vacation, illness
or other incapacity) to the business and affairs of the Company and its
affiliates.
3. Compensation. During the term of employment, Rowsey shall be
compensated as follows:
3.1. Base Salary. Rowsey shall receive a base salary of no less than
$255,000.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Rowsey shall be eligible to participate in any bonus
plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Rowsey shall be included, to the extent eligible, in
all plans, programs and policies providing general employee benefits for
the Company's employees or its senior management employees (as approved by
the Board and in effect from time to time). The benefit plans, programs
and policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Rowsey acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Rowsey as a consequence of his employment by the Company (including information
conceived, discovered or developed by Rowsey during his employment with the
Company or with Associated Stationers, Inc.) (collectively, "Confidential
Information"). Confidential Information includes, but is not limited to the
following especially sensitive types of information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly
disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Rowsey or with Rowsey's assistance and all
notes, memoranda and the like prepared using the Proprietary Materials and/or
Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Rowsey prior to employment with the Company, or may now or in
the future be in the public domain, Rowsey acknowledges that the compilation of
that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including
Rowsey, a competitive advantage over persons who do not know the information or
have the compilation of the Proprietary Materials. Rowsey further acknowledges
that Confidential Information and Proprietary Materials include commercially
valuable trade secrets and automatically become the Company's exclusive property
when they are conceived, created or received. Rowsey shall report to the Company
fully and promptly, orally (or, at the Company's request, in writing) all
discoveries, inventions and improvements, whether or not patentable, and all
other ideas, developments, processes, techniques, designs and other information
which may be of benefit to the Company, which Rowsey conceives, makes or
develops during his employment (whether or not during working hours or with use
or assistance of Company facilities, materials or personnel, and which either
(i) relate to or arise out of any part of the Company's business in which Rowsey
participates, or (ii) incorporate or make use of Confidential Information or
Proprietary Materials) (all items referred to in this Section 4.3 being
sometimes collectively referred to herein as the "Intellectual Property"). All
Intellectual property shall be deemed Confidential Information of the Company,
and any writing or other tangible things describing, referring to, or containing
Intellectual Property shall be deemed the Company's Proprietary Materials. At
the request of the Company, during or after the term of employment, Rowsey (or
after Rowsey's death, Rowsey's personal representative) shall, at the expense of
the Company, make, execute and deliver all papers, assignments, conveyances,
installments or other documents, and perform or cause to be performed such other
lawful acts, and give such testimony, as the Company deems necessary or
desirable to protect the Company's ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Rowsey shall, except as may be required by
law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
3
<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Rowsey's employment for whatever reason, Rowsey
(or in the event of death, Rowsey's personal representative) shall promptly
surrender to the Company the original and all copies of Proprietary Materials
(including all notes, memoranda and the like concerning or derived therefrom),
whether prepared by Rowsey or others, which are then in Rowsey's possession or
control. Records of payments made by the Company to or for the benefit of
Rowsey, Rowsey's copy of this Agreement and other such things, lawfully
possessed by Rowsey which relate solely to taxes payable by Rowsey, employee
benefits due to Rowsey or the terms of Rowsey's employment with the Company,
shall not be deemed Proprietary Materials for purposes of this Section 4.
5. Non-competition.
5.1. During Rowsey's employment, and during the two year period following
his employment), Rowsey shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment,
Rowsey may be engaged in the business of selling office products at retail and
Rowsey may be engaged by any company whose principal business is the manufacture
of office products.
5.3. Rowsey recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Rowsey hereby agrees and submits to the
reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Rowsey shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Rowsey agrees that the remedy at law for any breach of the provisions
of Section 4 or this Section 5 shall be inadequate and that the Company shall be
entitled to injunctive relief in addition to any other remedies it may have.
4
<PAGE>
6. Termination and Severance.
6.1. Resignation. If Rowsey resigns on or before March 30, 1996, he shall
be entitled to receive:
6.1.1. the unpaid portion of his base salary and accrued vacation pay
attributable to all periods prior to and including the date of his
resignation, and reimbursement for reasonable reimbursable expenses
incurred on behalf of the Company prior to the date of his resignation;
plus
6.1.2. a severance amount equal to two times his current base salary
plus two times the amount of his bonuses earned from the Company for the
year 1995, payable in equal installments on the Company's regular pay
schedule commencing within 30 days from the date of resignation and
continuing for 24 months (the "Severance Period"); provided, however, such
amount shall be reduced by the amount of compensation earned by Rowsey from
any other employment or consulting arrangement during the Severance Period;
and
6.1.3. in addition, Rowsey shall be entitled to participate in the
Company's health plan for the Severance Period, as if he were an employee.
If Rowsey resigns on or after March 31, 1996, or if Rowsey gives notice to
the Company of non-extension of the term of employment pursuant to Paragraph 1,
he shall be entitled to receive only the unpaid portion of his base salary and
accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Rowsey For Good Reason. Rowsey may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Rowsey's consent, any of which shall be
deemed "Good Reason":
(a) the reduction of Rowsey's base salary;
(b) the exclusion of Rowsey from, or diminution in Rowsey's
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company, officers or senior management
personnel of the Company, other than exclusions, changes or diminutions
applicable to all employees, officers or senior management personnel; or
(c) any diminution in expense reimbursement benefits enjoyed by
Rowsey, except pursuant to a general change in the Company's reimbursement
policies; or
5
<PAGE>
(d) any material reduction in Rowsey's title or duties which has the
effect of materially reducing Rowsey's status within the Company; provided,
however, that any change in the office or officer to whom Rowsey reports,
or in Rowsey's duties or title which does not diminish Rowsey's status
within the Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Rowsey for Good Reason, Rowsey shall be
entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of his
term of employment, payable on the Company's regular pay schedule; and
6.2.2. reimbursement for reasonable reimbursable expenses incurred on
behalf of the Company prior to the termination; and
6.2.3. a severance amount equal to two times his base salary, plus
two times his bonuses earned from the Company for the calendar year
preceding the year in which notice is given by Rowsey to the Company,
payable in equal installments on the Company's regular pay schedule,
commencing within 30 days after receipt by the Company of written notice
from Rowsey and continuing for 24 months; and
6.2.4. Rowsey shall be entitled to continue to participate in the
Company's health plan for a period of two years following the date of the
notice from Rowsey, as if he were an employee.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Rowsey
shall be entitled to receive:
6.3.1 Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2 A severance amount equal to his base salary plus his bonus
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months; and
6
<PAGE>
6.3.3 in addition, Rowsey shall be entitled to participate in the
Company's health plan for a period of 12 months following the expiration of
the term as if he were an employee.
6.4. By Company For Cause. "Cause" means Rowsey's (a) conviction of, or
plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted
theft or embezzlement, of money or property or assets of the Company or any of
its affiliates; (c) use of illegal drugs; (d) material breach of this
Agreement; (e) commission of any act or acts of moral turpitude in violation of
Company policy; (f) gross negligence or willful misconduct in the performance of
his duties; or (g) breach of any fiduciary duty owed to the Company, including,
without limitation, engaging in directly competitive acts while employed by the
Company.
6.4.1 The Company may terminate the employment at any time for Cause (as
hereinafter defined). If Rowsey is terminated by the Company for
Cause, Rowsey shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation attributable to all periods
prior to and including the date of his termination, and
reimbursement for reasonable reimbursable expenses incurred on
behalf of the Company prior to the date of his termination.
6.4.2 In addition, if Rowsey is terminated by the Company for Cause (but
not otherwise), the Company and/or its designee(s) shall have the
option ("Option") to purchase all or any portion of the shares of
common stock of United Stationers Inc. held by Rowsey. If the
Company exercises such Option, Rowsey agrees to sell said shares to
the Company or its designee(s).
The Company shall give written notice to Rowsey of its election
to exercise the Option within one year from the date of termination
of Rowsey's employment for Cause. If no notice is given within the
time specified, the Option shall terminate.
The purchase price to be paid for the shares purchased pursuant
to the Option shall be the closing sale price of the common stock
for the day preceding the dat the Option is exercised, as reported
on a national stock exchange or on the NASDAQ National Market
System, or if there were no sales on such date, the next preceding
day on which there were sales, or if the common stock is not listed
for quotation on the NASDAQ National Market System or on a national
stock exchange, the value of such common stock on such date as
determined by the Board of Directors of United Stationers Inc. in
good faith.
The purchase price shall be paid in cash. The closing of the
purchase shall take place at the Company's principal executive
offices within 10 days after the purchase price has been determined,
at which time Rowsey shall deliver to the purchaser the certificates
evidencing the common shares being purchased, duly endorsed.
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To ensure the enforeceability of the Company's right under this
Section, each certificate representing common stock of United
Stationers Inc. held by Rowsey shall bear a conspicuous legend in form
acceptable to the Company.
6.5. By the Company. The Company may terminate Rowsey's employment on
written notice to Rowsey at any time. If Rowsey's employment is terminated by
the Company, other than for Cause, Rowsey shall be entitled to receive only:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment, payable on the Company's regular pay
schedule; and
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. either:
6.5.3.1. if the termination is prior to the first anniversary of
this Agreement, severance pay equal to two times his base salary plus
two times his bonuses earned from the Company for 1995, payable in
equal installments on the Company's regular pay schedule commencing
within 30 days after Rowsey's receipt of the notice from the Company
and continuing for 24 months; provided however, such amount shall be
reduced by the amount of compensation earned by Rowsey from any other
employment or consulting arrangement during the severance period; or
6.5.3.2. if the termination is on or after the first anniversary
of this Agreement, but before the second anniversary, severance pay
equal to two times his base salary plus two times his bonuses earned
from the Company for 1995, reduced (a) by 1/24th for each full month
of employment after the first anniversary of this Agreement and, (b)
by the amount of compensation earned by Rowsey from any other
employment or consulting arrangement during the severance period; or
6.5.3.3. if the termination is on or after the second
anniversary of this Agreement, severance pay equal to his base pay
plus his bonuses for the year preceding the year of termination; and
6.5.4. in addition, Rowsey shall be entitled to participate in the
Company's health plan for a period equal to the applicable severance
period, as if he were an employee.
6.6. By Death or Disability. If Rowsey's employment is terminated due to
his death or permanent disability, Rowsey shall be entitled to severance pay in
accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if
Rowsey's spouse is then living, for the
8
<PAGE>
remainder of such spouse's life the Company shall continue to provide health
coverage for Rowsey's spouse and dependent children in accordance with the
Company's health plans made generally available to employees of the Company,
without cost to the Rowsey's spouse. Nothing in this Agreement shall affect
Rowsey's right to receive death benefit payments under any policy of insurance
carried by the Company and payable to Rowsey or his designated beneficiary.
6.7. Retirement. Rowsey agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Rowsey shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Rowsey shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, provided Rowsey
is either (a) still employed by the Company 6 months after the date of the
Change in Control, or (b) has been terminated by the Company during that 6-month
period other than for Cause, Rowsey shall be entitled to resign before the first
anniversary of the Change in Control. Upon termination of his employment after
a Change in Control, except by Rowsey's resignation within six months after the
Change in Control or by the Company for Cause, Rowsey shall be entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to two times his base salary plus two times
his bonuses earned from the Company for 1995, payable in equal installments
on the Company's regular pay schedule commencing within 30 days after
termination of Rowsey's employment and continuing for 24 months; provided
however, such amount shall be reduced by the amount of compensation earned
by Rowsey from any other employment or consulting arrangement during the
severance period.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any Person becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of United Stationers Inc. representing
thirty percent (30%) or more of the combined voting power of United Stationers
Inc.'s then outstanding equity having the power to seat the Board generally, or
(b) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for election by
United Stationers Inc.'s stockholders, of any new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.
9
<PAGE>
8. Medical Benefits. The Company makes the following covenants to Rowsey
with respect to Rowsey's medical benefits ("Medical Benefits"):
8.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Rowsey's employment with the Company terminates for any
reason, Rowsey (and Rowsey's covered dependents at the time of such
termination of employment) shall be entitled to continue to participate in
the Plan until Rowsey attains age sixty-five (65), and Rowsey's spouse
shall be entitled to continue to participate, in her own right, in the Plan
until Rowsey's spouse attains age sixty-five (65), but not for a period in
excess of ten (10) years following Rowsey's termination of employment with
the Company; provided that, in the event Rowsey terminates employment with
the Company prior to attaining age fifty-five (55) Rowsey (and Rowsey's
covered dependents at the time of such termination of employment) shall
have the right to participate in the Plan for a period of ten (10) years,
such period to commence on either Rowsey's termination of employment with
the Company or the date Rowsey attains age fifty-five (55) as Rowsey shall
elect in writing at the time of his termination of employment, under the
same terms and conditions applicable to persons who are provided coverage
as active employees under the Plan; provided, however, that a minimum
$1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain
applicable to Rowsey (and Rowsey's covered dependents at the time of the
termination of employment).
8.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on September 1, 1995 (the date any such event first
occurs being referred to as the 'Coverage Cessation Date'), Rowsey shall be
entitled to and the Company shall pay to Rowsey THREE THOUSAND SEVENTY
DOLLARS ($3,070.00) per month for the period commencing on the first day of
the month following the month in which the Coverage Cessation Date occurs
and ending on the first to occur of:
(i) the later of the date Rowsey or Rowsey's spouse attains
age sixty-five (65);
(ii) in the event of the death of Rowsey, the date the spouse
of Rowsey attains age sixty-five (65);
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
(iv) March 30, 1998.
8.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Rowsey,
subject to the following terms and conditions:
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<PAGE>
(i) Rowsey (or any of Rowsey's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Rowsey's then current employer or a medical plan maintained by the
employer of the spouse of Rowsey, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) payment of medical expenses or reimbursement for such
claims under this subsection 8.3 shall not in the aggregate exceed
the lesser of the following amounts:
(a) a maximum of $300,000 for Rowsey and all dependents
(on an aggregate basis) of Rowsey as of the Coverage Cessation
Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 8.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract Officers
as of the Coverage Cessation Date) prior to the date of the
requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 8.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Rowsey or Rowsey's spouse
attains age sixty-five;
(b) in the event of the death of Rowsey, the date the
spouse of Rowsey attains age sixty-five (65);
(c) the end of the eighteen (18) month period
commencing on the Coverage Cessation Date; or
(d) March 30, 1998.
The coverage provided under this Section 8.3 shall be separate and in
addition to the coverage provided under Section 8.2 above.
8.4 In addition, if Rowsey is or becomes an eligible retired officer
in accordance with the definition of a "retired officer" contained in the
Company's Officer Medical Expense Reimbursement Policy (presently LD-3)
("Policy"), or a similar policy, Rowsey shall be entitled to the medical
expense reimbursement benefits thereof whether or not the Policy is later
modified or revoked.
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<PAGE>
9. Miscellaneous.
9.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
If to the Company: United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Rowsey: 2987 Norwalk Court
Aurora, Illinois 60504
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
9.2 This Agreement and all rights and benefits hereunder are personal
to Rowsey and neither this Agreement nor any right or interest of Rowsey
herein, or arising hereunder, shall be voluntarily or involuntarily sold,
transferred or assigned by Rowsey. Any attempt by Rowsey to assign,
execute, attach, transfer, pledge, hypothecate or otherwise dispose of any
such benefits or amounts or any rights or interests contrary to the
foregoing provisions, or the levy or attachment or similar process
thereupon, shall be null and void and of no effect and shall relieve the
Company of all liabilities hereunder. This Agreement and all of the
Company's right and obligations hereunder may be assigned and/or delegated,
as the case may be, without Rowsey's consent, to any entity which merges
with the Company or which acquires substantially all of the assets of the
Company and which agrees to be bound hereby. The enforceability of
Rowsey's rights under the Agreement shall not be affected by any assignment
or merger.
9.3 This Agreement shall be binding upon and inure to the benefit of
the parties and their respective heirs, personal representatives,
successors and permitted assigns.
9.4 This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof, including but not limited to the Employment
Agreement between Rowsey and Associated Stationers, Inc. dated January 31,
1992.
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<PAGE>
9.5 No change or modification of this Agreement shall be valid unless
the same shall be approved by the Board and in writing and signed by Rowsey
and an authorized representative of the Company other than Rowsey. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the person or party to be charged.
9.6 If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions or portions shall
nevertheless be valid, enforceable and of full force and effect.
9.7 The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
9.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
9.9 If Rowsey or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time on the
amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
10. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST:_______________________ By:_______________________
Daniel Bushell Tom Sturgess
Secretary Chairman of the Board and
Chief Executive Officer
_____________________________________
Michael D. Rowsey
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<PAGE>
EXHIBIT A
TO EMPLOYMENT AGREEMENT
MICHAEL D. ROWSEY
The following are benefit plans, programs and policies in which Rowsey is
entitled to participate as of October 1, 1995:
United Stationers Supply Co. Pension Plan
Associated Stationers/United Stationers Inc. Profit Sharing PluSavings
Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Stationers Inc. Management Equity Plan
` United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased auto or equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
14
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of October 1, 1995 by
and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Steven R. Schwarz ("Schwarz").
In consideration of the mutual promises and agreements contained in this
Agreement, the Company hereby employs Schwarz, and Schwarz accepts employment
with the Company on the terms and conditions contained in this Agreement.
1. Term of Employment. The term of employment shall commence as of the date
of this Agreement and shall continue until September 30, 1997, and thereafter
shall be extended automatically for additional one-year periods unless written
notice is given by either party to the other at least 60 days prior to the end
of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Schwarz shall serve
as an Executive Vice President of the Company, and, in accordance with the
authority and direction of the board of directors of the Company (the "Board")
shall render such administrative, sales, marketing and other services to the
Company as may be required of such position or as the Board may from time to
time direct. Schwarz shall be available at all reasonable times for consultation
with the Board on matters relating to the Company's, or its affiliates'
business.
Schwarz shall devote his best efforts and his full and exclusive business
time and attention (except for reasonable periods of vacation, illness or other
incapacity) to the business and affairs of the Company and its affiliates.
3. Compensation. During the term of employment, Schwarz shall be
compensated as follows:
3.1. Base Salary. Schwarz shall receive a base salary of no less
than $225,000.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Schwarz shall be eligible to participate in any bonus
plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Schwarz shall be included, to the extent eligible, in
all plans, programs and policies providing general benefits for the
Company's employees or its senior management employees (as approved by the
Board and in effect from time to time). The benefit plans, programs and
policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Schwarz acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Schwarz as a consequence of his employment by the Company (including information
conceived, discovered or developed by Schwarz during his employment with the
Company) (collectively, "Confidential Information"). Confidential Information
includes, but is not limited to the following especially sensitive types of
information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly
disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Schwarz or with Schwarz's assistance and
all notes, memoranda and the like prepared using the Proprietary Materials
and/or Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Schwarz prior to employment with the Company, or may now or
in the future be in the public domain, Schwarz acknowledges that the compilation
of that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including
Schwarz, a competitive advantage over persons who do not know the information or
have the compilation of the Proprietary Materials. Schwarz further acknowledges
that Confidential Information and Proprietary Materials include commercially
valuable trade secrets and automatically become the Company's exclusive property
when they are conceived, created or received. Schwarz shall report to the
Company fully and promptly, orally (or, at the Company's request, in writing)
all discoveries, inventions and improvements, whether or not patentable, and all
other ideas, developments, processes, techniques, designs and other information
which may be of benefit to the Company, which Schwarz conceives, makes or
develops during his employment (whether or not during working hours or with use
or assistance of Company facilities, materials or personnel, and which either
(i) relate to or arise out of any part of the Company's business in which
Schwarz participates, or (ii) incorporate or make use of Confidential
Information or Proprietary Materials) (all items referred to in this Section 4.3
being sometimes collectively referred to herein as the "Intellectual Property").
All Intellectual property shall be deemed Confidential Information of the
Company, and any writing or other tangible things describing, referring to, or
containing Intellectual Property shall be deemed the Company's Proprietary
Materials. At the request of the Company, during or after the term of
employment, Schwarz (or after Schwarz's death, Schwarz's personal
representative) shall, at the expense of the Company, make, execute and deliver
all papers, assignments, conveyances, installments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Schwarz shall, except as may be required
by law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
3
<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Schwarz's employment for whatever reason, Schwarz
(or in the event of death, Schwarz's personal representative) shall promptly
surrender to the Company the original and all copies of Proprietary Materials
(including all notes, memoranda and the like concerning or derived therefrom),
whether prepared by Schwarz or others, which are then in Schwarz's possession or
control. Records of payments made by the Company to or for the benefit of
Schwarz, Schwarz's copy of this Agreement and other such things, lawfully
possessed by Schwarz which relate solely to taxes payable by Schwarz, employee
benefits due to Schwarz or the terms of Schwarz's employment with the Company,
shall not be deemed Proprietary Materials for purposes of this Section 4.
5. Non-competition.
5.1. During Schwarz's employment, and during the two year period following
his employment), Schwarz shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment,
Schwarz may be engaged in the business of selling office products at retail and
Schwarz may be engaged by any company whose principal business is the
manufacture of office products.
5.3. Schwarz recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Schwarz hereby agrees and submits to the
reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Schwarz shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Schwarz agrees that the remedy at law for any breach of the provisions
of Section 4 or this Section 5 shall be inadequate and that the Company shall be
entitled to injunctive relief in addition to any other remedies it may have.
4
<PAGE>
6. Termination and Severance.
6.1. Resignation. If Schwarz resigns, or if Schwarz gives notice to the
Company of non-extension of the term of employment pursuant to Paragraph 1, he
shall be entitled to receive only the unpaid portion of his base salary and
accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Schwarz For Good Reason. Schwarz may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Schwarz's consent, any of which shall be
deemed "Good Reason":
(a) the reduction of Schwarz's base salary;
(b) the exclusion of Schwarz from, or diminution in Schwarz's
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company, officers or senior management
personnel of the Company, other than exclusions, changes or diminutions
applicable to all employees, officers or senior management personnel; or
(c) any diminution in expense reimbursement benefits enjoyed by
Schwarz, except pursuant to a general change in the Company's reimbursement
policies; or
(d) any material reduction in Schwarz's title or duties which has the
effect of materially reducing Schwarz's status within the Company;
provided, however, that any change in the office or officer to whom Schwarz
reports, or in Schwarz's duties or title which does not diminish Schwarz's
status within the Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Schwarz for Good Reason, Schwarz shall
be entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of
his term of employment (but not for more than a 12 month period), payable
on the Company's regular pay schedule; and
5
<PAGE>
6.2.2. reimbursement for reasonable reimbursable expenses incurred
on behalf of the Company prior to the termination; and
6.2.3. a severance amount equal to two times his base salary, plus
two times his bonuses earned from the Company for the calendar year
preceding the year in which notice is given by Schwarz to the Company,
payable in equal installments on the Company's regular pay schedule,
commencing within 30 days after receipt by the Company of written notice
from Schwarz and continuing for 24 months.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Schwarz
shall be entitled to receive:
6.3.1. Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2. A severance amount equal to his base salary plus his bonus
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months.
6.4. By Company For Cause. The Company may terminate the employment at
any time for Cause (as hereinafter defined). If Schwarz is terminated by the
Company for Cause, Schwarz shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation attributable to all periods prior to and
including the date of his termination, and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date of his
termination.
"Cause" means Schwarz's (a) conviction of , or plea of nolo contendere to
a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of
money or property or assets of the Company or any of its affiliates; (c) use of
illegal drugs; (d) material breach of this Agreement; (e) commission of any act
or acts of moral turpitude in violation of Company policy; (f) gross negligence
or willful misconduct in the performance of his duties; or (g) breach of any
fiduciary duty owed to the Company, including, without limitation, engaging in
directly competitive acts while employed by the Company.
6.5. By the Company. The Company may terminate Schwarz's employment on
written notice to Schwarz at any time. If Schwarz's employment is terminated by
the Company, other than for Cause, Schwarz shall be entitled to receive:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment (but not for more than 12 months),
payable on the Company's regular pay schedule; and
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<PAGE>
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. either:
6.5.3.1. if the termination is prior to the first anniversary of
this Agreement, severance pay equal to two times his base salary plus
two times his bonuses earned from the Company for 1995, payable in
equal installments on the Company's regular pay schedule commencing
within 30 days after Schwarz's receipt of the notice from the Company
and continuing for 24 months; provided however, such amount shall be
reduced by the amount of compensation earned by Schwarz from any
other employment or consulting arrangement during the severance
period; or
6.5.3.2. if the termination is on or after the first anniversary
of this Agreement, but before the second anniversary, severance pay
equal to two times his base salary plus two times his bonuses earned
from the Company for 1995, reduced (a) by 1/24th for each full month
of employment after the first anniversary of this Agreement and, (b)
by the amount of compensation earned by Schwarz from any other
employment or consulting arrangement during the severance period; or
6.5.3.3. if the termination is on or after the second
anniversary of this Agreement, severance pay equal to his base pay
plus his bonuses for the year preceding the year of termination.
6.6. By Death or Disability. If Schwarz's employment is terminated due to
his death or permanent disability, Schwarz shall be entitled to severance pay in
accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if
Schwarz's spouse is then living, for the remainder of such spouse's life the
Company shall continue to provide health coverage for Schwarz's spouse and
dependent children in accordance with the Company's health plans made generally
available to employees of the Company, without cost to Schwarz's spouse.
Nothing in this Agreement shall affect Schwarz's right to receive death benefit
payments under any policy of insurance carried by the Company and payable to
Schwarz or his designated beneficiary.
6.7. Retirement. Schwarz agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Schwarz shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Schwarz shall be entitled to participate in the
Company's health plan for retirees.
7
<PAGE>
7. Change in Control. In the event of a Change in Control, provided
Schwarz is either (a) still employed by the Company 6 months after the date of
the Change in Control, or (b) has been terminated by the Company during that 6-
month period other than for Cause, Schwarz shall be entitled to resign before
the first anniversary of the Change in Control. Upon termination of his
employment after a Change in Control, except by Schwarz's resignation within six
months after the Change in Control or by the Company for Cause, Schwarz shall be
entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to two times his base salary plus two times
his bonuses earned from the Company for 1995, payable in equal installments
on the Company's regular pay schedule commencing within 30 days after
termination of Schwarz's employment and continuing for 24 months; provided
however, such amount shall be reduced by the amount of compensation earned
by Schwarz from any other employment or consulting arrangement during the
severance period.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any Person becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of United Stationers Inc. representing
thirty percent (30%) or more of the combined voting power of United Stationers
Inc.'s then outstanding equity having the power to seat the Board generally, or
(b) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for election by
United Stationers Inc.'s stockholders, of any new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.
8. Stay Bonus. In addition to the payments to which Schwarz may be
entitled pursuant to Section 6 above, unless Schwarz resigns prior to March 30,
1996, effective March 30, 1996, Schwarz shall also be entitled to receive the
Stay Bonus, medical and other benefits to which he is entitled under the United
Stationers Inc. Employee Benefits Trust dated March 22, 1995.
9. Medical Benefits. The Company makes the following covenants to
Schwarz with respect to Schwarz's medical benefits ("Medical Benefits"):
9.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Schwarz's employment with the Company terminates for any
reason, Schwarz (and Schwarz's covered dependents at the time of such
termination of employment) shall be entitled to continue to participate in
the Plan until Schwarz attains age sixty-five (65), and Schwarz's spouse
shall be entitled to continue to participate, in her own right, in the Plan
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until Schwarz's spouse attains age sixty-five (65), but not for a period in
excess of ten (10) years following Schwarz's termination of employment with
the Company; provided that, in the event Schwarz terminates employment
with the Company prior to attaining age fifty-five (55) Schwarz (and
Schwarz's covered dependents at the time of such termination of employment)
shall have the right to participate in the Plan for a period of ten (10)
years, such period to commence on either Schwarz's termination of
employment with the Company or the date Schwarz attains age fifty-five (55)
as Schwarz shall elect in writing at the time of his termination of
employment, under the same terms and conditions applicable to persons who
are provided coverage as active employees under the Plan; provided,
however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum
Payment shall remain applicable to Schwarz (and Schwarz's covered
dependents at the time of the termination of employment).
9.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on September 1, 1995 (the date any such event first
occurs being referred to as the 'Coverage Cessation Date'), Schwarz shall
be entitled to and the Company shall pay to Schwarz TWO THOUSAND SEVEN
HUNDRED DOLLARS ($2,700.00) per month for the period commencing on the
first day of the month following the month in which the Coverage Cessation
Date occurs and ending on the first to occur of:
(i) the later of the date Schwarz or Schwarz's spouse attains
age sixty-five (65);
(ii) in the event of the death of Schwarz, the date the spouse
of Schwarz attains age sixty-five (65);
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
(iv) March 30, 1998.
9.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Schwarz,
subject to the following terms and conditions:
(i) Schwarz (or any of Schwarz's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Schwarz's then current employer or a medical plan maintained by the
employer of the spouse of Schwarz, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) payment of medical expenses or reimbursement for such
claims under this subsection 9.3 shall not in the aggregate exceed
the lesser of the following amounts:
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<PAGE>
(a) a maximum of $300,000 for Schwarz and all dependents
(on an aggregate basis) of Schwarz as of the Coverage Cessation
Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 9.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract
Officers as of the Coverage Cessation Date) prior to the date of
the requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 9.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Schwarz or Schwarz's spouse
attains age sixty-five;
(b) in the event of the death of Schwarz, the date the
spouse of Schwarz attains age sixty-five (65);
(c) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
(d) March 30, 1998.
The coverage provided under this Section 9.3 shall be separate and in
addition to the coverage provided under Section 9.2 above.
9.4 In addition, if Schwarz is or becomes an eligible retired officer
in accordance with the definition of a "retired officer" contained in the
Company's Officer Medical Expense Reimbursement Policy (presently LD-
3)("Policy"), or a similar policy, Schwarz shall be entitled to the medical
expense reimbursement benefits thereof whether or not the Policy is later
modified or revoked.
10. Miscellaneous.
10.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
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If to the Company:
United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Schwarz: 810 Andover Court
Prospect Heights, IL 60070
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
10.2. This Agreement and all rights and benefits hereunder are
personal to Schwarz and neither this Agreement nor any right or interest of
Schwarz herein, or arising hereunder, shall be voluntarily or involuntarily
sold, transferred or assigned by Schwarz. Any attempt by Schwarz to
assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose
of any such benefits or amounts or any rights or interests contrary to the
foregoing provisions, or the levy or attachment or similar process
thereupon, shall be null and void and of no effect and shall relieve the
Company of all liabilities hereunder. This Agreement and all of the
Company's right and obligations hereunder may be assigned and/or delegated,
as the case may be, without Schwarz's consent, to any entity which merges
with the Company or which acquires substantially all of the assets of the
Company and which agrees to be bound hereby. The enforceability of
Schwarz's rights under the Agreement shall not be affected by any
assignment or merger.
10.3. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, personal representatives,
successors and permitted assigns.
10.4. This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof, including but not limited to the Employment and
Consulting Agreement between Schwarz and United Stationers Inc. and United
Stationers Supply Co. dated September 1, 1989, as amended February 13, 1995
and August 30, 1995.
10.5. No change or modification of this Agreement shall be valid
unless the same shall be approved by the Board and in writing and signed by
Schwarz and an
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<PAGE>
authorized representative of the Company other than Schwarz. No waiver of
any provisions of this Agreement shall be valid unless in writing and
signed by the person or party to be charged.
10.6. If any provisions of this Agreement (or portions thereof)
shall, for any reason, be invalid or unenforceable, such provisions (or
portions thereof) shall be ineffective only to the extent of such
invalidity or unenforceability, and the remaining provisions or portions
shall nevertheless be valid, enforceable and of full force and effect.
10.7 The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
10.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
10.9 If Schwarz or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time on the
amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
11. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST:_______________________ By:_______________________
Daniel H. Bushell Tom Sturgess
Secretary Chairman of the Board and
Chief Executive Officer
_____________________________________
Steven R. Schwarz
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EXHIBIT A
TO EMPLOYMENT AGREEMENT
STEVEN R. SCHWARZ
The following are benefit plans, programs and policies in which Schwarz is
entitled to participate as of October 1, 1995:
United Stationers Supply Co. Pension Plan
United Stationers Inc. Profit Sharing PluSavings Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Stationers Inc. Management Equity Plan
United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased auto or equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of October 1, 1995 by
and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Robert H. Cornell ("Cornell").
In consideration of the mutual promises and agreements contained in this
Agreement, the Company hereby employs Cornell, and Cornell accepts employment
with the Company on the terms and conditions contained in this Agreement.
1. Term of Employment. The term of employment shall commence as of the date
of this Agreement and shall continue until September 30, 1996, and thereafter
shall be extended automatically for additional one-year periods unless written
notice is given by either party to the other at least 60 days prior to the end
of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Cornell shall serve
as Vice President, Human Resources of the Company, and, in accordance with the
authority and direction of the board of directors of the Company (the "Board")
shall render such administrative and other services to the Company as may be
required of such position or as the Board may from time to time direct. Cornell
shall be available at all reasonable times for consultation with the Board on
matters relating to the Company's, or its affiliates' business.
Cornell shall devote his best efforts and his full and exclusive business
time and attention (except for reasonable periods of vacation, illness or other
incapacity) to the business and affairs of the Company and its affiliates.
3. Compensation. During the term of employment, Cornell shall be
compensated as follows:
3.1. Base Salary. Cornell shall receive a base salary of no less
than $169,520.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Cornell shall be eligible to participate in any
bonus plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Cornell shall be included, to the extent eligible, in
all plans, programs and policies providing general benefits for the
Company's employees or its senior management employees (as approved by the
Board and in effect from time to time). The benefit plans, programs and
policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Cornell acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Cornell as a consequence of his employment by the Company (including information
conceived, discovered or developed by Cornell during his employment with the
Company) (collectively, "Confidential Information"). Confidential Information
includes, but is not limited to the following especially sensitive types of
information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly
disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Cornell or with Cornell's assistance and
all notes, memoranda and the like prepared using the Proprietary Materials
and/or Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Cornell prior to employment with the Company, or may now or
in the future be in the public domain, Cornell acknowledges that the compilation
of that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including
Cornell, a competitive advantage over persons who do not know the information or
have the compilation of the Proprietary Materials. Cornell further acknowledges
that Confidential Information and Proprietary Materials include commercially
valuable trade secrets and automatically become the Company's exclusive property
when they are conceived, created or received. Cornell shall report to the
Company fully and promptly, orally (or, at the Company's request, in writing)
all discoveries, inventions and improvements, whether or not patentable, and all
other ideas, developments, processes, techniques, designs and other information
which may be of benefit to the Company, which Cornell conceives, makes or
develops during his employment (whether or not during working hours or with use
or assistance of Company facilities, materials or personnel, and which either
(i) relate to or arise out of any part of the Company's business in which
Cornell participates, or (ii) incorporate or make use of Confidential
Information or Proprietary Materials) (all items referred to in this Section 4.3
being sometimes collectively referred to herein as the "Intellectual Property").
All Intellectual property shall be deemed Confidential Information of the
Company, and any writing or other tangible things describing, referring to, or
containing Intellectual Property shall be deemed the Company's Proprietary
Materials. At the request of the Company, during or after the term of
employment, Cornell (or after Cornell's death, Cornell's personal
representative) shall, at the expense of the Company, make, execute and deliver
all papers, assignments, conveyances, installments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Cornell shall, except as may be required
by law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
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<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Cornell's employment for whatever reason, Cornell
(or in the event of death, Cornell's personal representative) shall promptly
surrender to the Company the original and all copies of Proprietary Materials
(including all notes, memoranda and the like concerning or derived therefrom),
whether prepared by Cornell or others, which are then in Cornell's possession or
control. Records of payments made by the Company to or for the benefit of
Cornell, Cornell's copy of this Agreement and other such things, lawfully
possessed by Cornell which relate solely to taxes payable by Cornell, employee
benefits due to Cornell or the terms of Cornell's employment with the Company,
shall not be deemed Proprietary Materials for purposes of this Section 4.
5. Non-competition.
5.1. During Cornell's employment, and during the two year period following
his employment), Cornell shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment,
Cornell may be engaged in the business of selling office products at retail and
Cornell may be engaged by any company whose principal business is the
manufacture of office products.
5.3. Cornell recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Cornell hereby agrees and submits to the
reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Cornell shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Cornell agrees that the remedy at law for any breach of the
provisions of Section 4 or this Section 5 shall be inadequate and that the
Company shall be entitled to injunctive relief in addition to any other
remedies it may have.
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<PAGE>
6. Termination and Severance.
6.1. Resignation. If Cornell resigns, or if Cornell gives notice to the
Company of non-extension of the term of employment pursuant to Paragraph 1, he
shall be entitled to receive only the unpaid portion of his base salary and
accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Cornell For Good Reason. Cornell may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Cornell's consent, any of which shall be
deemed "Good Reason":
(a) the reduction of Cornell's base salary;
(b) the exclusion of Cornell from, or diminution in Cornell's
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company or to officers or management
personnel of the Company at the level of vice president or lower, other
than exclusions, changes or diminutions applicable to all employees or such
management personnel or officers; or
(c) any diminution in expense reimbursement benefits enjoyed by
Cornell, except pursuant to a general change in the Company's reimbursement
policies; or
(d) any material reduction in Cornell's title or duties which has the
effect of materially reducing Cornell's status within the Company;
provided, however, that any change in the office or officer to whom Cornell
reports, or in Cornell's duties or title which does not diminish Cornell's
status within the Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Cornell for Good Reason, Cornell shall
be entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of
his term of employment (but not for more than a 12 month period), payable
on the Company's regular pay schedule; and
5
<PAGE>
6.2.2. reimbursement for reasonable reimbursable expenses incurred
on behalf of the Company prior to the termination; and
6.2.3. a severance amount equal to his base salary, plus his bonuses
earned from the Company for the calendar year preceding the year in which
notice is given by Cornell to the Company, payable in equal installments on
the Company's regular pay schedule, commencing within 30 days after receipt
by the Company of written notice from Cornell and continuing for 12 months.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Cornell
shall be entitled to receive:
6.3.1. Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2. A severance amount equal to his base salary plus his bonuses
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months.
6.4. By Company For Cause. The Company may terminate the employment at
any time for Cause (as hereinafter defined). If Cornell is terminated by the
Company for Cause, Cornell shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation attributable to all periods prior to and
including the date of his termination, and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date of his
termination.
"Cause" means Cornell's (a) conviction of, or plea of nolo contendere to
a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of
money or property or assets of the Company or any of its affiliates; (c) use of
illegal drugs; (d) material breach of this Agreement; (e) commission of any act
or acts of moral turpitude in violation of Company policy; (f) gross negligence
or willful misconduct in the performance of his duties; or (g) breach of any
fiduciary duty owed to the Company, including, without limitation, engaging in
directly competitive acts while employed by the Company.
6.5. By the Company. The Company may terminate Cornell's employment on
written notice to Cornell at any time. If Cornell's employment is terminated by
the Company, other than for Cause, Cornell shall be entitled to receive:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment (but not for more than 12 months),
payable on the Company's regular pay schedule; and
6
<PAGE>
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year of termination.
6.6. By Death or Disability. If Cornell's employment is terminated due to
his death or permanent disability, Cornell shall be entitled to severance pay in
accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if
Cornell's spouse is then living, for the remainder of such spouse's life the
Company shall continue to provide health coverage for Cornell's spouse and
dependent children in accordance with the Company's health plans made generally
available to employees of the Company, without cost to Cornell's spouse.
Nothing in this Agreement shall affect Cornell's right to receive death benefit
payments under any policy of insurance carried by the Company and payable to
Cornell or his designated beneficiary.
6.7. Retirement. Cornell agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Cornell shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Cornell shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, provided Cornell is
either (a) still employed by the Company 6 months after the date of the Change
in Control, or (b) has been terminated by the Company during that 6-month period
other than for Cause, Cornell shall be entitled to resign before the first
anniversary of the Change in Control. Upon termination of his employment after a
Change in Control, except by Cornell's resignation within six months after the
Change in Control or by the Company for Cause, Cornell shall be entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year in which the Change in
Control occurs, payable in equal installments on the Company's regular pay
schedule commencing within 30 days after termination of Cornell's
employment and continuing for 12 months.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any
7
<PAGE>
Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of United Stationers Inc.
representing thirty percent (30%) or more of the combined voting power of United
Stationers Inc.'s then outstanding equity having the power to seat the Board
generally, or (b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by United Stationers Inc.'s stockholders, of any new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period.
8. Stay Bonus. In addition to the payments to which Cornell may be
entitled pursuant to Section 6 or 7 above, unless Cornell resigns prior to March
30, 1996, effective March 30, 1996, Cornell shall also be entitled to receive
the Stay Bonus and medical benefits to which he is entitled under the United
Stationers Inc. Employee Benefits Trust dated March 22, 1995.
9. Medical Benefits. The Company makes the following covenants to
Cornell with respect to Cornell's medical benefits ("Medical Benefits"):
9.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Cornell's employment with the Company terminates for any
reason, Cornell (and Cornell's covered dependents at the time of such
termination of employment) shall be entitled to continue to participate in
the Plan until Cornell attains age sixty-five (65), and Cornell's spouse
shall be entitled to continue to participate, in her own right, in the Plan
until Cornell's spouse attains age sixty-five (65), under the same terms
and conditions applicable to persons who are provided coverage as active
employees under the Plan; provided, however, that a minimum $1,000,000
Comprehensive Medical Lifetime Maximum Payment shall remain applicable to
Cornell (and Cornell's covered dependents at the time of the termination of
employment).
9.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on September 1, 1995 (the date any such event first
occurs being referred to as the 'Coverage Cessation Date'), Cornell shall
be entitled to and the Company shall pay to Cornell THREE THOUSAND SEVENTY
DOLLARS ($3,070.00) per month for the period commencing on the first day of
the month following the month in which the Coverage Cessation Date occurs
and ending on the first to occur of:
(i) the later of the date Cornell or Cornell's spouse attains
age sixty-five (65);
(ii) in the event of the death of Cornell, the date the spouse
of Cornell attains age sixty-five (65);
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
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<PAGE>
(iv) March 30, 1998.
9.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Cornell,
subject to the following terms and conditions:
(i) Cornell (or any of Cornell's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Cornell's then current employer or a medical plan maintained by the
employer of the spouse of Cornell, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) payment of medical expenses or reimbursement for such
claims under this subsection 9.3 shall not in the aggregate exceed
the lesser of the following amounts:
(a) a maximum of $300,000 for Cornell and all dependents
(on an aggregate basis) of Cornell as of the Coverage Cessation
Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 9.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract
Officers as of the Coverage Cessation Date) prior to the date of
the requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 9.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Cornell or Cornell's spouse
attains age sixty-five;
(b) in the event of the death of Cornell, the date the
spouse of Cornell attains age sixty-five (65);
(c) the end of the eighteen (18) month period
commencing on the Coverage Cessation Date; or
(d) March 30, 1998.
The coverage provided under this Section 9.3 shall be separate and in
addition to the coverage provided under Section 9.2 above.
9
<PAGE>
9.4 In addition, if Cornell is or becomes an eligible retired officer
in accordance with the definition of a "retired officer" contained in the
Company's Officer Medical Expense Reimbursement Policy (presently LD-
3)("Policy"), or a similar policy, Cornell shall be entitled to the medical
expense reimbursement benefits thereof whether or not the Policy is later
modified or revoked.
10. Miscellaneous.
10.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
If to the Company:
United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Cornell: 474 Pine Woods Drive
Barrington, IL 60010
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
10.2. This Agreement and all rights and benefits hereunder are
personal to Cornell and neither this Agreement nor any right or interest of
Cornell herein, or arising hereunder, shall be voluntarily or involuntarily
sold, transferred or assigned by Cornell. Any attempt by Cornell to
assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose
of any such benefits or amounts or any rights or interests contrary to the
foregoing provisions, or the levy or attachment or similar process
thereupon, shall be null and void and of no effect and shall relieve the
Company of all liabilities hereunder. This Agreement and all of the
Company's right and obligations hereunder may be assigned and/or delegated,
as the case may be, without Cornell's consent, to any entity which merges
with the Company or which acquires substantially all of the assets of the
Company and which agrees to be bound hereby. The enforceability of
Cornell's rights under the Agreement shall not be affected by any
assignment or merger.
10
<PAGE>
10.3. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, personal representatives,
successors and permitted assigns.
10.4. This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof, including but not limited to the Employment and
Consulting Agreement between Cornell and United Stationers Inc. and United
Stationers Supply Co. dated February 1, 1988, as amended on August 23,
1989, September 1, 1994 and February 13, 1995.
10.5. No change or modification of this Agreement shall be valid
unless the same shall be approved by the Board and in writing and signed by
Cornell and an authorized representative of the Company other than Cornell.
No waiver of any provisions of this Agreement shall be valid unless in
writing and signed by the person or party to be charged.
10.6. If any provisions of this Agreement (or portions thereof)
shall, for any reason, be invalid or unenforceable, such provisions (or
portions thereof) shall be ineffective only to the extent of such
invalidity or unenforceability, and the remaining provisions or portions
shall nevertheless be valid, enforceable and of full force and effect.
10.7 The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
10.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
10.9 If Cornell or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time on the
amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
11. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
11
<PAGE>
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST: By:
---------------------- ----------------------------
Daniel H. Bushell Tom Sturgess
Secretary Chairman of the Board and
Chief Executive Officer
-------------------------------
Robert H. Cornell
12
<PAGE>
EXHIBIT A
TO EMPLOYMENT AGREEMENT
ROBERT H. CORNELL
The following are benefit plans, programs and policies in which Cornell is
entitled to participate as of October 1, 1995:
United Stationers Supply Co. Pension Plan
United Stationers Inc. Profit Sharing PluSavings Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Stationers Inc. Management Equity Plan
United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased autoor equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
13
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of October 1, 1995
by and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Ted S. Rzeszuto ("Rzeszuto").
In consideration of the mutual promises and agreements contained in
this Agreement, the Company hereby employs Rzeszuto, and Rzeszuto accepts
employment with the Company on the terms and conditions contained in this
Agreement.
1. Term of Employment. The term of employment shall commence as of
the date of this Agreement and shall continue until September 30, 1996, and
thereafter shall be extended automatically for additional one-year periods
unless written notice is given by either party to the other at least 60 days
prior to the end of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Rzeszuto
shall serve as Vice President and Controller of the Company, and, in accordance
with the authority and direction of the board of directors of the Company (the
"Board") shall render such administrative, financial and other services to the
Company as may be required of such position or as the Board may from time to
time direct. Rzeszuto shall be available at all reasonable times for
consultation with the Board on matters relating to the Company's, or its
affiliates' business.
Rzeszuto shall devote his best efforts and his full and exclusive
business time and attention (except for reasonable periods of vacation, illness
or other incapacity) to the business and affairs of the Company and its
affiliates.
3. Compensation. During the term of employment, Rzeszuto shall be
compensated as follows:
3.1. Base Salary. Rzeszuto shall receive a base salary of no less
than $140,400.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Rzeszuto shall be eligible to participate in any
bonus plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Rzeszuto shall be included, to the extent eligible,
in all plans, programs and policies providing general benefits for the
Company's employees or its senior management employees (as approved by the
Board and in effect from time to time). The benefit plans, programs and
policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Rzeszuto acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Rzeszuto as a consequence of his employment by the Company (including
information conceived, discovered or developed by Rzeszuto during his employment
with the Company) (collectively, "Confidential Information"). Confidential
Information includes, but is not limited to the following especially sensitive
types of information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Rzeszuto or with Rzeszuto's assistance and
all notes, memoranda and the like prepared using the Proprietary Materials
and/or Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Rzeszuto prior to employment with the Company, or may now or
in the future be in the public domain, Rzeszuto acknowledges that the
compilation of that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including
Rzeszuto, a competitive advantage over persons who do not know the information
or have the compilation of the Proprietary Materials. Rzeszuto further
acknowledges that Confidential Information and Proprietary Materials include
commercially valuable trade secrets and automatically become the Company's
exclusive property when they are conceived, created or received. Rzeszuto shall
report to the Company fully and promptly, orally (or, at the Company's request,
in writing) all discoveries, inventions and improvements, whether or not
patentable, and all other ideas, developments, processes, techniques, designs
and other information which may be of benefit to the Company, which Rzeszuto
conceives, makes or develops during his employment (whether or not during
working hours or with use or assistance of Company facilities, materials or
personnel, and which either (i) relate to or arise out of any part of the
Company's business in which Rzeszuto participates, or (ii) incorporate or make
use of Confidential Information or Proprietary Materials) (all items referred to
in this Section 4.3 being sometimes collectively referred to herein as the
"Intellectual Property"). All Intellectual property shall be deemed Confidential
Information of the Company, and any writing or other tangible things describing,
referring to, or containing Intellectual Property shall be deemed the Company's
Proprietary Materials. At the request of the Company, during or after the term
of employment, Rzeszuto (or after Rzeszuto's death, Rzeszuto's personal
representative) shall, at the expense of the Company, make, execute and deliver
all papers, assignments, conveyances, installments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Rzeszuto shall, except as may be required
by law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
3
<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Rzeszuto's employment for whatever reason,
Rzeszuto (or in the event of death, Rzeszuto's personal representative) shall
promptly surrender to the Company the original and all copies of Proprietary
Materials (including all notes, memoranda and the like concerning or derived
therefrom), whether prepared by Rzeszuto or others, which are then in Rzeszuto's
possession or control. Records of payments made by the Company to or for the
benefit of Rzeszuto, Rzeszuto's copy of this Agreement and other such things,
lawfully possessed by Rzeszuto which relate solely to taxes payable by Rzeszuto,
employee benefits due to Rzeszuto or the terms of Rzeszuto's employment with the
Company, shall not be deemed Proprietary Materials for purposes of this Section
4.
5. Non-competition.
5.1. During Rzeszuto's employment, and during the two year period
following his employment), Rzeszuto shall not, in any way, directly or
indirectly, manage, operate, control (or participate in any of the foregoing),
accept employment or a consulting position with or otherwise advise or assist or
be connected with or directly or indirectly own or have any other interest in or
right with respect to (other than through ownership of not more than 1% of the
outstanding shares of a corporation's stock which is listed on a national
securities exchange) any enterprise (other than for the Company or for the
benefit of the Company) which is a wholesaler of office products having annual
sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment,
Rzeszuto may be engaged in the business of selling office products at retail and
Rzeszuto may be engaged by any company whose principal business is the
manufacture of office products.
5.3. Rzeszuto recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Rzeszuto hereby agrees and submits to
the reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Rzeszuto shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Rzeszuto agrees that the remedy at law for any breach of the
provisions of Section 4 or this Section 5 shall be inadequate and that the
Company shall be entitled to injunctive relief in addition to any other remedies
it may have.
4
<PAGE>
6. Termination and Severance.
6.1. Resignation. If Rzeszuto resigns, or if Rzeszuto gives notice to the
Company of non-extension of the term of employment pursuant to Paragraph 1, he
shall be entitled to receive only the unpaid portion of his base salary and
accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Rzeszuto For Good Reason. Rzeszuto may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Rzeszuto's consent, any of which shall be
deemed "Good Reason":
(a) the reduction of Rzeszuto's base salary;
(b) the exclusion of Rzeszuto from, or diminution in Rzeszuto's
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company or to officers or management
personnel of the Company at the level of vice president or lower, other
than exclusions, changes or diminutions applicable to all employees or such
management personnel or officers; or
(c) any diminution in expense reimbursement benefits enjoyed by
Rzeszuto, except pursuant to a general change in the Company's
reimbursement policies; or
(d) any material reduction in Rzeszuto's title or duties which has the
effect of materially reducing Rzeszuto's status within the Company;
provided, however, that any change in the office or officer to whom
Rzeszuto reports, or in Rzeszuto's duties or title which does not diminish
Rzeszuto's status within the Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Rzeszuto for Good Reason, Rzeszuto shall
be entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of
his term of employment (but not for more than a 12 month period), payable
on the Company's regular pay schedule; and
5
<PAGE>
6.2.2. reimbursement for reasonable reimbursable expenses incurred
on behalf of the Company prior to the termination; and
6.2.3. a severance amount equal to his base salary, plus his
bonuses earned from the Company for the calendar year preceding the year in
which notice is given by Rzeszuto to the Company, payable in equal
installments on the Company's regular pay schedule, commencing within 30
days after receipt by the Company of written notice from Rzeszuto and
continuing for 12 months.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Rzeszuto
shall be entitled to receive:
6.3.1. Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2. A severance amount equal to his base salary plus his bonuses
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months.
6.4. By Company For Cause. The Company may terminate the employment at
any time for Cause (as hereinafter defined). If Rzeszuto is terminated by the
Company for Cause, Rzeszuto shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation attributable to all periods prior to and
including the date of his termination, and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date of his
termination.
"Cause" means Rzeszuto's (a) conviction of , or plea of nolo contendere to
a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of
money or property or assets of the Company or any of its affiliates; (c) use of
illegal drugs; (d) material breach of this Agreement; (e) commission of any act
or acts of moral turpitude in violation of Company policy; (f) gross negligence
or willful misconduct in the performance of his duties; or (g) breach of any
fiduciary duty owed to the Company, including, without limitation, engaging in
directly competitive acts while employed by the Company.
6.5. By the Company. The Company may terminate Rzeszuto's employment on
written notice to Rzeszuto at any time. If Rzeszuto's employment is terminated
by the Company, other than for Cause, Rzeszuto shall be entitled to receive:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment, payable on the Company's regular pay
schedule; and
6
<PAGE>
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year of termination.
6.6. By Death or Disability. If Rzeszuto's employment is terminated due to
his death or permanent disability, Rzeszuto shall be entitled to severance pay
in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if
Rzeszuto's spouse is then living, for the remainder of such spouse's life the
Company shall continue to provide health coverage for Rzeszuto's spouse and
dependent children in accordance with the Company's health plans made generally
available to employees of the Company, without cost to Rzeszuto's spouse.
Nothing in this Agreement shall affect Rzeszuto's right to receive death benefit
payments under any policy of insurance carried by the Company and payable to
Rzeszuto or his designated beneficiary.
6.7. Retirement. Rzeszuto agrees that, in any event, his employment
shall terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Rzeszuto shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Rzeszuto shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, provided
Rzeszuto is either (a) still employed by the Company 6 months after the date of
the Change in Control, or (b) has been terminated by the Company during that 6-
month period other than for Cause, Rzeszuto shall be entitled to resign before
the first anniversary of the Change in Control. Upon termination of his
employment after a Change in Control, except by Rzeszuto's resignation within
six months after the Change in Control or by the Company for Cause, Rzeszuto
shall be entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year in which the Change in
Control occurs, payable in equal installments on the Company's regular pay
schedule commencing within 30 days after termination of Rzeszuto's
employment and continuing for 12 months.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any
7
<PAGE>
Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of United Stationers Inc.
representing thirty percent (30%) or more of the combined voting power of United
Stationers Inc.'s then outstanding equity having the power to seat the Board
generally, or (b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by United Stationers Inc.'s stockholders, of any new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period.
8. Stay Bonus. In addition to the payments to which Rzeszuto may be
entitled pursuant to Section 6 or 7 above, unless Rzeszuto resigns prior to
March 30, 1996, effective March 30, 1996, Rzeszuto shall also be entitled to
receive the Stay Bonus and medical benefits to which he is entitled under the
United Stationers Inc. Employee Benefits Trust dated March 22, 1995.
9. Medical Benefits. The Company makes the following covenants to
Rzeszuto with respect to Rzeszuto's medical benefits ("Medical Benefits"):
9.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Rzeszuto's employment with the Company terminates for any
reason, Rzeszuto (and Rzeszuto's covered dependents at the time of such
termination of employment) shall be entitled to continue to participate in
the Plan until Rzeszuto attains age sixty-five (65), and Rzeszuto's spouse
shall be entitled to continue to participate, in her own right, in the Plan
until Rzeszuto's spouse attains age sixty-five (65), but not for a period
in excess of ten (10) years following Rzeszuto's termination of employment
with the Company; provided that, in the event Rzeszuto terminates
employment with the Company prior to attaining age fifty-five (55) Rzeszuto
(and Rzeszuto's covered dependents at the time of such termination of
employment) shall have the right to participate in the Plan for a period of
ten (10) years, such period to commence on either Rzeszuto's termination of
employment with the Company or the date Rzeszuto attains age fifty-five
(55) as Rzeszuto shall elect in writing at the time of his termination of
employment, under the same terms and conditions applicable to persons who
are provided coverage as active employees under the Plan; provided,
however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum
Payment shall remain applicable to Rzeszuto (and Rzeszuto's covered
dependents at the time of the termination of employment).
9.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on September 1, 1995 (the date any such event first
occurs being referred to as the 'Coverage Cessation Date'), Rzeszuto shall
be entitled to and the Company shall pay to Rzeszuto TWO THOUSAND SEVEN
HUNDRED DOLLARS ($2,700.00) per month for the period commencing on the
first day of the month following the month in which the Coverage Cessation
Date occurs and ending on the first to occur of:
8
<PAGE>
(i) the later of the date Rzeszuto or Rzeszuto's spouse attains
age sixty-five (65);
(ii) in the event of the death of Rzeszuto, the date the spouse
of Rzeszuto attains age sixty-five (65);
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
(iv) March 30, 1998.
9.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Rzeszuto,
subject to the following terms and conditions:
(i) Rzeszuto (or any of Rzeszuto's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Rzeszuto's then current employer or a medical plan maintained by the
employer of the spouse of Rzeszuto, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) payment of medical expenses or reimbursement for such
claims under this subsection 9.3 shall not in the aggregate exceed
the lesser of the following amounts:
(a) a maximum of $300,000 for Rzeszuto and all dependents
(on an aggregate basis) of Rzeszuto as of the Coverage Cessation
Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 9.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract
Officers as of the Coverage Cessation Date) prior to the date of
the requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 9.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Rzeszuto or Rzeszuto's spouse
attains age sixty-five;
(b) in the event of the death of Rzeszuto, the date the
spouse of Rzeszuto attains age sixty-five (65);
9
<PAGE>
(c) the end of the eighteen (18) month period
commencing on the Coverage Cessation Date; or
(d) March 30, 1998.
The coverage provided under this Section 9.3 shall be separate and in
addition to the coverage provided under Section 9.2 above.
9.4 In addition, if Rzeszuto is or becomes an eligible retired
officer in accordance with the definition of a "retired officer" contained
in the Company's Officer Medical Expense Reimbursement Policy (presently
LD-3)("Policy"), or a similar policy, Rzeszuto shall be entitled to the
medical expense reimbursement benefits thereof whether or not the Policy is
later modified or revoked.
10. Miscellaneous.
10.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
If to the Company:
United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Rzeszuto: 9 S. 433 Helen Court
Downers Grove, IL 60516
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
10.2. This Agreement and all rights and benefits hereunder are
personal to Rzeszuto and neither this Agreement nor any right or interest
of Rzeszuto herein, or
10
<PAGE>
arising hereunder, shall be voluntarily or involuntarily sold, transferred
or assigned by Rzeszuto. Any attempt by Rzeszuto to assign, execute,
attach, transfer, pledge, hypothecate or otherwise dispose of any such
benefits or amounts or any rights or interests contrary to the foregoing
provisions, or the levy or attachment or similar process thereupon, shall
be null and void and of no effect and shall relieve the Company of all
liabilities hereunder. This Agreement and all of the Company's right and
obligations hereunder may be assigned and/or delegated, as the case may be,
without Rzeszuto's consent, to any entity which merges with the Company or
which acquires substantially all of the assets of the Company and which
agrees to be bound hereby. The enforceability of Rzeszuto's rights under
the Agreement shall not be affected by any assignment or merger.
10.3. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, personal representatives,
successors and permitted assigns.
10.4. This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof, including but not limited to the Employment and
Consulting Agreement between Rzeszuto and United Stationers Inc. and United
Stationers Supply Co. dated April 3, 1987, as amended February 13, 1995
and August 30, 1995.
10.5. No change or modification of this Agreement shall be valid
unless the same shall be approved by the Board and in writing and signed by
Rzeszuto and an authorized representative of the Company other than
Rzeszuto. No waiver of any provisions of this Agreement shall be valid
unless in writing and signed by the person or party to be charged.
10.6. If any provisions of this Agreement (or portions thereof)
shall, for any reason, be invalid or unenforceable, such provisions (or
portions thereof) shall be ineffective only to the extent of such
invalidity or unenforceability, and the remaining provisions or portions
shall nevertheless be valid, enforceable and of full force and effect.
10.7 The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
10.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
10.9 If Rzeszuto or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time
11
<PAGE>
on the amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
11. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST: By:
----------------------- ----------------------------
Daniel H. Bushell Tom Sturgess
Secretary Chairman of the Board and
Chief Executive Officer
-------------------------------
Ted S. Rzeszuto
12
<PAGE>
EXHIBIT A
TO EMPLOYMENT AGREEMENT
TED S. RZESZUTO
The following are benefit plans, programs and policies in which Rzeszuto is
entitled to participate as of September 1, 1995:
United Stationers Supply Co. Pension Plan
United Stationers Inc. Profit Sharing PluSavings Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased auto or equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2-1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees
generally
13
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of October 1, 1995 by
and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Albert Shaw ("Shaw").
In consideration of the mutual promises and agreements contained in this
Agreement, the Company hereby employs Shaw, and Shaw accepts employment with the
Company on the terms and conditions contained in this Agreement.
1. Term of Employment. The term of employment shall commence as of the
date of this Agreement and shall continue until September 30, 1996, and
thereafter shall be extended automatically for additional one-year periods
unless written notice is given by either party to the other at least 60 days
prior to the end of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Shaw shall serve
as Vice President, Operations of the Company, and, in accordance with the
authority and direction of the board of directors of the Company (the "Board")
shall render such operational, administrative and other services to the Company
as may be required of such position or as the Board may from time to time
direct. Shaw shall be available at all reasonable times for consultation with
the Board on matters relating to the Company's, or its affiliates' business.
Shaw shall devote his best efforts and his full and exclusive business time
and attention (except for reasonable periods of vacation, illness or other
incapacity) to the business and affairs of the Company and its affiliates.
3. Compensation. During the term of employment, Shaw shall be compensated
as follows:
3.1. Base Salary. Shaw shall receive a base salary of no less than
$155,000.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Shaw shall be eligible to participate in any bonus
plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Shaw shall be included, to the extent eligible, in
all plans, programs and policies providing general benefits for the
Company's employees or its senior management employees (as approved by the
Board and in effect from time to time). The benefit plans, programs and
policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Shaw acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Shaw as a consequence of his employment by the Company (including information
conceived, discovered or developed by Shaw during his employment with the
Company) (collectively, "Confidential Information"). Confidential Information
includes, but is not limited to the following especially sensitive types of
information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Shaw or with Shaw's assistance and all
notes, memoranda and the like prepared using the Proprietary Materials and/or
Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Shaw prior to employment with the Company, or may now or in
the future be in the public domain, Shaw acknowledges that the compilation of
that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including Shaw,
a competitive advantage over persons who do not know the information or have the
compilation of the Proprietary Materials. Shaw further acknowledges that
Confidential Information and Proprietary Materials include commercially valuable
trade secrets and automatically become the Company's exclusive property when
they are conceived, created or received. Shaw shall report to the Company fully
and promptly, orally (or, at the Company's request, in writing) all discoveries,
inventions and improvements, whether or not patentable, and all other ideas,
developments, processes, techniques, designs and other information which may be
of benefit to the Company, which Shaw conceives, makes or develops during his
employment (whether or not during working hours or with use or assistance of
Company facilities, materials or personnel, and which either (i) relate to or
arise out of any part of the Company's business in which Shaw participates, or
(ii) incorporate or make use of Confidential Information or Proprietary
Materials) (all items referred to in this Section 4.3 being sometimes
collectively referred to herein as the "Intellectual Property"). All
Intellectual property shall be deemed Confidential Information of the Company,
and any writing or other tangible things describing, referring to, or containing
Intellectual Property shall be deemed the Company's Proprietary Materials. At
the request of the Company, during or after the term of employment, Shaw (or
after Shaw's death, Shaw's personal representative) shall, at the expense of the
Company, make, execute and deliver all papers, assignments, conveyances,
installments or other documents, and perform or cause to be performed such other
lawful acts, and give such testimony, as the Company deems necessary or
desirable to protect the Company's ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Shaw shall, except as may be required by
law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
3
<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Shaw's employment for whatever reason, Shaw (or in
the event of death, Shaw's personal representative) shall promptly surrender to
the Company the original and all copies of Proprietary Materials (including all
notes, memoranda and the like concerning or derived therefrom), whether prepared
by Shaw or others, which are then in Shaw's possession or control. Records of
payments made by the Company to or for the benefit of Shaw, Shaw's copy of this
Agreement and other such things, lawfully possessed by Shaw which relate solely
to taxes payable by Shaw, employee benefits due to Shaw or the terms of Shaw's
employment with the Company, shall not be deemed Proprietary Materials for
purposes of this Section 4.
5. Non-competition.
5.1. During Shaw's employment, and during the two year period following
his employment), Shaw shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment, Shaw
may be engaged in the business of selling office products at retail and Shaw may
be engaged by any company whose principal business is the manufacture of office
products.
5.3. Shaw recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Shaw hereby agrees and submits to the
reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Shaw shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Shaw agrees that the remedy at law for any breach of the provisions of
Section 4 or this Section 5 shall be inadequate and that the Company shall be
entitled to injunctive relief in addition to any other remedies it may have.
4
<PAGE>
6. Termination and Severance.
6.1. Resignation. If Shaw resigns, or if Shaw gives notice to the Company
of non-extension of the term of employment pursuant to Paragraph 1, he shall be
entitled to receive only the unpaid portion of his base salary and accrued
vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Shaw For Good Reason. Shaw may elect to terminate his employment
by written notice to the Company within 60 days after the occurrence of any of
the following events without Shaw's consent, any of which shall be deemed "Good
Reason":
(a) the reduction of Shaw's base salary;
(b) the exclusion of Shaw from, or diminution in Shaw's participation
in, any pension, bonus, management incentive, profit sharing and other
similar incentive, compensation or deferred compensation plans made
available to employees of the Company or to officers or management
personnel of the Company at the level of vice president or lower, other
than exclusions, changes or diminutions applicable to all employees or such
management personnel or officers; or
(c) any diminution in expense reimbursement benefits enjoyed by Shaw,
except pursuant to a general change in the Company's reimbursement
policies; or
(d) any material reduction in Shaw's title or duties which has the
effect of materially reducing Shaw's status within the Company; provided,
however, that any change in the office or officer to whom Shaw reports, or
in Shaw's duties or title which does not diminish Shaw's status within the
Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Shaw for Good Reason, Shaw shall be
entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of his
term of employment (but not for more than a 12 month period), payable on
the Company's regular pay schedule; and
6.2.2. reimbursement for reasonable reimbursable expenses incurred on
behalf of the Company prior to the termination; and
5
<PAGE>
6.2.3. a severance amount equal to his base salary, plus his bonuses
earned from the Company for the calendar year preceding the year in which
notice is given by Shaw to the Company, payable in equal installments on
the Company's regular pay schedule, commencing within 30 days after receipt
by the Company of written notice from Shaw and continuing for 12 months.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Shaw
shall be entitled to receive:
6.3.1. Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2. A severance amount equal to his base salary plus his bonuses
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months.
6.4. By Company For Cause. The Company may terminate the employment at
any time for Cause (as hereinafter defined). If Shaw is terminated by the
Company for Cause, Shaw shall be entitled to receive only the unpaid portion of
his base salary and accrued vacation attributable to all periods prior to and
including the date of his termination, and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date of his
termination.
"Cause" means Shaw's (a) conviction of , or plea of nolo contendere to a
felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money
or property or assets of the Company or any of its affiliates; (c) use of
illegal drugs; (d) material breach of this Agreement; (e) commission of any act
or acts of moral turpitude in violation of Company policy; (f) gross negligence
or willful misconduct in the performance of his duties; or (g) breach of any
fiduciary duty owed to the Company, including, without limitation, engaging in
directly competitive acts while employed by the Company.
6.5. By the Company. The Company may terminate Shaw's employment on
written notice to Shaw at any time. If Shaw's employment is terminated by the
Company, other than for Cause, Shaw shall be entitled to receive:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment (but not for more than 12 months),
payable on the Company's regular pay schedule; and
6
<PAGE>
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year of termination.
6.6. By Death or Disability. If Shaw's employment is terminated due to his
death or permanent disability, Shaw shall be entitled to severance pay in
accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Shaw's
spouse is then living, for the remainder of such spouse's life the Company shall
continue to provide health coverage for Shaw's spouse and dependent children in
accordance with the Company's health plans made generally available to employees
of the Company, without cost to Shaw's spouse. Nothing in this Agreement shall
affect Shaw's right to receive death benefit payments under any policy of
insurance carried by the Company and payable to Shaw or his designated
beneficiary.
6.7. Retirement. Shaw agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Shaw shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Shaw shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, provided Shaw is
either (a) still employed by the Company 6 months after the date of the Change
in Control, or (b) has been terminated by the Company during that 6-month period
other than for Cause, Shaw shall be entitled to resign before the first
anniversary of the Change in Control. Upon termination of his employment after a
Change in Control, except by Shaw's resignation within six months after the
Change in Control or by the Company for Cause, Shaw shall be entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year in which the Change in
Control occurs, payable in equal installments on the Company's regular pay
schedule commencing within 30 days after termination of Shaw's employment
and continuing for 12 months.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any
7
<PAGE>
Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of United Stationers Inc.
representing thirty percent (30%) or more of the combined voting power of United
Stationers Inc.'s then outstanding equity having the power to seat the Board
generally, or (b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by United Stationers Inc.'s stockholders, of any new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period.
8. Medical Benefits. The Company makes the following covenants to Shaw
with respect to Shaw's medical benefits ("Medical Benefits"):
8.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Shaw's employment with the Company terminates for any reason,
Shaw (and Shaw's covered dependents at the time of such termination of
employment) shall be entitled to continue to participate in the Plan until
Shaw attains age sixty-five (65), and Shaw's spouse shall be entitled to
continue to participate, in her own right, in the Plan until Shaw's spouse
attains age sixty-five (65), but not for a period in excess of ten (10)
years following Shaw's termination of employment with the Company; provided
that, in the event Shaw terminates employment with the Company prior to
attaining age fifty-five (55) Shaw (and Shaw's covered dependents at the
time of such termination of employment) shall have the right to participate
in the Plan for a period of ten (10) years, such period to commence on
either Shaw's termination of employment with the Company or the date Shaw
attains age fifty-five (55) as Shaw shall elect in writing at the time of
his termination of employment, under the same terms and conditions
applicable to persons who are provided coverage as active employees under
the Plan; provided, however, that a minimum $1,000,000 Comprehensive
Medical Lifetime Maximum Payment shall remain applicable to Shaw (and
Shaw's covered dependents at the time of the termination of employment).
8.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on October 1, 1995 (the date any such event first occurs
being referred to as the 'Coverage Cessation Date'), Shaw shall be entitled
to and the Company shall pay to Shaw THREE THOUSAND SEVENTY DOLLARS
($3,070.00) per month for the period commencing on the first day of the
month following the month in which the Coverage Cessation Date occurs and
ending on the first to occur of:
(i) the later of the date Shaw or Shaw's spouse attains age
sixty-five (65);
(ii) in the event of the death of Shaw, the date the spouse of
Shaw attains age sixty-five (65);
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<PAGE>
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
(iv) March 30, 1998.
8.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Shaw,
subject to the following terms and conditions:
(i) Shaw (or any of Shaw's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Shaw's then current employer or a medical plan maintained by the
employer of the spouse of Shaw, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) Payment of medical expenses or reimbursement for such
claims under this subsection 8.3 shall not in the aggregate exceed
the lesser of the following amounts:
(a) a maximum of $300,000 for Shaw and all dependents (on
an aggregate basis) of Shaw as of the Coverage Cessation Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 8.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract Officers
as of the Coverage Cessation Date) prior to the date of the
requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 8.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Shaw or Shaw's spouse attains
age sixty-five;
(b) in the event of the death of Shaw, the date the spouse
of Shaw attains age sixty-five (65);
(c) the end of the eighteen (18) month period
commencing on the Coverage Cessation Date; or
(d) March 30, 1998.
9
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The coverage provided under this Section 8.3 shall be separate and in
addition to the coverage provided under Section 8.2 above.
8.4 In addition, if Shaw is or becomes an eligible retired officer in
accordance with the definition of a "retired officer" contained in the
Company's Officer Medical Expense Reimbursement Policy (presently LD-
3)("Policy"), or a similar policy, Shaw shall be entitled to the medical
expense reimbursement benefits thereof whether or not the Policy is later
modified or revoked.
9. Miscellaneous.
9.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
If to the Company: United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Shaw: 1224 Gartner Road
Naperville, Illinois 60540
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
9.2. This Agreement and all rights and benefits hereunder are
personal to Shaw and neither this Agreement nor any right or interest of
Shaw herein, or arising hereunder, shall be voluntarily or involuntarily
sold, transferred or assigned by Shaw. Any attempt by Shaw to assign,
execute, attach, transfer, pledge, hypothecate or otherwise dispose of any
such benefits or amounts or any rights or interests contrary to the
foregoing provisions, or the levy or attachment or similar process
thereupon, shall be null and void and of no effect and shall relieve the
Company of all liabilities hereunder. This Agreement and all of the
Company's right and obligations hereunder may be assigned and/or delegated,
as the case may be, without Shaw's consent, to any entity which merges with
the Company or which acquires substantially all of the assets of the
Company and which
10
<PAGE>
agrees to be bound hereby. The enforceability of Shaw's rights under the
Agreement shall not be affected by any assignment or merger.
9.3. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective heirs, personal representatives,
successors and permitted assigns.
9.4. This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof.
9.5. No change or modification of this Agreement shall be valid
unless the same shall be approved by the Board and in writing and signed by
Shaw and an authorized representative of the Company other than Shaw. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the person or party to be charged.
9.6. If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions or portions shall
nevertheless be valid, enforceable and of full force and effect.
9.7 The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
9.8 This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
9.9 If Shaw or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time on the
amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
10. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
11
<PAGE>
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST: By:
----------------------- -----------------------------
Daniel H. Bushell Tom Sturgess
Secretary Chairman of the Board and
Chief Executive Officer
--------------------------------
Albert Shaw
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EXHIBIT A
TO EMPLOYMENT AGREEMENT
ALBERT SHAW
The following are benefit plans, programs and policies in which Shaw is
entitled to participate as of October 1, 1995:
United Stationers Supply Co. Pension Plan
United Stationers Inc. Profit Sharing PluSavings Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Inc. Management Equity Plan
United Stationers Management Incentive Plan
United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased auto or equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
13
<PAGE>
EXHIBIT 10.68
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of November 1, 1995 by
and between United Stationers Supply Co., an Illinois corporation (the
"Company") and Otis H. Halleen ("Halleen").
In consideration of the mutual promises and agreements contained in this
Agreement, the Company hereby employs Halleen, and Halleen accepts employment
with the Company on the terms and conditions contained in this Agreement.
1. Term of Employment. The term of employment shall commence as of the d
ate of this Agreement and shall continue until October 30, 1996, and thereafter
shall be extended automatically for additional one-year periods unless written
notice is given by either party to the other at least 60 days prior to the end
of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Halleen shall
serve as General Counsel of the Company, and, in accordance with the authority
and direction of the board of directors of the Company (the "Board") shall
render such professional, administrative and other services to the Company as
may be required of such position or as the Board may from time to time direct.
Halleen shall be available at all reasonable times for consultation with the
Board on matters relating to the Company's, or its affiliates' business.
Halleen shall devote his best efforts and his full and exclusive business
time and attention (except for reasonable periods of vacation, illness or other
incapacity) to the business and affairs of the Company and its affiliates.
3. Compensation. During the term of employment, Halleen shall be
compensated as follows:
3.1. Base Salary. Halleen shall receive a base salary of no less
than $160,000.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be
reviewed by the Board annually and may, in the Board's sole discretion, be
increased when deemed appropriate.
3.2. Bonus. Halleen shall be eligible to participate in any bonus
plans approved by the Board and made generally available to senior
management employees of the Company, and shall be entitled to such bonus
amounts as shall be determined in accordance with such plans.
3.3. Benefits. Halleen shall be included, to the extent eligible, in
all plans, programs and policies providing general benefits for the
Company's employees or its senior management employees (as approved by the
Board and in effect from time to time). The benefit plans, programs and
policies presently in effect are listed on Exhibit A
<PAGE>
attached to this Agreement. This paragraph shall not be construed to
require the Company to establish or maintain any policy, plan or program.
4. Confidential Information.
4.1. Halleen acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Halleen as a consequence of his employment by the Company (including information
conceived, discovered or developed by Halleen during his employment with the
Company) (collectively, "Confidential Information"). Confidential Information
includes, but is not limited to the following especially sensitive types of
information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly
disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example, Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the data bases of Confidential Information maintained in
connection with such software, and printouts generated from such data bases;
market studies and strategic plans; customer, supplier and employee lists;
contracts and correspondence with customers and suppliers; documents evidencing
transactions with customers and supplier; sales calls reports, appointment
books, calendars, expense statements and the like, reflecting conversations with
any company, customer or supplier; architectural plans; and purchasing, sales
and policy manuals. Proprietary Materials also include, but are not limited to,
any such things which are created by Halleen or with Halleen's assistance and
all notes, memoranda and the like prepared using the Proprietary Materials
and/or Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Halleen prior to employment with the Company, or may now or
in the future be in the public domain, Halleen acknowledges that the compilation
of that information contained in the
2
<PAGE>
Proprietary Materials has or will cost the Company a great effort and expense,
and affords persons to whom Proprietary Materials are disclosed, including
Halleen, a competitive advantage over persons who do not know the information or
have the compilation of the Proprietary Materials. Halleen further acknowledges
that Confidential Information and Proprietary Materials include commercially
valuable trade secrets and automatically become the Company's exclusive property
when they are conceived, created or received. Halleen shall report to the
Company fully and promptly, orally (or, at the Company's request, in writing)
all discoveries, inventions and improvements, whether or not patentable, and all
other ideas, developments, processes, techniques, designs and other information
which may be of benefit to the Company, which Halleen conceives, makes or
develops during his employment (whether or not during working hours or with use
or assistance of Company facilities, materials or personnel, and which either
(i) relate to or arise out of any part of the Company's business in which
Halleen participates, or (ii) incorporate or make use of Confidential
Information or Proprietary Materials) (all items referred to in this Section 4.3
being sometimes collectively referred to herein as the "Intellectual Property").
All Intellectual property shall be deemed Confidential Information of the
Company, and any writing or other tangible things describing, referring to, or
containing Intellectual Property shall be deemed the Company's Proprietary
Materials. At the request of the Company, during or after the term of
employment, Halleen (or after Halleen's death, Halleen's personal
representative) shall, at the expense of the Company, make, execute and deliver
all papers, assignments, conveyances, installments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Halleen shall, except as may be required by
law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only at
places designated by the Company, in furtherance of the Company's business,
and pursuant to the Company's directions.
4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
3
<PAGE>
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Halleen's employment for whatever reason, Halleen
(or in the event of death, Halleen's personal representative) shall promptly
surrender to the Company the original and all copies of Proprietary Materials
(including all notes, memoranda and the like concerning or derived therefrom),
whether prepared by Halleen or others, which are then in Halleen's possession or
control. Records of payments made by the Company to or for the benefit of
Halleen, Halleen's copy of this Agreement and other such things, lawfully
possessed by Halleen which relate solely to taxes payable by Halleen, employee
benefits due to Halleen or the terms of Halleen's employment with the Company,
shall not be deemed Proprietary Materials for purposes of this Section 4.
5. Non-competition.
5.1. During Halleen's employment, and during the two year period following
his employment), Halleen shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2. Notwithstanding Section 5.1., following the term of employment,
Halleen may be engaged in the business of selling office products at retail and
Halleen may be engaged by any company whose principal business is the
manufacture of office products.
5.3. Halleen recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Halleen hereby agrees and submits to the
reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4. If Halleen shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5. Halleen agrees that the remedy at law for any breach of the
provisions of Section 4 or this Section 5 shall be inadequate and that the
Company shall be entitled to injunctive relief in addition to any other remedies
it may have.
4
<PAGE>
6. Termination and Severance.
6.1. Resignation. If Halleen resigns, or if Halleen gives notice to the
Company of non-extension of the term of employment pursuant to Paragraph 1, he
shall be entitled to receive only the unpaid portion of his base salary and
accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2. By Halleen For Good Reason. Halleen may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Halleen's consent, any of which shall be
deemed "Good Reason":
(a) the reduction of Halleen's base salary;
(b) the exclusion of Halleen from, or diminution in Halleen's
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company or to officers or management
personnel of the Company at the level of vice president or lower, other
than exclusions, changes or diminutions applicable to all employees or such
management personnel or officers; or
(c) any diminution in expense reimbursement benefits enjoyed by
Halleen, except pursuant to a general change in the Company's reimbursement
policies; or
(d) any material reduction in Halleen's title or duties which has the
effect of materially reducing Halleen's status within the Company;
provided, however, that any change in the office or officer to whom Halleen
reports, or in Halleen's duties or title which does not diminish Halleen's
status within the Company, shall not be deemed "Good Reason"; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Halleen for Good Reason, Halleen shall
be entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of
his term of employment, payable on the Company's regular pay schedule; and
6.2.2. reimbursement for reasonable reimbursable expenses incurred
on behalf of the Company prior to the termination; and
5
<PAGE>
6.2.3. a severance amount equal to his base salary, plus his bonuses
earned from the Company for the calendar year preceding the year in which
notice is given by Halleen to the Company, payable in equal installments on
the Company's regular pay schedule, commencing within 30 days after receipt
by the Company of written notice from Halleen and continuing for 12 months.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement, Halleen
shall be entitled to receive:
6.3.1. Accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2. A severance amount equal to his base salary plus his bonuses
earned for the calendar year preceding the date of expiration, payable in
equal installments on the Company's regular pay schedule commencing within
30 days and continuing for 12 months.
6.4. By Company For Cause. The Company may terminate the employment at
any time for Cause (as hereinafter defined). If Halleen is terminated by the
Company for Cause, Halleen shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation attributable to all periods prior to and
including the date of his termination, and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date of his
termination.
"Cause" means Halleen's (a) conviction of, or plea of nolo contendere to
a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of
money or property or assets of the Company or any of its affiliates; (c) use of
illegal drugs; (d) material breach of this Agreement; (e) commission of any act
or acts of moral turpitude in violation of Company policy; (f) gross negligence
or willful misconduct in the performance of his duties; or (g) breach of any
fiduciary duty owed to the Company, including, without limitation, engaging in
directly competitive acts while employed by the Company.
6.5. By the Company. The Company may terminate Halleen's employment on
written notice to Halleen at any time. If Halleen's employment is terminated by
the Company, other than for Cause, Halleen shall be entitled to receive:
6.5.1. the unpaid portion of his base salary for the remaining
portion of the term of employment (but not for more than 12 months),
payable on the Company's regular pay schedule; and
6
<PAGE>
6.5.2. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
6.5.3. severance pay equal to his base salary plus his bonuses
earned from the Company for the year preceding the year of termination.
6.6. By Death or Disability. If Halleen's employment is terminated due to
his death or permanent disability, Halleen shall be entitled to severance pay in
accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if
Halleen's spouse is then living, for the remainder of such spouse's life the
Company shall continue to provide health coverage for Halleen's spouse and
dependent children in accordance with the Company's health plans made generally
available to employees of the Company, without cost to Halleen's spouse.
Nothing in this Agreement shall affect Halleen's right to receive death benefit
payments under any policy of insurance carried by the Company and payable to
Halleen or his designated beneficiary.
6.7. Retirement. Halleen agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7., Halleen shall be entitled to:
6.7.1. accrued vacation pay and reimbursement for reasonable expenses
incurred on behalf of the Company prior to the date of termination, and
6.7.2. in addition, Halleen shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, provided
Halleen is either (a) still employed by the Company 6 months after the date of
the Change in Control, or (b) has been terminated by the Company during that 6-
month period other than for Cause, Halleen shall be entitled to resign before
the first anniversary of the Change in Control. Upon termination of his
employment after a Change in Control, except by Halleen's resignation within six
months after the Change in Control or by the Company for Cause, Halleen shall be
entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to his base salary plus his bonuses earned
from the Company for the year preceding the year in which the Change in
Control occurs, payable in equal installments on the Company's regular pay
schedule commencing within 30 days after termination of Halleen's
employment and continuing for 12 months.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act"); provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any
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<PAGE>
Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of United Stationers Inc.
representing thirty percent (30%) or more of the combined voting power of United
Stationers Inc.'s then outstanding equity having the power to seat the Board
generally, or (b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by United Stationers Inc.'s stockholders, of any new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period.
8. Stay Bonus. In addition to the payments to which Halleen may be
entitled pursuant to Section 6 or 7 above, Halleen shall also be entitled to
receive the remasining balance of his Stay Bonus and the medical benefits to
which he is entitled under the United Stationers Inc. Employee Benefits Trust
dated March 22, 1995.
9. Medical Benefits. The Company makes the following covenants to
Halleen with respect to Halleen's medical benefits ("Medical Benefits"):
9.1 In the event the United Stationers Medical Plan ("Plan") remains
in effect and Halleen's employment with the Company terminates for any
reason, Halleen (and Halleen's covered dependents at the time of such
termination of employment) shall be entitled to continue to participate in
the Plan until Halleen attains age sixty-five (65), and Halleen's spouse
shall be entitled to continue to participate, in her own right, in the Plan
until Halleen's spouse attains age sixty-five (65), under the same terms
and conditions applicable to persons who are provided coverage as active
employees under the Plan; provided, however, that a minimum $1,000,000
Comprehensive Medical Lifetime Maximum Payment shall remain applicable to
Halleen (and Halleen's covered dependents at the time of the termination of
employment).
9.2 In the event of the termination of the Plan or any cessation of
coverage under the Plan not occurring in accordance with the terms of the
Plan as in effect on September 1, 1995 (the date any such event first
occurs being referred to as the 'Coverage Cessation Date'), Halleen shall
be entitled to and the Company shall pay to Halleen THREE THOUSAND SEVENTY
DOLLARS ($3,070.00) per month for the period commencing on the first day of
the month following the month in which the Coverage Cessation Date occurs
and ending on the first to occur of:
(i) the later of the date Halleen or Halleen's spouse attains
age sixty-five (65);
(ii) in the event of the death of Halleen, the date the spouse
of Halleen attains age sixty-five (65);
(iii) the end of the eighteen (18) month period commencing on
the Coverage Cessation Date; or
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(iv) March 30, 1998.
9.3 After the Coverage Cessation Date, the Company shall pay claims
or reimburse expenses for those medical expenses which are considered
deductible under section 213 of the Code or any successor provision,
(without regard to any applicable threshold for deductibility) to Halleen,
subject to the following terms and conditions:
(i) Halleen (or any of Halleen's covered dependents as of the
Coverage Cessation Date) if covered by a medical plan maintained by
Halleen's then current employer or a medical plan maintained by the
employer of the spouse of Halleen, has exceeded the lifetime maximum
benefit provided in such plan;
(ii) payment of medical expenses or reimbursement for such
claims under this subsection 9.3 shall not in the aggregate exceed
the lesser of the following amounts:
(a) a maximum of $300,000 for Halleen and all dependents
(on an aggregate basis) of Halleen as of the Coverage Cessation
Date; or
(b) the amount by which $700,000 exceeds the aggregate
amount of all medical claims under this subsection 9.3 for the
group of employees referred to as "Contract Officers" under the
Plan (including all covered dependents of such Contract
Officers as of the Coverage Cessation Date) prior to the date of
the requested payment by the Contract Officer; and
(iii) reimbursement for such claims under this subsection 9.3
shall be made for the period commencing on the Coverage Cessation Date
and ending on the first to occur of:
(a) the later of the date Halleen or Halleen's spouse
attains age sixty-five;
(b) in the event of the death of Halleen, the date the
spouse of Halleen attains age sixty-five (65);
(c) the end of the eighteen (18) month period commencing
on the Coverage Cessation Date; or
(d) March 30, 1998.
The coverage provided under this Section 9.3 shall be separate and in
addition to the coverage provided under Section 9.2 above.
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9.4 In addition, if Halleen is or becomes an eligible retired officer
in accordance with the definition of a "retired officer" contained in the
Company's Officer Medical Expense Reimbursement Policy (presently LD-3)
("Policy"), or a similar policy, Halleen shall be entitled to the medical
expense reimbursement benefits thereof whether or not the Policy is later
modified or revoked.
10. Miscellaneous.
10.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified
or registered mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the party for whom intended at the following
respective addresses:
If to the Company:
United Stationers Supply Co.
2200 E. Golf Road
Des Plaines, IL 60016
Attn: President
If to Halleen: 636 S. Mallard Drive
Palatine, IL 60067
or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions
hereof. Such notices shall be deemed to have been served, if hand
delivered, on the day delivered, and if mailed, on the third day following
the date deposited in the mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as provided above. All
notices sent by Telex or cable shall be deemed to have been served upon
receipt of the Telex or cable, but only if in fact confirmed by mail
promptly after dispatch of the Telex or cable.
10.2. This Agreement and all rights and benefits hereunder are
personal to Halleen and neither this Agreement nor any right or interest of
Halleen herein, or arising hereunder, shall be voluntarily or involuntarily
sold, transferred or assigned by Halleen. Any attempt by Halleen to
assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose
of any such benefits or amounts or any rights or interests contrary to the
foregoing provisions, or the levy or attachment or similar process
thereupon, shall be null and void and of no effect and shall relieve the
Company of all liabilities hereunder. This Agreement and all of the
Company's right and obligations hereunder may be assigned and/or delegated,
as the case may be, without Halleen's consent, to any entity which merges
with the Company or which acquires substantially all of the assets of the
Company and which agrees to be bound hereby. The enforceability of
Halleen's rights under the Agreement shall not be affected by any
assignment or merger.
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10.3. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, personal representatives,
successors and permitted assigns.
10.4. This Agreement constitutes the entire agreement between the
parties and contains all the agreements between such parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or in writing, between the parties with respect to the
subject matter hereof.
10.5. No change or modification of this Agreement shall be valid
unless the same shall be approved by the Board and in writing and signed by
Halleen and an authorized representative of the Company other than Halleen.
No waiver of any provisions of this Agreement shall be valid unless in
writing and signed by the person or party to be charged.
10.6. If any provisions of this Agreement (or portions thereof)
shall, for any reason, be invalid or unenforceable, such provisions (or
portions thereof) shall be ineffective only to the extent of such
invalidity or unenforceability, and the remaining provisions or portions
shall nevertheless be valid, enforceable and of full force and effect.
10.7. The Section or paragraph headings or titles are for convenience
only and shall not be deemed a part of this Agreement.
10.8. This Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
10.9. If Halleen or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to
receive their attorneys' fees, costs and expenses incurred in enforcing
their rights under this Agreement, as well as interest at the Prime Rate as
publicly announced by The Northern Trust Company from time to time on the
amount of the judgment from the date of demand for payment hereunder
through the date of receipt of the amount of the judgment.
11. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof.
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UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST:_______________________ By:___________________________
Daniel H. Bushell Tom Sturgess
Secretary Chairman of the Board and
Chief Executive Officer
______________________________
Otis H. Halleen
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EXHIBIT A
TO EMPLOYMENT AGREEMENT
OTIS H. HALLEEN
The following are benefit plans, programs and policies in which Halleen is
entitled to participate as of November 1, 1995:
United Stationers Supply Co. Pension Plan
United Stationers Inc. Profit Sharing PluSavings Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Stationers Inc. Management Equity Plan
United Group Medical and Dental Benefit Plans
Retiree Health Plan
Annual physical exam at Company expense
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in
accordance with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation,
and Delaware and Illinois law provide indemnification of
officers and directors
Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees
generally
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EXHIBIT 10.69
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made as of January 1, 1996
by and between United Stationers Supply Co., an Illinois corporation and United
Stationers Inc., a Delaware corporation, (collectively the "Company") and Thomas
W. Sturgess ("Sturgess").
In consideration of the services and contributions of Sturgess as
Chairman of the Board of the Company since March 30, 1995 and as President and
Chief Executive Officer of the Company since May 31, 1995, and for the mutual
promises and agreements contained in this Agreement, the Company hereby employs
Sturgess, and Sturgess accepts employment with the Company on the terms and
conditions contained in this Agreement.
1. Term of Employment. The term of employment shall commence as of
the date of this Agreement and shall continue until December 31, 1998, and
thereafter shall be extended automatically for additional one-year periods
unless written notice is given by either party to the other at least 60 days
prior to the end of such term, or any extension thereof.
2. Position and Duties. During the term of employment, Sturgess
shall serve as Chairman of the Board, President and Chief Executive Officer of
the Company, and, in accordance with the authority and direction of the board of
directors of the Company (the "Board") shall render such administrative and
other services to the Company as may be required of such position or as the
Board may from time to time direct. Sturgess shall be available at all
reasonable times upon reasonable notice, for consultation with the Board on
matters relating to the Company's, or its affiliates' business.
Sturgess shall devote his best efforts and his full and exclusive
business time and attention to the business and affairs of the Company and its
affiliates except for his pre-existing part-time responsibilities as Chairman of
Redman Industries, Inc.; his responsibilities as a General Partner of Wingate
Partners, L.P. and a Principal (inactive) of Wingate Partners II, L.P. Sturgess
will not take on additional business responsibilities without the prior approval
of the Board of Directors provided, however, Sturgess shall be permitted to
monitor and administer his personal investments. Sturgess shall be reasonably
available, in the Board's discretion, to perform his full-time duties at the
Company's headquarters in the Chicago metropolitan area during normal business
hours in a manner commensurate with his position as the Chief Executive Officer
of the Company, subject to permitted pre-existing responsibilities, travel on
business for the Company and reasonable vacations.
3. Compensation. During the term of employment, Sturgess shall be
compensated as follows:
3.1. Base Salary. Sturgess shall receive a base salary of no less
than $495,000.00 per year, payable in accordance with the Company's normal
payment schedule for management employees. The base salary shall be reviewed by
the Board annually and may, in the Board's sole discretion, be increased when
deemed appropriate.
<PAGE>
3.2. Bonus. Sturgess shall be eligible to participate in any bonus
plans approved by the Board and made generally available to senior management
employees of the Company, and shall be entitled to such bonus amounts as shall
be determined in accordance with such plans. MIP payouts will be at the
following percentages of annual pay and based on performance as determined under
the Company's Management Incentive Plan.
Minimum 75%
Target 100%
Maximum 150%
3.3. Benefits. Sturgess shall be included, to the extent eligible,
in all plans, programs and policies providing general employee benefits for the
Company's employees or its senior management employees (as approved by the Board
and in effect from time to time). The benefit plans, programs and policies
presently in effect are listed on Exhibit A attached to this Agreement. This
paragraph shall not be construed to require the Company to establish or maintain
any policy, plan or program.
4. Confidential Information.
4.1. Sturgess acknowledges the Company's exclusive ownership of all
information useful in the Company's business (including its dealings with
suppliers, customers and other third parties, whether or not a true "trade
secret"), which at the time or times concerned is not generally known to persons
engaged in businesses similar to those conducted by the Company, and which has
been or is from time to time disclosed to, discovered by, or otherwise known by
Sturgess as a consequence of his employment by the Company (including
information conceived, discovered or developed by Sturgess during his employment
with the Company or with Associated Stationers, Inc.) (collectively,
"Confidential Information"). Confidential Information includes, but is not
limited to the following especially sensitive types of information:
(i) The identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(ii) The identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(iii) The Company's inventory selection and management techniques;
(iv) The Company's product development and marketing plans; and
(v) The Company's finances, except to the extent publicly
disclosed.
4.2. The term "Proprietary Materials" shall mean all business records,
documents, drawings, writings, software, programs and other tangible things
which were or are created or received by or for the Company in furtherance of
its business, including, by or but not limited to, those which contain
Confidential Information. For example. Proprietary Materials include, but are
not limited to, the following especially sensitive types of materials:
applications software, the
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data bases of Confidential Information maintained in connection with such
software, and printouts generated from such data bases; market studies and
strategic plans; customer, supplier and employee lists; contracts and
correspondence with customers and suppliers; documents evidencing transactions
with customers and suppliers; sales calls reports, appointment books, calendars,
expense statements and the like, reflecting conversations with any company,
customer or supplier; architectural plans; and purchasing, sales and policy
manuals. Proprietary Materials also include, but are not limited to, any such
things which are created by Sturgess or with Sturgess' assistance and all notes,
memoranda and the like prepared using the Proprietary Materials and/or
Confidential Information.
4.3. While some of the information contained in Proprietary Materials may
have been known to Sturgess prior to employment with the Company, or may now or
in the future be in the public domain, Sturgess acknowledges that the
compilation of that information contained in the Proprietary Materials has or
will cost the Company a great effort and expense, and affords persons to whom
Proprietary Materials are disclosed, including Sturgess, a competitive advantage
over persons who do not know the information or have the compilation of the
Proprietary Materials. Sturgess further acknowledges that Confidential
Information and Proprietary Materials include commercially valuable trade
secrets and automatically become the Company's exclusive property when they are
conceived, created or received. Sturgess shall report to the Company fully and
promptly, orally (or, at the Company's request, in writing) all discoveries,
inventions and improvements, whether or not patentable, and all other ideas,
developments, processes, techniques, designs and other information which may be
of benefit to the Company, which Sturgess conceives, makes or develops during
his employment (whether or not during working hours or with the use or
assistance of Company facilities, materials or personnel, and which either (i)
relate to or arise out of any part of the Company's business in which Sturgess
participates, or (ii) incorporate or make use of Confidential Information or
Proprietary Materials) (all items referred to in this Section 4.3 being
sometimes collectively referred to herein as the "Intellectual Property"). All
Intellectual Property shall be deemed Confidential Information of the Company,
and any writing or other tangible things describing, referring to, or containing
Intellectual Property shall be deemed the Company's Proprietary Materials. At
the request of the Company, during or after the term of employment, Sturgess (or
after Sturgess' death, Sturgess' personal representative) shall, at the expense
of the Company, make, execute and deliver all papers, assignments, conveyances,
installments or other documents, and perform or cause to be performed such other
lawful acts, and give such testimony, as the Company deems necessary or
desirable to protect the Company's ownership rights and Intellectual Property.
4.4. Confidentiality Duties. Sturgess shall, except as may be required by
law, during the term of employment, and thereafter for the longest time
permitted by applicable law:
4.4.1. Comply with all of the Company's instructions (whether oral or
written) for preserving the confidentiality of Confidential Information and
Proprietary Materials.
4.4.2. Use Confidential Information and Proprietary Materials only
at places designated by the Company, in furtherance of the Company's
business, and pursuant to the Company's directions.
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4.4.3. Exercise appropriate care to advise other employees of the
Company (and, as appropriate, subcontractors) of the sensitive nature of
Confidential Information and Proprietary Materials prior to their
disclosure, and to disclose the same only on a need-to-know basis.
4.4.4. Not copy all or any part of Proprietary Materials, except as
the Company directs.
4.4.5. Not sell, give, loan or otherwise transfer any copy of all or
any part of Proprietary Materials to any person who is not an employee of
the Company, except as the Company directs.
4.4.6. Not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company directs, all
or any part of Confidential Information or Proprietary Materials.
4.4.7. Not use all or any part of any Confidential Information or
Proprietary Materials for the benefit of any third party without the
Company's written consent.
Upon the termination of Sturgess' employment for whatever reason, Sturgess
(or in the event of death, Sturgess' personal representative) shall promptly
surrender to the Company the original and all copies of Proprietary Materials
(including all notes, memoranda and the like concerning or derived therefrom),
whether prepared by Sturgess or others, which are then in Sturgess' possession
or control. Records of payments made by the Company to or for the benefit of
Sturgess, Sturgess' copy of this Agreement and other such things, lawfully
possessed by Sturgess which relate solely to taxes payable by Sturgess, employee
benefits due to Sturgess or the terms of Sturgess' employment with the Company,
shall not be deemed Proprietary Materials for purposes of this Section 4.
5. Non-competition.
5.1. During Sturgess' employment, and during the two year period following
his employment), Sturgess shall not, in any way, directly or indirectly, manage,
operate, control (or participate in any of the foregoing), accept employment or
a consulting position with or otherwise advise or assist or be connected with or
directly or indirectly own or have any other interest in or right with respect
to (other than through Ownership of not more than 1% of the outstanding shares
of a corporation's stock which is listed on a national securities exchange) any
enterprise (other than for the Company or for the benefit of the Company) which
is a wholesaler of office products having annual sales in excess of $1,000,000.
5.2 Notwithstanding Section 5.1., following the term of employment,
Sturgess may be engaged in the business of selling office products at retail and
Sturgess may be engaged by any company whose principal business is the
manufacturer of office products.
4
<PAGE>
5.3 Sturgess recognizes that the foregoing limitations are reasonable and
properly required for the adequate protection of the business of the Company.
If any such limitations are deemed to be unreasonable by a court having
jurisdiction of the matter and parties, Sturgess hereby agrees and submits to
the reduction of any such limitations to such territory or time as to such court
shall appear reasonable.
5.4 If Sturgess shall be in violation of any of the foregoing restrictive
covenants and if the Company seeks relief from such breach in any court or other
tribunal, such covenants shall be extended for a period of time equal to the
pendency of such proceedings, including all appeals.
5.5 Sturgess agrees that the remedy at law for any breach of the
provisions of Section 4 or this Section 5 shall be inadequate and that the
Company shall be entitled to injunctive relief in addition to any other remedies
it may have.
6. Termination and Severance.
6.1. Resignation. If Sturgess resigns, or if Sturgess unilaterally gives
notice to the Company of non-extension of the term of employment pursuant to
Paragraph 1 (provided the conditions of extended employment include adjustment
of Base Salary at least commensurate with any increase in the consumer price
index from January 1, 1996 to the applicable date for proposed extension), he
shall be entitled to receive only the unpaid portion of his base salary and
accrued vacation attributable to and including the date of resignation, and
reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of termination.
6.2 By Sturgess For Good Reason. Sturgess may elect to terminate his
employment by written notice to the Company within 60 days after the occurrence
of any of the following events without Sturgess' consent, any of which shall be
deemed "Good Reason;"
(a) the reduction of Sturgess' base salary;
(b) the exclusion of Sturgess from, or diminution in Sturgess'
participation in, any pension, bonus, management incentive, profit sharing
and other similar incentive, compensation or deferred compensation plans
made available to employees of the Company, officers or senior management
personnel of the Company, other than exclusions, changes or diminutions
applicable to all employees, officers or senior management personnel; or
(c) any diminution in expense reimbursement benefits enjoyed by
Sturgess, except pursuant to a general change in the Company's
reimbursement policies; or
(d) any material reduction in Sturgess' title or duties which has the
effect of materially reducing Sturgess' status within the Company; or
(e) any relocation of the Company's headquarters outside of the
Chicago metropolitan area; or
5
<PAGE>
(f) the breach by the Company of any of its covenants or obligations
under this Agreement.
If the employment is terminated by Sturgess for Good Reason, Sturgess shall
be entitled to receive:
6.2.1. the unpaid portion of his base salary for the remainder of his
term of employment, payable on the Company's regular pay schedule; and
6.2.2. reimbursement for reasonable reimbursable expenses incurred on
behalf of the Company prior to the termination; and
6.2.3 a severance amount equal to two times his base salary, plus two
times his bonuses earned from the Company for the calendar year preceding
the year in which notice is given by Sturgess to the Company, payable in
equal installments on the Company's regular pay schedule, commencing within
30 days after receipt by the Company of written notice from Sturgess and
continuing for 24 months; if no bonus has been paid because Sturgess is a
new employee the bonus payable shall be deemed to have been earned at the
100% MIP rate; and
6.2.4 Sturgess shall be entitled to continue to participate in the
Company's health plan for a period of two years following the date of the
notice from Sturgess, as if he were an employee.
6.3. By Expiration of the Term of Employment. If the term of employment
expires and notice has been given by the Company that the term will not be
extended or further extended pursuant to Paragraph 1 of this Agreement or such
notice has not been given but the term of employment is not extended by mutual
agreement of the parties, Sturgess shall be entitled to receive:
6.3.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the
expiration of the Term of Employment; and
6.3.2 a severance amount equal to two times his base salary plus two
times his bonuses earned from the Company for the calendar year preceding
the date of expiration, payable in equal installments on the Company's
regular pay schedule commencing within 30 days and continuing for 12
months; and
6.3.3 in addition, Sturgess shall be entitled to participate in the
Company's health plan for a period of 12 months following the expiration of
the term as if he were an employee.
6.4. By Company for Cause. The Company may terminate the employment at any
time for Cause (as hereinafter defined). If Sturgess is terminated by the
Company for Cause, Sturgess shall be entitled to receive only the unpaid portion
of his base salary and accrued vacation
6
<PAGE>
attributable to all periods prior to and including the date of his termination,
and reimbursement for reasonable reimbursable expenses incurred on behalf of the
Company prior to the date of his termination. The Company shall be required to
present written notice of "cause" and provide a thirty (30) day period to cure,
under (f), (g) and (h) of the following paragraph. Sturgess shall be permitted
to present his case in front of full Board of Directors.
"Cause" means Sturgess' (a) conviction of, or plea of nolo contendere to a
felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money
or property or assets of the Company or any of its affiliates; (c) use of
illegal drugs; (d) material breach of this Agreement; (e) commission of any act
or acts of moral turpitude in violation of Company policy; (f) gross negligence
or willful misconduct in the performance of his duties; (g) breach of any
fiduciary duty owed to the Company, including, without limitation, engaging in
directly competitive acts while employed by the Company; or (h) failure to be
reasonably available, in the Board's discretion, to perform his full-time duties
at the Company's headquarters in the Chicago metropolitan area during normal
business hours in a manner commensurate with his position as the chief executive
officer of the Company, subject to permitted pre-existing responsibilities,
travel on business for the Company and reasonable vacations.
6.5. By the Company. The Company may terminate Sturgess' employment on
written notice to Sturgess at any time. If Sturgess' employment is terminated
by the Company, other than for Cause, Sturgess shall be entitled to receive
only:
6.5.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination and the unpaid portion of his base salary to the date of
termination; and
6.5.2. severance pay at a per annum rate equal to his base salary and
bonuses earned for the year preceding the year of termination, payable in
equal installments on the Company's regular pay schedule commencing with
the first scheduled pay date after the date of termination and continuing
for 24 months; if no bonuses have been paid yet because Sturgess is a new
employee the bonuses will be deemed to be at the 100% MIP rate.
6.5.3. in addition, Sturgess shall be entitled to participate in the
Company's health plan for the 24 month severance period, as if he were an
employee.
6.6. By Death or Disability. If Sturgess' employment is terminated due to
his death or permanent disability, Sturgess shall be entitled to severance pay
in accordance with the provisions of 6.5 above. In addition, if Sturgess'
spouse is then living, for the remainder of such spouse's life the Company shall
continue to provide health coverage for Sturgess' spouse and dependent children
in accordance with the Company's health plans made generally available to
employees of the Company, without cost to Sturgess' spouse. Nothing in this
Agreement shall affect Sturgess' right to receive death benefit payments under
any policy of insurance carried by the Company and payable to Sturgess or his
designated beneficiary.
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6.7 Retirement. Sturgess agrees that, in any event, his employment shall
terminate automatically on his sixty-fifth birthday. If his employment is
terminated pursuant to this Section 6.7, Sturgess shall be entitled to:
6.7.1. accrued earned and unpaid base and bonus, vacation pay and
reimbursement for reasonable expenses incurred on behalf of the Company
prior to the date of termination, and
6.7.2. in addition, Sturgess shall be entitled to participate in the
Company's health plan for retirees.
7. Change in Control. In the event of a Change in Control, Sturgess
shall be entitled to resign before the first anniversary of the Change in
Control. Upon termination of his employment after a Change in Control, Sturgess
shall be entitled to:
7.1. accrued vacation pay and reimbursement for reasonable
reimbursable expenses incurred on behalf of the Company prior to the date
of termination; and
7.2. severance pay equal to two times his base salary plus two times
his bonuses earned from the Company for the preceding calendar year, (if no
bonus paid because Sturgess is a new employee, bonus shall be deemed to be
at 100% of MIP payout.) payable in equal installments on the Company's
regular pay schedule commencing within 30 days after termination of
Sturgess' employment and continuing for 24 months; provided however, such
amount shall be reduced by the amount of compensation earned by Sturgess
from any other employment or consulting arrangement during the severance
period except for employment or consulting agreements which were existing
at the date of change of control.
"Change in Control" shall mean a change in control of a nature that would
be required to be reported in responses to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
and presently in force (the "Exchange Act") ; provided that, without limitation,
a Change in Control shall be deemed to have occurred if (a) any Person becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of United Stationers Inc. representing
thirty percent (30%) or more of the combined voting power of United Stationers
Inc.'s then outstanding equity having the power to seat the Board generally, or
(b) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for election by
United Stationers, Inc.'s stockholders, of any new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.
8. Sturgess shall receive 240,000 post-split stock options under the MEP
program granted under the same conditions as other executive management members.
Sturgess' rights to such options shall vest as follows:
(i) 80,000 on the same basis as other executive management members;
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(ii) 80,000 to vest on the later to occur of (a) December 31, 1996,
provided Sturgess is still employed as chief executive officer of the
Company on such date, or (b) on the same basis as other executive
management members.
(iii) 80,000 to vest on the later to occur of (a) March 31, 1997, provided
Sturgess is still employed as chief executive officer of the Company
on such date, or (b) on the same basis as other executive management
members.
In each case the vesting and Sturgess' ability to exercise such options shall
accelerate upon (x) the occurrence of certain transactions as provided under the
MEP plan and (y) the termination of Sturgess' employment if such termination is
by Sturgess for Good Reason, by expiration of the term of employment, by the
Company other than for Cause, due to a Change in Control, or due to Sturgess'
death or permanent disability.
9. Sturgess shall receive an additional 120,000 post-split options under
the same conditions as the MEP recipients except that the exercise price will be
$5.12 per share, fixed. Sturgess' ability to exercise such options shall
accelerate upon (x) the occurrence of certain transactions as provided under the
MEP plan and (y) the termination of Sturgess' employment if such termination is
by Sturgess for Good Reason, by expiration of the term of employment, by the
Company other than for Cause, due to a Change in Control, or due to Sturgess'
death or permanent disability.
10. Miscellaneous.
10.1. All notices hereunder shall be given in writing and sent to the
party for whom such is intended by hand delivery or United States certified or
registered mail, return receipt requested, postage prepaid, or overnight courier
service, addressed to the party for whom intended at the following respective
addresses:
If to the Company: United Stationers Supply Co.
2200 East Golf Road
Des Plaines, IL 60016
Attn: Executive Vice President
and Chief Financial Officer
If to Sturgess: Thomas W. Sturgess
c/o Wingate Partners
750 North St. Paul/Suite #1200
Dallas, TX 75201
or to such other persons and/or at such other addresses as may be designated by
written notice served in accordance with the provisions hereof. Such notices
shall be deemed to have been served, if hand delivered, on the day delivered,
and if mailed, on the third day following the date deposited in the mail.
Urgent notices shall be given by Telex or cable to the same addresses and
confirmed by mail as provided above. All notices sent by Telex or cable shall
be deemed to have
9
<PAGE>
been served upon receipt of the Telex or cable, but only if in fact confirmed by
mail promptly after dispatch of the Telex or cable.
10.2. This Agreement and all rights and benefits hereunder are personal to
Sturgess and neither this Agreement nor any right or interest of Sturgess
herein, or arising hereunder, shall be voluntarily or involuntarily sold,
transferred or assigned by Sturgess except if to a "family affiliate" including
Trusts for the benefit of his children. Any attempt by Sturgess to assign,
execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such
benefits or amounts or any rights or interests contrary to the foregoing
provisions, or the levy or attachment or similar process thereupon, shall be
null and void and of no effect and shall relieve the Company of all liabilities
hereunder. This Agreement and all of the Company's right and obligations
hereunder may be assigned and/or delegated, as the case may be, without
Sturgess' consent, to any entity which merges with the Company or which acquires
substantially all of the assets of the Company and which agrees to be bound
hereby. The enforceability of Sturgess' rights under the Agreement shall not be
affected by any assignment or merger.
10.3. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective heirs, personal representatives, successors and
permitted assigns.
10.4. This Agreement constitutes the entire agreement between the parties
and contains all the agreements between such parties with respect to the subject
matter hereof. This Agreement supersedes all other agreements, oral or in
writing, between the parties with respect to the subject matter hereof.
10.5. No change or modification of this Agreement shall be valid unless
the same shall be approved by the Board and in writing and signed by Sturgess
and an authorized representative of the Company other than Sturgess. No waiver
of any provisions of this Agreement shall be valid unless in writing and signed
by the person or party to be charged.
10.6. If any provisions of this Agreement (or portions thereof) shall, for
any reason, be invalid or unenforceable, such provisions (or portions thereof)
shall be ineffective only to the extent of such invalidity or unenforceability,
and the remaining provisions or portions shall nevertheless be valid,
enforceable and of full force and effect.
10.7. The Section or paragraph headings or titles are for convenience only
and shall not be deemed a part of this Agreement.
10.8. This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute a single instrument.
10.9. If Sturgess or his estate or designee prevails in any action to
enforce their rights under this Agreement, they shall be entitled to receive
their attorneys' fees, costs and expenses incurred in enforcing their rights
under this Agreement, as well as interest at the Prime Rate as publicly
announced by The Northern Trust Company from time to time on the amount of the
judgment from the date of demand for payment hereunder through the date of
receipt of the amount of the judgment.
10
<PAGE>
11. Arbitration. Each of the undersigned hereby agrees that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, including but not limited to any claims of discrimination and wrongful
termination, will be submitted for arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the Arbitrator(s) may be entered in any court having
jurisdiction thereof.
UNITED STATIONERS INC.,
a Delaware corporation;
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
ATTEST: By:
------------------------ ----------------------------------
Daniel H. Bushell Gary G. Miller, Director
Secretary and Member Compensation
Committee
By:
----------------------------------
James T. Callier, Jr., Director
and Member Compensation
Committee
--------------------------------------
Thomas W. Sturgess
11
<PAGE>
EXHIBIT A
TO EMPLOYMENT AGREEMENT
THOMAS W. STURGESS
The following are benefit plans, programs and policies in which Sturgess is
entitled to participate as of January 1, 1996:
United Stationers Supply Co. Pension Plan
United Stationers Inc. Profit Sharing PluSavings Plan
United Stationers Inc. Flexible Spending Plan
United Stationers Management Incentive Plan
United Stationers Inc. Management Equity Plan
United Group Medical and Dental Benefit Plans
Officer Medical Expense Reimbursement Policy
Retiree Health Plan
Annual physical exam at Company expense
Leased auto or equivalent cash compensation in accordance with Policy
Group Term Life Insurance - 2 1/2 times base salary
Travel and Accident Insurance - $300,000
Split Dollar Life Insurance
Disability Insurance in accordance with insurance policy
Club and Association Dues - in accordance with Company Policy
Financial and Tax Consulting - and tax return preparation, in accordance
with Company Policy
Officer Indemnification and Insurance - D&O insurance is provided on a
claims-made basis; and Restated Certificate of Incorporation, and
Delaware and Illinois law provide indemnification of officers and
directors
Other - Vacations in accordance with Company Policy; other benefits that
may from time to time be made available to employees generally
12
<PAGE>
EXHIBIT 10.71
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT is made as of October 1, 1995 between United Stationers
Supply Co., an Illinois corporation, 2200 East Golf Road, Des Plaines, Illinois
60016 ("United"), and Jeffrey K. Hewson, 925 Walden Lane, Lake Forest, Illinois
60045 ("Hewson").
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. Consulting Services. Hewson agrees to provide consulting services to
United as follows: advice and counsel to the Chairman of the Board of United, or
his designee(s) as from time to time designated in writing by the Chairman of
the Board of United, as mutually agreed on at least a quarterly basis concerning
critical business matters, including developing new markets, identification of
possible acquisition candidates and joint venture partners, geographic
expansion, Canadian operations, cost efficiency opportunities, and business
integration. Hewson shall perform the consulting services in the Chicago
metropolitan area, area, except as may from time to time otherwise be agreed. In
any event, United shall give Hewson ten days notice of requested travel.
2. Term. This Agreement shall be for a term of 15 months, commencing
October 1, 1995 and ending December 31, 1996.
3. Time Requirements. Hewson agrees to provide up to 65 hours of
consulting services per quarter. Hours of consulting service shall include any
necessary travel time. To the extent the hours of service actually provided
during any quarter are more or less than 65 hours, they shall be cumulated and
applied toward subsequent quarters during the term of this Agreement.
4. Payment. United will pay Hewson the total sum of $130,000 for the
work to be performed under this agreement, payable in equal quarterly
installments of $26,000 per quarter commencing October 1, 1995, and thereafter
on the first day of each calendar quarter. In addition, to the extent that the
hours of service actually provided by Hewson exceed 325 hours (65 hours X 5
quarters), United agrees to pay Hewson $400 per hour for each hour in excess of
said 325 hours. In the event of Hewson's disability or death during the term of
this agreement said quarterly installments shall continue, and, in the event of
his death, shall be paid to Hewson's estate. Hewson shall not be required to
render consulting services hereunder in the event of his illness, incapacity,
disability or death. If at any time United fails to make any payment when due
hereunder, Hewson shall be entitled to immediate injunctive relief ordering such
payment to be made immediately, to which relief United hereby agrees.
<PAGE>
Any claim or purported claim upon which United may base any such failure to pay
may be brought by United in a court of competent jurisdiction (which may, but
need not be, the same court in which Hewson seeks injunctive relief), and if
such claim is the subject of a final adjudication in United's favor, Hewson
shall forthwith pay back the adjudicated sum to United.
5. Expense Reimbursement. United will reimburse Hewson for all
necessary funds advanced and for reasonable out-of-pocket expenses incurred at
United's request, including travel expenses incurred solely for United's
benefit. Expenses hereunder shall be reimbursable on the same basis, including
travel and lodging, as expenses of the most senior officer of United.
6. Relationship of Parties. The parties intend that an independent
contractor relationship will be created by this agreement. United is interested
in the results that will be achieved, and the conduct and control of the work
will lie solely with Hewson. Hewson is not to be considered an agent or
employee of United for any purpose. It is agreed that United does not agree to
use Hewson exclusively. It is further agreed that, subject to the non-
competition provisions of Hewson's prior employment and consulting agreement
with United, Hewson is free to contract for similar services to be performed for
others while under contract with United.
7. Liability. The work to be performed by Hewson under this Agreement
will be performed entirely at Hewson's risk. Hewson agrees to indemnify United
for any liability or loss to third parties arising out of Hewson's negligence in
his performance of this Agreement.
UNITED STATIONERS SUPPLY CO.
By: ________________________
Its
____________________________
Jeffrey K. Hewson
2
<PAGE>
EXHIBIT 10.72
November 29, 1995
Mr. Joel D. Spungin
3041 Burgundy Drive North
Palm Beach Gardens, FL 33410
RE: Grant of Restricted Stock
Dear Joel:
This will confirm that the Board of Directors has granted you an award of
restricted stock of United Stationers Inc. subject to the terms and conditions
provided in this Letter Agreement:
1. Grant of Restricted Common Stock. In consideration of the services you
shall render to the Company as a director for a three-year term, United
Stationers Inc. ("Company") hereby grants and issues to you 9,678 shares of its
common stock, par value $0.10 per share ("Shares"), on the terms and conditions
contained in this Letter Agreement.
2. Restrictions and Forfeiture. None of the Shares granted to you as provided
in this Letter Agreement may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, until the second anniversary of the date of
the grant of the Shares. If you resign your position as a director prior to
March 30, 1997, you will forfeit your entire interest in the Shares.
3. Representations. By executing a copy of this Letter Agreement, you
represent that:
(a) you are acquiring the Shares for investment and not with any
present intention to sell the Shares, and none of the Shares shall be
disposed of unless a registration statement under the Securities Act of
1933 and regulations of the Securities and Exchange Commission is in effect
as to the Shares, or unless an exemption from registration is available for
such disposition;
(b) you assume all risks incident to any change in the applicable
laws or regulations or in market value of the Shares occurring after their
issuance; and
(c) you understand that the Shares, when vested, are subject to all
applicable income tax laws.
4. Legend. All certificates evidencing Shares will bear the following legend:
"THESE SECURITIES ARE NOT COVERED BY A REGISTRATION STATE-MENT UNDER THE
SECURITIES ACT OF 1933. IF YOU ARE AN AFFILIATE, YOU MAY REOFFER OR RESELL
THESE SECURITIES ONLY IF REGISTERED UNDER A SEPARATE REGISTRATION STATEMENT
UTILIZING THE PROPER FORM OR IF AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND CONDITIONS SET FORTH
IN A LETTER AGREEMENT DATED NOVEMBER 29, 1995, A COPY OF WHICH IS ON FILE
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS."
<PAGE>
November 29, 1995
Joel D. Spungin
Page 2
5. General. This agreement: (a) is the sole agreement with respect to
its subject matter; (b) can be amended only in writing; (c) is severable; (d)
will bind and inure to the benefit of the parties, their successors and
permitted assigns; provided that you may not assign your rights under this
Letter Agreement; (e) will be enforced and interpreted according to the internal
laws of the State of Illinois, without regard to its laws or rules concerning
conflicts of law; and (f) may be executed in counterparts. Section headings are
for convenience only.
If this letter accurately reflects the agreement between you and the
Company, please sign the enclosed copy of this letter in the space provided
below and return it to the Company.
Sincerely,
UNITED STATIONERS INC.
By: ___________________________
Thomas W. Sturgess
Chairman of the Board, and
Chief Executive Officer
Agreed to and Accepted
as of the date first above written.
__________________________________
Joel D. Spungin
<PAGE>
EXHIBIT 10.96
EXECUTION COPY
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made and entered into this ___
day of January, 1996, by and between ROBINSON PROPERTIES, L.P., a Pennsylvania
limited partnership with offices at 6507 Wilkins Avenue, Pittsburgh,
Pennsylvania 15217 (hereinafter called "Landlord"), and UNITED STATIONERS SUPPLY
CO., an Illinois corporation with offices at 2200 East Golf Road, Des Plaines,
Illinois 60016, (hereinafter called "Tenant"), with the intent to be legally
bound.
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
takes and hires from Landlord, the real property located at 760 Commonwealth
Drive, Thorn Hill RIDC Park, Cranberry Township, Butler County, Pennsylvania,
more particularly described on Exhibit A attached hereto and incorporated by
reference herein (the "Land") and the 84,176 square foot office and warehouse
building erected thereon (the "Building") for the Term and upon the conditions
and agreements set forth in this Lease. The Land and the Building are
collectively referred to herein as the "Premises." For all purposes hereof the
Building shall be conclusively deemed to consist of 84,176 square feet of
rentable area.
2. TERM. The term of this Lease (the "Term") shall commence on
February 1, 1996 (the "Commencement Date") and shall expire on the last day of
the sixtieth (60th) full calendar month thereafter unless sooner terminated or
extended as provided herein.
3. POSSESSION. If Landlord fails to tender possession of the
Premises on or before the Commencement Date through no omission, delay or
default by Tenant, then all rent shall abate until Landlord tenders possession,
and except as otherwise provided in this Section 3, Tenant hereby accepts such
abatement in full settlement of any and all claims Tenant may have against
Landlord arising from Landlord's failure to tender possession on the
Commencement Date. The Term of this Lease shall be extended as a result of such
failure by Landlord to tender possession on the Commencement Date for a period
equal to such delay. In addition to the foregoing, for each day elapsing from
and including the Commencement Date through February 29, 1996 on which the
Landlord fails to deliver possession of the Premises, Tenant's obligation to pay
rent pursuant to Section 4 shall be abated for one day after Landlord delivers
possession of the Premises, up to a total of twenty-nine (29) days. No formal
tender of possession by Landlord, in writing or otherwise, shall be required.
The foregoing notwithstanding, should Landlord fail to deliver possession of the
Premises on or prior to February 29, 1996 through no omission, delay or default
by Tenant, Tenant may thereafter terminate this Lease prior to delivery of
possession of the Premises by Landlord upon written notice to Landlord, in which
event neither Landlord nor Tenant shall have any further rights or remedies
hereunder.
<PAGE>
4. RENT. As minimum rent for the Premises (the "Rent") Tenant shall
pay to Landlord, in advance and without demand, counterclaim or offset, at its
offices or at such other place as Landlord may from time to time designate in
writing, beginning on the first day of the Term and continuing on the first day
of every month thereafter until the expiration of the Term: for the period
commencing February 1, 1996 through and including January 31, 2001, the sum of
One Million, Six Hundred Sixty-Two Thousand, Four Hundred Seventy-Six and 00/100
Dollars ($1,662,476) (being $3.95 per annum per square foot of rentable area in
the Building) (sometimes referred to hereinafter as the "Base Rent") which shall
be due and payable in equal monthly installments of Twenty-Seven Thousand, Seven
Hundred Seven and 93/100 Dollars ($27,707.93).
In the event that Tenant's obligation to pay Rent commences on a day
other than the first day of a calendar month, Tenant shall pay to the Landlord a
pro rata portion of the monthly installment of Rent, such pro rata portion to be
calculated on the number of days remaining in such partial month after the day
upon which Tenant's obligation to pay Base Rent commences. Nothing herein
contained shall be deemed to suspend or delay the payment of any sum at the time
the same became due and payable hereunder, or limit any other remedy of
Landlord.
5. ADDITIONAL RENT; LATE PAYMENT INTEREST. In addition to payment of
the Rent as set forth in Section 4 herein, Tenant hereby covenants and agrees to
pay when due any and all other sums of money, charges or other amounts required
to be paid by Tenant to Landlord or to another person under this Lease
(collectively referred to herein as the "Additional Rent"). Nonpayment of
Additional Rent when due hereunder shall constitute a default under this Lease
to the same extent, and shall entitle the Landlord to the same remedies, as
nonpayment of the Rent. Except as otherwise herein provided, all Additional Rent
payable hereunder shall be due within thirty (30) days of the date of Tenant's
receipt of Landlord's invoice therefor.
All payments of Rent and Additional Rent required hereunder shall be
paid when due, in lawful currency of the United States of America, at the office
of Landlord or at such other place as Landlord may from time to time direct. If
payment be by check, such checks shall be made payable to Landlord. All
payments of Rent and Additional Rent not received within five (5) days of the
due date thereof shall thereafter bear interest from the due date until paid at
the rate of 18% per annum, and said interest charge shall be collected as
Additional Rent hereunder.
6. SECURITY DEPOSIT. Intentionally omitted.
7. HOLDING OVER. Upon failure of Tenant to surrender possession of
the Premises upon the expiration of the Term of this Lease, as renewed and
extended hereunder, or the sooner termination thereof, Tenant shall pay to
Landlord, as an
<PAGE>
occupancy charge, an amount equal to 150% of the rate of Rent and other sums
required to be paid under this Lease with respect to the year immediately
preceding the expiration or sooner termination of the Term of this Lease, as
applied to any period in which Tenant shall remain in possession after such
expiration or sooner termination of this Lease; provided, however, that in such
event Tenant shall not be released from any further costs, damages or
liabilities whether direct, indirect or consequential, suffered by Landlord and
occasioned by Tenant's holding over to the extent that such holding over extends
beyond thirty (30) days from the expiration of the Term of this Lease, as
renewed and extended hereunder, or the sooner termination thereof. In the event
of such holding over, Tenant shall be considered a tenant-at-will.
8. REAL ESTATE TAXES. As and for Additional Rent, Tenant shall pay
to Landlord, without setoff or deduction, any and all real estate taxes (as
defined below) relating to the Premises during the Term of this Lease. The term
"real estate taxes" shall mean all taxes and assessments (whether general or
special) levied, assessed or imposed at any time by any governmental body or
authority upon or against the Premises, this Lease, and the improvements to any
portion of the Premises, and includes any tax, assessment or licensing fees
levied, assessed or imposed at any time by any governmental body or authority
relating to Tenant's operations or property in the Premises or in connection
with the receipt of income or rents from the Premises to the extent that same
shall be in lieu of (and/or in lieu of an increase in) all or a portion of any
of the aforesaid taxes or assessments upon or against the Premises. The term
"real estate taxes" shall also include, to the extent that the same are charged
to Landlord rather than directly to Tenant, any of the following taxes relating
to Tenant's use, occupancy of, or operations conducted at the Premises: gross
receipts tax, ad valorem tax, capital stock or franchise tax, business privilege
tax, sales tax, parking tax, value added tax, or personal property tax, and any
similar taxes not presently in effect which may hereafter be assessed and levied
by any governmental body or other authority. "Real Estate taxes" shall not
include any of Landlord's franchise, business privilege, payroll, or federal or
state income tax or any estate or inheritance taxes unless the same shall be in
lieu of (and/or in lieu of an increase in) all or a portion of any of the
aforesaid real estate taxes or assessments upon or against the Premises. All
such real estate taxes due or payable shall be paid to Landlord within 30 days
of the date Tenant receives Landlord's invoice thereof. Tenant shall only be
responsible for real estate taxes imposed for tax years (or the pro rata portion
thereof for partial tax years) during the Term of this Lease and any extensions,
renewals, and hold-over periods hereof. A "tax year" shall be deemed to be a
calendar year, notwithstanding the assessment or collection thereof on a
different basis by any taxing authority.
Tenant may, at its sole cost and expense, contest any assessment or
levy of real estate taxes, provided that Tenant either pays such real estate
taxes under protest or deposits with Landlord, prior to the date on which the
taxes are due and payable, an amount which is necessary to pay the total amount
of such real estate taxes,
<PAGE>
together with all penalties and interest, in the event that such contest is
unsuccessful. To the extent necessary therefor, Landlord will consent to execute
such documents and participate in such proceedings as may be reasonably
necessary.
9. USE OF PREMISES; RULES AND REGULATIONS. Tenant covenants that it
shall use and occupy the Premises solely as offices and warehousing facilities
in connection with Tenant's business and activities related thereto. Tenant
shall not use or occupy the Premises for any other purpose or business without
the prior written consent of Landlord which consent shall not unreasonably be
withheld or delayed if such proposed other purpose or business is consistent
with the character and nature of businesses operating in Thorn Hill RIDC Park.
Tenant shall observe and comply with all laws, rules, regulations and ordinances
applicable to the Premises and Tenant's use and occupancy thereof including all
rules and regulations of the Thorn Hill RIDC Park ("RIDC Park"). All such laws,
rules and regulations shall apply to Tenant and its employees, agents,
licensees, servants, invitees, contractors, permitted subtenants and assigns.
Any breach of said laws, rules and regulations shall, at Landlord's option,
constitute a default under this Lease to the same extent, and shall entitle
Landlord to the same remedies, as any other material default hereunder.
10. HAZARDOUS SUBSTANCES. Except as provided in Paragraph 10(c),
below, Tenant covenants that it shall not, at any time during the Term of this
Lease, place, store, install upon, discharge, release or generate on, in or
under the Premises, or allow to escape from the Premises, any pollutants or
other toxic or Hazardous Substances (as defined below), or containers or storage
or processing facilities thereof including, but not limited to, any asbestos or
asbestos containing materials, polychlorinated biphenyls ("PCBS") in the form of
electrical equipment, fluorescent light fixtures with ballasts, cooling oils or
any other form, or any solid, liquid, gaseous or thermal irritant or
contaminant, such as smoke, vapor, soot, fumes, alkalis, acids, chemicals,
pesticides, herbicides, sewage, industrial sludge or other similar wastes, or
industrial, nuclear or medical by-products, or install underground storage tanks
(whether filled or unfilled). Tenant shall protect, defend, indemnify and hold
harmless Landlord from any and all costs (including costs of remediation),
expenses (including attorneys' fees), liabilities, losses, damages, suits,
actions, fines, penalties, claims or demands of any kind arising out of or in
any way connected with, and Landlord shall not be liable to Tenant or any other
party on account of, the Tenant or Tenant's servants, agent's, employees,
licensees, invitees, and contractors placing, storing, installing, discharging,
releasing or generating on, in, under or about the Premises, or allowing to
escape from the Premises, any Hazardous Substances during the Term of this Lease
or any renewal or extension hereof.
(a) As used in this Lease, the following terms shall have the
following meanings:
<PAGE>
"Environmental Rule" shall mean any Governmental Rule which relates to
Hazardous Substances, pollution or protection of the environment, including
without limitation any Governmental Rule relating to the generation, use
treatment, storage, release, transport or disposal of Hazardous Substances and
any common laws of nuisance, negligence and strict liability relating thereto,
and shall specifically include the Clean Water Act, also known as the Federal
Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq., as amended by the Water
Quality Act of 1987, Pub. L. No. 100-4 (Feb. 4, 1987), the Toxic Substances
Control Act, 15 U.S.C. (S) 2601 et seq., the Clean Air Act, 42 U.S.C. (S) 7401
et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)
136 et seq., the Safe Drinking Water Act, 42 U.S.C. (S) 300f et seq., the
Surface Mining Control and Reclamation Act, 30 U.S.C. (S) 1021 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. (S) 9601 et seq., the Superfund Amendment and Reauthorization Act of
1986 ("SARA"), Public Law 99-499, 100 Stat. 1613, the Emergency Planning and
Community Right to Know Act, 42 U.S.C. (S) 11001 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq., and the
Occupational Safety and Health Act ("OSHA"), 29 U.S.C. (S) 655 and (S) 657, as
any of the same have been or may be amended, together with all rules,
regulations and orders issued thereunder.
"Governmental Person" shall mean any governmental, quasi-governmental,
judicial, public or statutory instrumentality, authority, agency, bureau, body
or entity of the United States of America or of any state, county, municipality
or other political subdivision located therein.
"Governmental Rule" shall mean any law (including common law),
statute, rule, regulation, ordinance, code, order, writ, judgment, injunction,
decree, guideline, directive or decision of any Governmental Person, whether or
not having the force of law and whether now or hereafter existing, as any of the
same may be amended.
"Hazardous Substance" means any substance which constitutes, in whole
or in part, a pollutant, contaminant or toxic or hazardous substance or waste
under, or the generation, use, treatment, storage, release, transport or
disposal of which is regulated by, any Governmental Rule, and shall specifically
include any substance which (i) constitutes a "hazardous substance" under CERCLA
or a "hazardous waste" under RCRA, (ii) exhibits any of the hazardous
characteristics enumerated in 40 C.F.R. Sections 261.20-261.24, inclusive, (iii)
constitutes any of those extremely hazardous substances listed under (S) 302 of
SARA which are present in threshold planning or reportable quantities as defined
under SARA, (iv) constitutes toxic or hazardous chemical substances which are
present in quantities which exceed exposure standards, as those terms are
defined under (S)(S) 6 and 8 of OSHA and 29 C.F.R. Part 1910, subpart 2, (v)
constitutes asbestos, urea formaldehyde, chlorinated
<PAGE>
biphenyls (polychlorinated or monochlorinated) or petroleum products or (vi)
constitutes a hazardous material which, when transported, is subject to
regulation by the United States Department of Transportation at 49 C.F.R. Parts
171-199.
(b) Tenant shall comply with all Governmental Rules applicable to the
Premises and to Tenant's use and occupancy thereof, including without limitation
all Environmental Rules. Tenant shall obtain, maintain and comply with all
licenses and permits issued by any Governmental Person which are necessary in
connection with the ownership, occupancy or use of the Premises.
(c) Tenant shall not, and shall not permit any other Person to,
generate, use, treat, store, release or dispose of any Hazardous Substance on
the Premises; provided, that the foregoing shall not prohibit Tenant from using
or storing on the Premises reasonable quantities of petroleum products, cleaning
materials and other substances which fall within the definition of "Hazardous
Substance" and which are necessary for the conduct of its business or the
maintenance of the Premises so long as such use and storage is in compliance
with applicable Environmental Rules.
(d) Tenant shall notify Landlord immediately after becoming aware of
(i) any presence on or under the Premises, or on any property adjacent thereto,
of any Hazardous Substance in violation of any Environmental Rule or in excess
of any reportable quantity established under any Environmental Rule or (ii) any
violation of any Environmental Rule by Tenant or any other Person which affects
the Premises or could potentially impose any liability on Landlord. Tenant
shall forward to Landlord immediately upon its receipt thereof copies of all
orders, reports, notices and other communications relating to any of the
foregoing matters.
(e) Upon prior written notice from Landlord, Tenant shall permit such
Persons as Landlord may designate to visit the Premises and perform
environmental site investigations and assessments on the Premises for the
purpose of determining whether there is any unlawful presence of Hazardous
Substances on the Premises or any other condition which constitutes a violation
of any Environmental Rule. Tenant shall supply to such Persons all such
information regarding the Premises and Tenant's operations thereon as such
Persons may reasonably request. If any such assessment shall disclose a
material violation of any Environmental Rule by Tenant, the Tenant shall be
liable for the cost of such assessment, which amount shall be due as Additional
Rent hereunder; otherwise, Landlord shall pay the cost of such assessment.
(f) Tenant, at its sole expense, shall remediate any unlawful
presence of Hazardous Substances on or under the Premises in a timely manner and
in accordance with applicable Environmental Rules and directives of any
Governmental Person having authority over such remediation; provided, that
Tenant shall not be required to remediate any such unlawful presence of
Hazardous Substances (i) to the
<PAGE>
extent that the same are present on or under the Premises on the date hereof or
(ii) to the extent that the same are not attributable to the acts, omissions, or
negligence of the Tenant or its employees, agents, invitees, customers,
contractors, successors and assigns.
(g) Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all claims, losses, damages, liabilities, costs and expenses
(including without limitation reasonable attorneys' fees and court costs) which
arise out of any breach by Tenant of any of the foregoing covenants, which
obligation shall survive the expiration or earlier termination of this Lease.
(h) Landlord shall indemnify, defend and hold Tenant harmless from
and against any and all claims, losses, damages, liabilities, costs and expenses
(including without limitation reasonable attorney's fees and court costs) which
arise out of any environmental matter not an obligation of Tenant pursuant to
subparagraphs (a) through (g), above; therefore, such indemnity shall not extend
to claims, losses, damages, liabilities, costs or expenses as are caused by or
resulting from the acts, omissions, or negligence of the Tenant or its
employees, agents, invitees, customers, contractors, successors and assigns.
11. TENANT'S ACCEPTANCE. Tenant, by its taking possession of the
Premises, shall be deemed to have acknowledged that it has inspected the
Premises and any improvements made thereto, considers it to be suited for the
use intended by Tenant and shall accept the Premises as is and any improvements
thereon in their then present condition. The foregoing notwithstanding, prior
to the Commencement Date, Tenant shall have the right to inspect the Building
and the Premises and all systems and other components thereof. Prior to the
Commencement Date, Tenant shall notify Landlord in writing (i) of any material
defects in any major component of the HVAC, plumbing or electrical system of the
Premises ("Systems Defects"), and (ii) of any material defects in other
components of the Building or the Premises ("Non-Systems Defects"). Within 90
days of the Commencement Date, Landlord shall (i) remedy such Systems Defects,
and (ii) remedy such Non-Systems Defects to the extent that the cost to remedy
such Non-Systems Defects exceeds Five Thousand Dollars ($5,000), with Tenant
assuming responsibility for the repair of all Non-Systems Defects up to Five
Thousand Dollars ($5,000). Following the Commencement Date and with the
exception of repairs, if any, made as provided in this Section 11, all
maintenance and repair of the Premises, including without limitation the repair
of defects, if any, existing as of the Commencement Date and of which Landlord
was not notified as provided above, shall be governed as hereinafter provided.
12. ALTERATIONS AND ADDITIONS. No alteration, addition or
improvement to or installation in the Premises shall be made or permitted to be
made by Tenant without the express prior written consent of Landlord. Landlord
may impose such
<PAGE>
conditions to its consent as it may elect, including conditions that Tenant (a)
obtain Landlord's approval of final plans and specifications; (b) obtain
Landlord's approval of all contractors and subcontractors and their respective
contracts; (c) obtain all permits, approvals, and certificates required by any
governmental or quasi-governmental bodies and, upon completion, provide said
certificates to Landlord; (d) carry, and cause all contractors and
subcontractors to carry, worker's compensation, general liability, personal and
property damage insurance; (e) agree at its sole cost to remove any such
alteration, addition, improvement or installation on or before the expiration or
sooner termination of the Term and to restore the Premises to its prior
condition; (f) require all contractors, subcontractors, suppliers and
materialmen to sign waiver and release of lien agreements in form, scope and
substance satisfactory to Landlord; and (g) provide security satisfactory to
Landlord in order to insure that the Premises shall be kept free from mechanics'
or materialmen's liens and Hazardous Wastes and that the cost of all alterations
or additions will be fully paid by Tenant.
Unless Landlord requires their removal as set forth hereinabove at the
time of its consent, all alterations, additions, improvements and installations
which may be made to the Premises shall become the property of Landlord upon
installation and shall remain upon and be surrendered with the Premises.
Notwithstanding the foregoing, Tenant's personal property and trade fixtures,
other than that which is affixed to the Premises so that it cannot be removed
without material damage to the Premises, shall remain the property of Tenant and
may be removed by Tenant at any time during the Term so long as Tenant is not in
default under this Lease. Tenant agrees to repair immediately, at is sole cost
and expense, any and all damage to the Premises caused by, or in connection
with, the removal of any articles of personal property, business or trade
fixtures, alterations, improvements and installations, to Landlord's
satisfaction.
13. MAINTENANCE OF THE PREMISES. Tenant covenants and agrees to use,
maintain and occupy the Premises in a careful, safe and proper manner and shall
not permit the Premises to be used in a manner which will injure the reputation
of either Landlord or Tenant or use the Premises in a manner which renders it a
nuisance or annoyance to the other tenants of the RIDC Park. Tenant shall, at
its own cost and expense, keep the Premises and all leasehold improvements
therein, including all parking areas and sidewalks, in a clean, safe and healthy
condition and shall clean the snow, ice, dirt and rubbish from the parking areas
and sidewalks on and contiguous to the Premises during the Term of this Lease.
In the event that any of the parking areas, sidewalks, or other parts of the
Premises shall be in an unsafe, unclean, or unsightly condition, Tenant shall
remedy such condition to Landlord's satisfaction within ten (10) days from the
date of receipt of Landlord's notice of such condition, or Landlord at its
option may correct such condition and the entire cost thereof plus 15% for
Landlord's administrative costs and overhead shall be collected from Tenant as
Additional Rent.
<PAGE>
14. UTILITIES, MAINTENANCE AND BUILDING SERVICES. Tenant shall be
responsible for and shall provide, at its own cost and expense, the following
utilities, maintenance, services and facilities in and about the Premises:
(a) Any and all oil, gas, electricity, water, telephone, sanitary
sewer, storm or drainage sewer and all other utilities utilized
in or about the Premises.
(b) Maintenance and service of all HVAC systems and conduits and the
operation of adequate air conditioning (between the first day of
May and the first day of October) and heat (between the first day
of October and first day of May) in such respective amounts as
Landlord shall deem to be necessary to protect and preserve the
Building.
(c) Maintenance and service of all restrooms, and all plumbing and
sewer lines in and about the Premises.
(d) Maintenance and service of all electrical wires, cable, fixtures,
outlets and boxes in and about the Premises.
(e) Maintenance of all hardware installed in the Building.
(f) Cleaning of both the outside (four times per calendar year) and
inside of exterior window panes of the Building.
(g) Janitorial service, including but not limited to the removal of
debris, cleaning of space, vacuuming of carpets, and dusting of
furniture, at least five days per week, except holidays.
(h) Other maintenance as may be required to preserve and protect the
Premises and its constituent parts, including those items
contained in Sections 13, 15, 16 and 17 hereof.
15. LANDSCAPING. Tenant shall, at its own cost and expense, maintain
all lawns, gardens, trees, and shrubbery on the Premises in a manner consistent
with the level of quality maintained throughout the RIDC Park.
16. REFUSE REMOVAL. Tenant shall, at its own cost and expense,
provide for all trash, garbage, and refuse removal from the Premises at all
times during the Term of this Lease. Tenant shall at all times comply with all
health and safety laws, rules, regulations and ordinances with respect to the
storage and removal of trash, garbage and refuse on and from the Premises.
<PAGE>
17. REPAIRS. At all times during the Term of this Lease, Tenant
shall make, at its sole cost and expense, any and all necessary repairs and
capital improvements to the Building, both structural and non-structural in
order to preserve, protect, and maintain the Premises to their condition as of
the date hereof, reasonable wear and tear excepted, or to such superior
condition as Tenant may desire, including but not limited to the walls
(interior), doors (both interior and exterior), plumbing (including without
limitation, all filters, drains, water, gas and sewer lines), heating, air
conditioning, and electrical systems and equipment (including, without
limitation, interior and exterior lighting and security systems), windows,
floors, (including floor coverings such as, without limitation, tiles or
carpeting) and all other items which constitute a part of the Building and the
Premises. Tenant's obligation for repairs extends to repairs made after the
Tenant has vacated the Premises which were necessary because of Tenant's use or
occupancy of the Premises. If the Tenant refuses or neglects to commence such
repairs or fails to diligently prosecute the same to completion within fifteen
(15) days from the date on which Tenant receives written notice from Landlord of
the need therefor, Landlord may make such repairs at the expense of Tenant and
such expense plus fifteen percent for Landlord's cost of administration and
overhead shall be collectible as Additional Rent hereunder. Tenant's repair
obligations shall not extend to the exterior walls or roof except for any
maintenance or repair thereto required due to the willful misconduct, gross
negligence or negligence of Tenant, its employees, agents, invitees, assignees
or subtenants. The foregoing notwithstanding, recognizing that the Term of this
Lease is five (5) years, the following limitations shall apply to Tenant's
obligation to replace (as opposed to repair, to which no limitation shall apply)
all or any major component (as opposed to replacement of minor components in the
course of normal maintenance and repair) of the plumbing (including without
limitation, all filters, drains, water, gas and sewer lines), heating, air
conditioning, and electrical systems and equipment (the "Building Systems"):
(A) Tenant's obligations shall be limited to Twenty-Five Thousand Dollars
($25,000) in the aggregate per one year period during each one year period of
the Term (as the same may be extended or renewed hereunder), provided that the
unused portion of such annual limit shall carry forward cumulatively to each
succeeding year of the Term to increase the limit for such succeeding year; (B)
If, because the relevant dollar limit for Tenant's obligations under this
Section 17 is exceeded in a given year, it becomes necessary for Landlord to
contribute to the cost of replacing all or any major component of the Building
Systems, Landlord shall pay Landlord's share of such cost, and such cost paid by
Landlord shall be amortized by Landlord over a ten (10) year amortization
period, with the monthly portion of such amortized cost charged to and paid by
Tenant as Additional Rent hereunder. In the event that the amortization period
exceeds the Term of this Lease (as the same may be extended, renewed, or earlier
terminated hereunder), Tenant shall not be responsible for the balance of such
amortized costs not yet charged as Additional Rent.
<PAGE>
18. EMERGENCY REPAIRS. Landlord reserves the right to interrupt
heating, air conditioning, plumbing, electrical, gas, or water service, and/or
other services in the Building when in Landlord's reasonable judgment, such
interruption is deemed necessary by reason of accident, or emergency or for
repairs, alterations, replacements or improvements which Landlord is required to
make hereunder. The foregoing notwithstanding, Landlord shall use its best
reasonable efforts to avoid disrupting Tenant's use of the Premises for its
intended purpose.
19. ASSIGNMENT AND SUBLETTING. Tenant, for itself, its successors,
legal representatives and assigns, expressly covenants that Tenant shall not,
either voluntarily or by operation of law, assign, transfer, mortgage or
otherwise encumber this Lease or sublet the Premises or any part thereof or
grant any license, concession or other right of occupancy, or permit any part
thereof to be used or occupied by anyone other than Tenant without the prior
written consent of Landlord, which consent shall not unreasonably be withheld or
delayed. The foregoing notwithstanding, Landlord's consent shall not be
considered unreasonably withheld if (i) the proposed subtenant's or assignee's
financial resources are unacceptable to Landlord or any mortgagee of Landlord or
(ii) based on the unacceptability to the Landlord (or any mortgagee of Landlord)
of the proposed subtenant's or assignee's proposed use or business. If Tenant
is a corporation, then any transfer of this Lease from Tenant by merger,
consolidation or dissolution or any change in ownership or power to vote a
majority of the voting stock in Tenant outstanding on the execution date of this
Lease shall constitute an assignment for the purposes of this Section 19. As
used in the previous sentence, the term "voting stock" shall refer to shares of
capital stock regularly entitled to vote for the election of directors of the
corporation involved. In the event of any assignment or sublease (to which
Landlord consents in advance), Tenant shall not be released from its obligations
under this Lease, notwithstanding any amendment, modification, supplement or
extension thereafter made by Landlord with respect to this Lease. No consent
given by Landlord to any assignment or subletting shall be construed to be a
consent to any further assignment of this Lease or subletting of the Premises by
Tenant or any other party, and Landlord's right to withhold its consent with
respect thereto is hereby expressly reserved.
In the event Tenant or any of its permitted assignees or subtenants
should desire to assign this Lease or sublet the Premises or any part thereof,
Tenant shall provide written notice thereof to Landlord at least thirty (30)
days in advance of the date on which Tenant desires to make such assignment or
sublease, which notice shall specify: (a) the name, address and business of the
proposed assignee or sublessee, (b) the amount and location of the space in the
Premises affected, (c) the proposed effective date and duration of the
subletting or assignment, (d) a certified financial statement indicating the
financial worthiness of the proposed assignee or subtenant, (e) a copy of the
proposed sublease or instrument of assignment which shall include the proposed
rent to be paid by said sublessee or assignee, and (f) any other information
about the
<PAGE>
proposed assignee or sublessee as Landlord may reasonably request. Landlord
shall have a period of fifteen (15) days following receipt of such notice within
which to notify Tenant in writing that Landlord elects either (i) to terminate
this Lease as to the space so affected as of the date so specified by Tenant, in
which event Tenant shall on that date be relieved of all further obligations to
pay Rent as to such space (such reduction in Rent to be prorated based on the
rentable area of the remaining portion of the Premises); or (ii) to permit
Tenant to assign this Lease or sublet such space; or (iii) to withhold
Landlord's consent in reasonable discretion (subject to the qualifications in
the foregoing paragraph) and to continue this Lease in full force and effect as
to the entire Premises. If Landlord should fail to notify Tenant in writing of
such election within said fifteen (15) day period, Landlord shall be deemed to
have elected option (iii) above. The provisions of this Section shall be binding
on all successive assignees and subtenants.
Tenant may, without Landlord's consent, assign this Lease or sublet
the Premises or any part thereof to any subsidiary or affiliate of Tenant,
provided that prior to the effectiveness of such assignment or subletting,
Tenant demonstrates to the satisfaction of Landlord that such subsidiary or
affiliate has a net worth of not less than Forty Million Dollars ($40,000,000)
and provided further that Tenant remains substantially in control of the
operations of such subsidiary or affiliate for the duration of the Term of the
Lease. For purposes of this Section 19, the terms "subsidiary" and "affiliate"
shall be defined as any corporation or entity which controls Tenant, is
controlled by Tenant, or is under the common control with Tenant by the same
parent corporation or other entity. If such assignment or sublease is made,
Tenant shall remain liable as a surety under the terms hereof notwithstanding
such assignment or sublease unless otherwise agreed to by the parties.
20. INSPECTION. Landlord and its employees, servants and agents
shall have the right to enter the Premises at all reasonable times upon
reasonable notice (which notice may be oral) during business hours for the
purpose of showing the same to prospective purchasers, mortgagees, or, within 12
months of the expiration of the Term of this Lease, to prospective tenants of
the Premises, or for making such alterations, repairs, improvements or additions
to the Premises or portions of the Premises which Landlord is required to make
hereunder, or examining or inspecting the Premises in order to ascertain whether
Tenant is complying with all of its obligations hereunder. Landlord shall be
allowed to take all material into and upon the Premises that may be required
therefor without the same constituting an eviction of Tenant in whole or in
part, and the Rent shall in no way abate while said alterations, repairs,
improvements or additions are being made, whether by reason of loss or
interruption of Tenant's business or otherwise. If representatives of Tenant
shall not be present to open and permit entry into the Premises at any time when
such entry by Landlord is necessary or permitted hereunder, Landlord may enter
by means of a master key (or forcibly in the event of an emergency) without
liability to Tenant and without such entry constituting either an eviction of
Tenant or termination of this Lease.
<PAGE>
21. SURRENDER OF PREMISES. (a) At the end of the Term, or any
renewal or extension thereof, Tenant shall surrender the Premises to Landlord,
together with all alterations, additions, renovations and improvements thereto,
in broom-clean condition and in good order and repair except for ordinary wear
and tear and damages which Tenant is not obligated to repair hereunder and which
Tenant or its servants, agents, employees, licensees or invitees has not caused,
failing which Landlord may restore the Premises to such condition and Tenant
shall pay the cost of said repair and restoration. If not then in default as to
the payment of any Rent or Additional Rent due and owing hereunder, Tenant shall
have the right at the end of the Term to remove any personal property and trade
fixtures to the extent permitted in Section 12 hereof. Tenant's goods, effects,
personal property, business and trade fixtures, machinery and equipment not
removed by Tenant at the expiration or other termination of this Lease (or
within forty-eight (48) hours after a termination by reason of Tenant's default)
shall be considered abandoned and Landlord may dispose of the same as it deems
expedient, but Tenant shall promptly reimburse Landlord for any expenses
incurred by Landlord in connection therewith including without limitation the
cost of removal thereof and repairing any damage occasioned by such removal.
Tenant shall surrender the Premises to Landlord at the end of the term hereof,
without notice of any kind, and Tenant waives all right to any such notice as
may be provided under any laws now or hereafter in effect. Tenant's obligation
to observe or perform this covenant shall survive the expiration or other
termination of the Term of this Lease.
(b) TENANT EXPRESSLY WAIVES TO LANDLORD THE BENEFIT TO TENANT OF 68
P.S. SECTION 250.501, BEING SECTION 501 OF THAT ACT, APPROVED APRIL 6, 1951,
ENTITLED "LANDLORD AND TENANT ACT OF 1951", AS MAY BE AMENDED FROM TIME TO TIME,
REQUIRING NOTICE TO QUIT UPON THE EXPIRATION OF THE TERM OF THIS LEASE OR AT THE
EXPIRATION OF ANY EXTENSION OR RENEWAL THEREOF, OR UPON ANY EARLIER TERMINATION
OF THIS LEASE, AS HEREIN PROVIDED. TENANT COVENANTS AND AGREES TO VACATE,
REMOVE FROM AND DELIVER UP AND SURRENDER THE POSSESSION OF THE PREMISES TO
LANDLORD UPON THE EXPIRATION OF THE TERM OR UPON THE EXPIRATION OF ANY EXTENSION
OR RENEWAL THEREOF, OR UPON ANY EARLIER TERMINATION OF THIS LEASE, AS HEREIN
PROVIDED, WITHOUT SUCH NOTICE, IN THE CONDITION AS REQUIRED ABOVE.
22. WAIVER OF CLAIMS. Landlord and Landlord's agents, servants and
employees shall not be liable for, and Tenant hereby releases Landlord, its
agents, servants and employees from, all liability in connection with any and
all loss of life, personal injury, damage to or loss of property, or loss or
interruption of business occurring to Tenant, its agents, servants, employees,
invitees, licensees, visitors or any other person, firm, corporation or entity,
in or about or arising out of, in or upon the Premises, including, without
limitation, (a) any fire, other casualty, accident, occurrence
<PAGE>
or condition; (b) any defect in or failure of (i) plumbing, sprinkling,
electrical, heating or air conditioning systems or equipment, or any other
systems and equipment, and (ii) the stairways, railings or walkways; (c) any
steam, gas, oil, water, rain, frost, ice, snow or flooding that may leak into,
issue or flow from any part of the Premises or from the drains, pipes or
plumbing, sewer or other installation of same, or from any other cause, place or
quarter; (d) the breaking or disrepair of any services, installations and
equipment; (e) the falling of any fixtures or any wall or ceiling materials; (f)
broken or dislodged glass; (g) patent or latent defects; (h) the carrying out of
any construction work or repairs; (i) the exercise of any right by Landlord
under the terms of this Lease; (j) any acts or omissions of other persons; (k)
any acts or omissions of Landlord, its agents, servants, and employees excepting
an act of negligence by any such person; (l) acts or omissions of third party
contractors, and (m) theft, act of God, act of a public enemy, injunction, riot,
strike, labor dispute, public demonstration, insurrection, war, court order, or
any order of any governmental authority having jurisdiction over the Premises.
23. SPRINKLERS. If any sprinkler system or other fire prevention,
detection, or suppression system installed in the Building or any of its
appliances shall be damaged or destroyed by a cause other than fire or other
casualty described in Section 25 and by reason of any act or omission of Tenant
or of Tenant's agents, servants, employees, contractors, licensees or invitees;
or if the Board of Fire Underwriters of any bureau, department or official of
the state or city government having jurisdiction shall require or recommend that
any changes, modifications, alterations, or additional sprinkler heads or other
fire prevention, detection, suppression system or other equipment be installed,
made or supplied by reason of Tenant's business, or by any changes in the
location of partitions, trade fixtures, or other contents of the Premises or if
any such changes, modifications, alterations, additional sprinkler heads or
other such equipment become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the initial
insurance rate as fixed by the appropriate board or authority, or by a fire
insurance company, then, in any such event Tenant shall be liable for the cost
of installing, repairing or replacing as the case may be, any such applications
or equipment, and the cost of any such installation, changes, modifications,
alterations, additional sprinkler heads or such other equipment.
24. INDEMNIFICATION AND LIABILITY. Tenant shall protect, defend,
indemnify, and hold harmless Landlord from and against any and all costs,
expenses (including attorneys' fees), liabilities, losses, damages, suits,
actions, fines, penalties, claims or demands of any kind arising out of or in
any way connected with, and Landlord shall not be liable to Tenant on account of
(i) any failure by Tenant to perform any of the agreements, terms, covenants or
conditions of this Lease required to be performed by Tenant, (ii) any failure by
Tenant to comply with any statutes, ordinances, laws, rules, regulations or
orders of any governmental authority, (iii) any act or omission of Tenant or any
of its servants, employees, agents, contractors, invitees or licensees, (iv) any
<PAGE>
accidents, death or personal injury occurring in, on or about the Premises, or
(iv) Tenant's use or occupancy of the Premises.
25. FIRE OR OTHER CASUALTY.
(a) In the event that the Premises shall be damaged in whole or in
part as a result of the fault or neglect of Tenant or any of its servants,
employees, agents, contractors, invitees or licensees, then Tenant at its own
expense shall promptly repair and restore the same, and the Rent shall not be
abated or apportioned. Any election by Landlord to repair or restore the
Premises or any portion thereof after any damage caused in whole or in part by
the fault or neglect of Tenant or any of its servants, employees, agents,
contractors, invitees or licensees shall not relieve Tenant of any
responsibility under this Lease.
(b) In the event that the Premises shall be damaged by fire or other
casualty without the fault or neglect of Tenant or its servants, employees,
agents, contractors, invitees or licensees, and Tenant shall not have the
obligation to repair or restore the same as provided in subsection (a) above,
then, if the same can be restored within one-hundred eighty (180) days after
such casualty, Landlord shall commence the restoration of the same promptly upon
settlement of such loss with all insurance carriers and shall diligently
complete the same, subject to delays as provided in Section 36 of this Lease,
and this Lease shall remain in full force except that Rent shall abate with
respect to the unusable portion of the Premises, as described below. In the
event that Landlord shall not have completed the restoration as aforesaid within
one hundred eighty (180) days after such casualty, subject to delays as provided
in Section 36 of this Lease, then Tenant shall have the right to terminate this
Lease as its sole remedy against Landlord. In no event shall Tenant have any
right to terminate this Lease if such damage is caused in whole or in part by
the fault or neglect of Tenant or any of its servants, employees, agents,
contractors, invitees or licensees. Except as provided in subsection (a), in
the event of damage or destruction to the Premises in accordance with this
Section 25(b), Rent shall be apportioned during the period of any restoration
according to the part of the Premises which is usable by Tenant (and shall abate
with respect to the unusable portion of the Premises) and Rent shall recommence
upon the completion of such restoration by Landlord.
(c) In the event of any fire or other casualty, all of Tenant's
insurance proceeds payable as a result of such casualty (other than proceeds as
a result of damage to Tenant's personal property which Tenant is entitled by
this Lease to remove upon the expiration of the Term) shall be paid directly by
Tenant's insurer to Landlord and Tenant hereby assigns the same to Landlord and
authorizes and directs such insurer to make such payments directly to Landlord.
Tenant shall name Landlord as the principal loss payee on all casualty insurance
policies of Tenant with respect to the Premises or the contents thereof. In the
event that this Lease shall be terminated as
<PAGE>
provided in this Section, Landlord shall have the right to all insurance
proceeds assigned to Landlord pursuant to this subsection. In the event that
this Lease shall not be so terminated, Landlord shall have the right to retain
such proceeds to the extent required by Landlord to defray the cost of
restoration of the Premises as provided in subsection (b) above.
26. INSURANCE. Tenant shall, at its own cost and expense, obtain or
cause to be obtained, insurance policies naming the Landlord and any mortgagee
of Landlord as a direct loss payee or additional insured, as appropriate, under
said policies insuring against such risks, and in such amounts, as follows:
(i) Broad perils coverage, including flood and earthquake coverage as
appropriate, at all times in an amount equal to 100% of the full replacement
cost and full insurable value of the Premises, exclusive of excavations and
foundations, with such insurance to provide for unqualified replacement cost
claim recovery;
(ii) Boiler and Machinery coverage at all times in an amount equal to
100% of the full replacement cost and full insurable value of the Premises
insuring against all losses and damages arising from such occurrences not
covered by All Risk coverage including the explosion of a boiler or similar
steam generating vessel;
(iii) comprehensive general liability insurance with a minimum limit
of $2,500,000 per person and $5,000,000 per occurrence, and property damage
coverage with a minimum limit of $2,500,000;
(iv) Worker's Compensation Coverage and any other type of insurance
required by the laws of the Commonwealth of Pennsylvania; and
(v) rental and business interruption insurance covering expenses of
operating the Premises for a period of not less than 12 months following any
damage to or destruction of the Premises.
All of the insurance policies (including endorsements) required
hereunder (i) shall expressly provide that the coverage shall not be materially
changed, reduced or canceled absent thirty (30) days' prior written notice to
the Landlord; (ii) shall be limited to insure Landlord's insurable interest
alone (and not that of Tenant) or if said policies are to include the insurable
interest of Tenant, shall contain an endorsement to the effect that Landlord's
insurable interest shall not be reduced or invalidated by any act or neglect of
Tenant or of any subtenant of the Premises, nor by the use of the Premises by
such party for purposes more hazardous than are permitted by the policy; (iii)
shall not contain any clause which would result in the insured thereunder being
required to carry insurance with respect to the Premises or the property covered
thereby, in an amount equal to a minimum specific percentage of the full
replacement cost of such property in
<PAGE>
order to prevent the insured named therein from becoming a co-insurer of any
loss under such policy; (iv) shall be issued by an insurer or insurers licensed
in Pennsylvania as an insurance carrier within the state, and rated no less than
"A, VIII" by the Best Key Rating Guide published by the A.M. Best Company; (v)
shall contain a waiver of subrogation; and (vi) shall contain standard non-
contributory mortgagee clauses in favor of and acceptable to any mortgagee of
Landlord.. The Tenant shall provide the Landlord, within five (5) business days
following Landlord's written request, with certificates of insurance evidencing
the coverage provided by the insurers at such times as may be necessary (but in
no event less than once each year) to show that insurance is being maintained as
required by this Section 26. In the event Tenant shall fail to deliver to
Landlord such certificates evidencing that such coverage is in full force and
effect, Landlord may undertake to obtain such insurance and the full cost
thereof shall be payable hereunder by Tenant as Additional Rent.
27. CONDEMNATION. In the event that the entire Premises is taken for
any public or quasi-public use or purpose in eminent domain proceedings, or in
the event the entire Premises is conveyed to a governmental authority or other
entity having the power of eminent domain ("condemning authority") in lieu of
such proceedings, this Lease shall terminate upon the date when the possession
shall be surrendered to said condemning authority. Any prepaid Rent
attributable to periods after such termination date shall be refunded to Tenant.
Tenant shall not be entitled to share in or receive any part of such
condemnation award or payment in lieu thereof, the same being hereby assigned to
Landlord by Tenant; provided, however, that Tenant shall be entitled to seek its
moving expenses so long as the same do not reduce any amount otherwise payable
to Landlord.
In the event eminent domain proceedings shall be instituted in order
to take a portion of either the Premises or the Building, or if the grade of any
street or alley adjacent to the Premises is changed so that, as a result of
either such events, structural alteration or reconstruction of a portion of the
Building is necessary or desirable in Landlord's judgment, Landlord may elect to
terminate this Lease by giving Tenant not less than ninety (90) days' notice of
termination prior to a termination date specified in such notice, and any
prepaid Rent attributable to periods after such termination date specified in
such notice shall be refunded to Tenant. If Landlord does not so elect to
terminate this Lease, this Lease shall be and remain in full force and effect
for the balance of its term, except that Rent shall be proportionately abated to
the extent of any portion of the Building taken.
In the event eminent domain proceedings shall be instituted in order
to take a Material portion of the Building or the Premises, Tenant may elect to
terminate this Lease by giving Landlord not less than ninety (90) days' notice
of termination prior to a termination date specified in such notice, and any
prepaid Rent attributable to periods after such termination date specified in
such notice shall be refunded to Tenant; such
<PAGE>
notice shall be ineffective if, prior to the expiration of such 90 day period,
Landlord agrees in writing to restore within 180 days from the date of such
notice the portion of the Building or Premises taken, in which case, this Lease
shall be and remain in full force and effect for the balance of its term, except
that Rent shall be proportionately abated to the extent of the portion taken
until such restoration is completed. For purposes of this provision, a taking
shall not be considered "Material" unless the taking (i) reduces the rentable
square footage of the Building by more than 33% (ii) eliminates ingress or
egress to and from the Premises, or (iii) eliminates more than 33% of the
parking spaces on the Premises. If Tenant does not so elect to terminate this
Lease, this Lease shall be and remain in full force and effect for the balance
of its term, except that Rent shall be proportionately abated to the extent of
any portion of the Building taken.
Tenant shall not share in such condemnation award or payment in lieu
thereof or in any award for damages resulting from any taking, the same being
hereby assigned to Landlord by Tenant; provided, however, that nothing herein
shall preclude Tenant from separately claiming and receiving from the condemning
authority, if legally payable, compensation for the taking of Tenant's tangible
property (exclusive of fixtures or leasehold improvements), for Tenant's removal
and relocation costs and/or for Tenant's loss of business and/or business
interruption, provided that such compensation does not reduce any compensation
otherwise payable to Landlord.
28. SUBORDINATION AND ATTORNMENT. Tenant accepts this Lease subject
and subordinate in all respects to all mortgages, liens and other encumbrances
which may now or hereafter be placed on or affect the Premises or any part
thereof, including without limitation subject and subordinate to the terms,
rights, privileges and lien(s) thereof, irrespective of any obligations which
may be secured thereby. Such subordination shall be self-operative, and no
further instrument of subordination shall be required by any mortgagee.
However, in confirmation of such subordination, within ten (10) days after
request by Landlord, Tenant shall execute and deliver promptly any and all
certificates or other written assurances which Landlord or any mortgagee of all
or any part of the premises may request, designed to give effect to or provide
evidence of the same. In the event of a sale in foreclosure of any mortgage to
which this Lease is subordinate, or a transfer in lieu of foreclosure, or a
taking of possession of the Premises by the mortgagee or other person acting for
or through the mortgagee under any mortgage to which this Lease is subordinate,
then, and upon the happening of any such events, Tenant shall attorn to and
recognize the purchaser as the party who, but for this Lease, would be entitled
to possession of the Premises. No holder of any mortgage shall, nor shall have
the power to, join Tenant in any action to foreclose such mortgage, or in any
other action or proceeding to enforce the rights of the holder of such mortgage,
for the purpose of terminating Tenant's interest or estate under this Lease, and
Tenant's right to possession shall not be disturbed thereby so long as Tenant is
not in default hereunder.
<PAGE>
29. ESTOPPEL CERTIFICATES. Tenant shall, at any time and from time
to time, within a period of ten (10) days following written request from
Landlord, execute, acknowledge and deliver to Landlord a written statement
certifying (a) that a true and correct copy of this Lease is attached to such
statement, (b) that this Lease is in full force and effect and unmodified (or,
if modified, stating the nature of such modification and attaching a copy
thereof), (c) the date to which the Rent reserved hereunder has been paid, (d)
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults if any give rise to claims
hereunder, and (e) as to such other matters as Landlord or any prospective
purchaser or mortgagee may reasonably request. Any such statement may be relied
upon by Landlord and any prospective purchaser or mortgagee of all or any part
of the Premises. Tenant's failure to deliver such statement within the said
period shall be conclusive upon Tenant that this Lease is in full force and
effect and unmodified, and that there are no uncured defaults in Landlord's
performance hereunder.
30. EVENT OF DEFAULT. The occurrence of any of the following shall,
at Landlord's option, constitute a material default and breach of this Lease by
Tenant (an "Event of Default"):
(a) A failure by Tenant to pay any Rent or Additional Rent when due
hereunder, where such failure continues for five (5) days;
(c) The filing of any lien against the Premises or any portion
thereof or interest therein as a result of the act or omission of the Tenant
which is not discharged or insured over or released within thirty (30) days
thereafter;
(d) A failure by Tenant to fully observe and perform the provisions
or covenants of this Lease contained in Sections 10(c), 20, 21, 24, 26, 28 and
29 to be observed or performed by Tenant, where such failure continues for five
(5) days after written notice thereof from Landlord to Tenant;
(e) A failure by Tenant to fully observe and perform any other
provision or covenant of this Lease to be observed or performed by Tenant, where
such failure continues for thirty (30) days after written notice thereof from
Landlord to Tenant or such longer period as is reasonably necessary to cure such
failure, provided that Tenant diligently prosecutes the same to completion; or
31. ACCELERATED RENT. In the event of any Event of Default, the Rent
reserved herein for the entire unexpired portion of the Term shall, at
Landlord's option, thereupon immediately become due and payable. To the extent
permitted by law, Tenant shall be obligated for such accelerated Rent regardless
of which, if any, of the other remedies provided either in this Lease or by law
the Landlord elects to pursue.
<PAGE>
32. REMEDIES. In the event of any Event of Default, Landlord, at its
option, may terminate this Lease upon and by giving written notice of
termination to Tenant, or Landlord, without terminating this Lease, may at any
time after an Event of Default, without notice or demand additional to that
which may be required by Section 30 hereof, and without limiting Landlord in the
exercise of any other right or remedy which Landlord may have by reason of such
Event of Default or breach, exercise any one or more of the remedies hereinafter
provided in this Section or as otherwise provided at law or in equity, all of
such remedies (whether provided herein or by law) being cumulative and not
exclusive:
(a) Landlord may enter the Premises (with or without process of law
and without thereby incurring any liability to Tenant and without such entry
being constituted an eviction of Tenant or termination of this Lease) and take
possession of the Premises and all personal property of every kind on the
Premises, and Landlord may (i) apply against the accelerated Rent and all other
Rent or Additional Rent becoming due or payable to Landlord, and the expenses,
including attorney's fees, which Landlord may have incurred in connection with
such repossession, either the value of such personal property or the proceeds,
after selling expenses, from the sale of such personal property, whichever
Landlord chooses to do, and (ii) at any time at its option relet the Premises or
any part thereof for the account of Tenant, for such terms, upon such conditions
and at such rental as Landlord may elect. In the event of such reletting, (1)
Landlord shall receive and collect the rent therefrom and shall first apply such
rent against such expenses as Landlord may at any time or from time to time have
incurred in recovering possession of the Premises, placing the same in good
order and condition, altering or repairing the same for reletting, and such
other expenses, commissions and charges, including attorney's fees, which
Landlord may at any time or from time to time have paid or incurred in
connection with such repossession and reletting, and then shall apply such rent
against other sums payable by Tenant to Landlord hereunder, and (2) Landlord may
execute any lease in connection with such reletting in Landlord's name or in
Tenant's name, as Landlord may see fit, and the tenant of such reletting shall
be under no obligation to see to the application by Landlord of any rent
collected by Landlord, nor shall Tenant have any right to collect any rent under
such reletting. No re-entry by Landlord shall be deemed to be an acceptance of
a surrender by Tenant of this Lease or of the Premises.
(b) Landlord may cure, at any time, without notice except as
otherwise herein provided, any default by Tenant under this Lease; and whenever
Landlord so elects, all costs and expenses incurred by Landlord in curing a
default, including, without limitation, reasonable attorneys fees, together with
interest on the amount of costs and expenses so incurred at the rate of 18% per
annum which shall be paid by Tenant to Landlord on demand, and shall be
recoverable as Additional Rent.
<PAGE>
(c) FOR VALUE RECEIVED AND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT
HEREUNDER, OR UPON TERMINATION OF THE TERM OF THIS LEASE AND THE FAILURE OF
TENANT TO DELIVER POSSESSION TO LANDLORD, TENANT, AT THE OPTION OF LANDLORD,
AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE
COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR TENANT AND ANY OTHER PERSON CLAIMING
UNDER, BY OR THROUGH TENANT, AND CONFESS JUDGMENT FORTHWITH AGAINST TENANT AND
SUCH OTHER PERSONS AND IN FAVOR OF LANDLORD IN AN AMICABLE ACTION OF EJECTMENT
FOR THE DEMISED PREMISES, WITH RELEASE OF ALL ERRORS. LANDLORD MAY FORTHWITH
ISSUE A WRIT OR WRITS OF EXECUTION FOR POSSESSION OF THE DEMISED PREMISES
WITHOUT LEAVE OF COURT, AND LANDLORD MAY, BY LEGAL PROCESS, WITHOUT NOTICE RE-
ENTER AND EXPEL TENANT FROM THE DEMISED PREMISES, AND ALSO ANY PERSONS HOLDING
UNDER TENANT.
33. WAIVER. The failure or delay on the part of either party to
enforce or exercise at any time any of the provisions, rights or remedies in
this Lease shall in no way be construed to be a waiver thereof, nor in any way
to affect the validity of this Lease of any part hereof, or the right of either
party to thereafter enforce each and every such provision, right or remedy. No
waiver or any breach of this Lease shall be held to be a waiver of any other or
subsequent breach. The receipt by Landlord of Rent at a time when the Tenant is
in default under this Lease shall not be construed as a waiver of such default.
The receipt by Landlord of a lesser amount than the Rent or Additional Rent due
shall not be construed to be other than a payment on account of the Rent or
Additional Rent then due, nor shall any statement on Tenant's check or any
letter accompanying Tenant's check be deemed an accord and satisfaction, and
Landlord may accept such payment without prejudice to Landlord's right to
recover the balance of the Rent or Additional Rent due or to pursue any other
remedies provided in this Lease. No act or thing done by Landlord or Landlord's
servants, agents or employees during the Term shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept such a surrender shall be
valid, unless in writing and signed by Landlord.
34. QUIET ENJOYMENT. If and so long as Tenant pays the Rent or
Additional Rent and observes and performs all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant shall
and may peaceably and quietly have, hold and enjoy the Premises for the Term and
any renewal thereof, subject nevertheless to all of the provisions of this
Lease.
35. SIGNS. Tenant shall not place, install or affix, or permit the
placement, installation or fixation of any sign of any nature whatsoever which
can be seen from outside the Building without first obtaining the written
consent of Landlord. All such signs shall be installed and maintained by Tenant
in compliance with all applicable laws, statutes, ordinances, rules and
regulations of all governmental authorities and agencies
<PAGE>
and the RIDC Park. Any permitted signs installed on or about the Premises shall
be removed at the expiration or sooner termination of the Term of this Lease and
the Premises promptly repaired or restored to its original condition where such
sign has been removed. Tenant shall pay all expenses, and all license and permit
fees relating to the installation and maintenance of authorized signs, and shall
pay all expenses of removal and costs of repairs resulting therefrom.
36. UNAVOIDABLE DELAY. In the event that either party shall be
delayed or hindered in, or prevented from, the performance of any work, service
or other act required under this Lease to be performed by the party and such
delay or hindrance is due to strikes, lockouts, acts of God, governmental
restrictions, enemy act, civil commotion, fire or other casualty, or other
causes of a like nature beyond the control of the party so delayed or hindered,
then performance of such work, service, or other act shall be excused for the
period of such delay and the period for the performance of such work or other
act shall be extended for a period equivalent to the period of such delay. In no
event shall such delay constitute a termination of this Lease. The provisions of
this Section shall not operate to excuse Tenant from the prompt payment of any
Rent or Additional Rent due and owing under this Lease.
37. CORPORATE AUTHORITY. If Tenant is a corporation (or
partnership), each individual executing this Lease on behalf of said corporation
(or partnership) represents and warrants that he is duly authorized to execute
and deliver this lease on behalf of said corporation (or partnership) in
accordance with a duly adopted resolution of the Board of Directors of said
corporation or in accordance with the bylaws of said corporation (or under the
pertinent partnership agreements) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms.
38. SUCCESSORS. The respective rights and obligations provided in
this Lease shall bind and shall inure to the benefit of the parties hereto,
their legal representatives, heirs, successors and permitted assigns; provided,
however, that no rights shall inure to the benefit of any successor of Tenant
unless Landlord's written consent for the transfer to such successor has first
been obtained to the extent required by this Lease.
39. GOVERNING LAW. This Lease shall be construed, governed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
40. SEPARABILITY. If any provision of this Lease shall be held to be
invalid, void or unenforceable, the remaining provisions hereof shall in no way
be affected or impaired and such remaining provisions shall remain in full force
and effect.
<PAGE>
41. CAPTIONS. Marginal captions, titles and exhibits to this Lease
are for convenience and reference only and are in no way to be construed as
defining, limiting or modifying the scope or intent of the various provisions of
this Lease.
42. PERSONS; GENDER. As used in this Lease, the word "person" shall
mean and include, where appropriate, an individual, corporation, partnership or
other entity; the plural shall be submitted for the singular, and the singular
for the plural, where appropriate; and words of any gender shall mean to include
any other gender.
43. NOTICES. Any bill, statement, notice or communications required
or permitted hereunder shall be deemed sufficiently given if sent by certified
mail, return receipt requested, postage prepaid, or by nationally recognized
overnight delivery service, or by telefacsimile transmission with an original
counterpart to follow by one of the foregoing methods (provided that the failure
to deliver an original counterpart shall not affect the validity or effect of
the communication hereunder) and addressed as follows:
To Landlord: Robinson Properties, L.P.
6507 Wilkins Avenue
Pittsburgh, Pennsylvania 15217
Fax: (412) 661-4645
Attention: Mr. Stephen G. Robinson
With a copy to: Jeffrey B. Markel, Esquire
Cohen & Grigsby, P.C.
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
Fax: (412) 391-3382
To Tenant: United Stationers Supply Co.
2200 East Golf Road
Des Plaines, IL 60016
Fax: (708) 699-0891
Attention: President
With a copy to: 2200 East Golf Road
Des Plaines, IL 60016
Fax: (708) 699-0891
Attention: General Counsel
<PAGE>
and addressed to Tenant and delivered at the Premises after the
Commencement Date of this Lease.
Either party may change its address for purposes of this Section 43 by
written notice so given to the other party. Notice shall be deemed given when
received (by facsimile transmission or otherwise) or when delivered to Tenant at
the Premises.
44. BROKERS. Tenant represents and warrants that in this transaction
it has dealt with no real estate broker other than Grubb & Ellis and that no one
else has or will represent it in this transaction.
45. LEASE NOT AN OFFER. The submission of this Lease to Tenant
should not be construed as an offer, nor shall Tenant have any rights with
respect thereto unless and until Landlord shall execute this Lease and deliver
the same to Tenant, which rights may be revoked by Landlord at any time prior to
receipt by Tenant of this Lease duly executed by Landlord.
46. TIME OF THE ESSENCE. With respect to all acts of the Tenant
required under or pursuant to this Lease, time is of the essence.
47. LANDLORD'S OBLIGATIONS. Landlord's obligations hereunder shall
be binding upon Landlord only for the period of time that Landlord is the owner
of the Premises; and, upon termination of that ownership, Tenant shall look
solely to Landlord's successor in interest in the Premises for the satisfaction
of each and every obligation of Landlord hereunder.
48. LANDLORD'S EXCULPATORY. Anything contained in this Lease to the
contrary notwithstanding, Tenant agrees that in any judicial proceeding
involving the collection of any judgment (or other judicial process) requiring
the payment of money by Landlord or any partner, officer or employee of
Landlord, Tenant shall look solely to the estate and property of Landlord in the
Premises and to no other property or assets of Landlord, nor to any property of
any partner in Landlord, nor shall any property of either the Landlord (with the
exception of the Premises) or any partner, officer or employee of Landlord
become subject to levy, execution, attachment or other enforcement procedures
for the satisfaction of Tenant's remedies. In addition, Tenant covenants and
agrees that no personal liability or responsibility is assumed by, nor shall at
any time be asserted or enforceable against, any partner, officer, or employee
of Landlord on account of any covenant, undertaking or obligation under or with
respect to this Lease, all such personal liability and responsibility, if any,
being expressly waived and released.
49. COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and
expense, comply and take all action necessary to comply with all laws, orders,
<PAGE>
ordinances, regulations and rules all governmental authorities, including the
local Board of Fire Underwriters, having jurisdiction with respect to the
occupancy, use or manner of use of the Premises. Tenant shall give Landlord
prompt notice of any violation or recommendation of change of which it shall
have received notice from any such authority. Tenant shall obtain, if required,
maintain and comply with any and all licenses and permits issued by governmental
authorities, including a Certificate of Occupancy, which are necessary in
connection with or in any way related to the use, or occupancy of the Premises.
Tenant shall not do or permit to be done any act or thing which will invalidate
or be in conflict with any Certificate of Occupancy for the Building. The
foregoing notwithstanding, Landlord shall, if and when required pursuant to a
final, unappealable order of a court or other governmental authority, make all
readily achievable barrier removal or provide readily achievable access
alternatives so required in order for the Building and the Premises to comply
with Title III of the Americans with Disabilities Act ("ADA") except to the
extent that such actions are required as a result of Tenant's use thereof.
Tenant covenants, represents and warrants to Landlord that Tenant shall not use
the Premises as a "place of public accommodation" as defined by the ADA (or the
substantially equivalent term under any similar state statute).
50. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between
Landlord and Tenant that the respective parties hereto shall and hereby do waive
trial by jury (unless such waiver would preclude a right to counterclaim) in any
action or proceeding brought by either of the parties hereto against the other
(except for proceedings involving either personal injury or property damages) on
any matters whatsoever arising out of or in any way connected with this Lease,
the relationship of Landlord and Tenant, Tenant's use or occupancy of said
Premises, and any emergency statutory or any other statutory remedy.
51. MODIFICATIONS. This Lease, including Exhibit A attached hereto,
contains all of the agreements, conditions, understandings, representations and
warranties made between the parties hereto with respect to the subject matter
hereof and may not be modified orally or in any manner other than by an
agreement in writing signed by both parties hereto or their respective
successors in interest.
52. OPTION TO RENEW. Provided that no Event of Default by Tenant
shall be continuing under this Lease, Tenant is hereby granted one (l) option to
renew this Lease on the same terms and conditions (except as hereinafter
provided) as contained in the other provisions of this Lease, such option being
for a term of five (5) years ("option period"), commencing immediately after the
expiration date of this Lease referred to in Section 2 hereof. Tenant may
exercise the foregoing option only by rendering written notice to Landlord no
later than nine full calendar months prior to the expiration date of the
original Term. Provided that no Event of Default shall then exist, the Term of
the Lease shall thereupon be extended for the duration of said option period
<PAGE>
upon Landlord's receipt of valid notice from Tenant as described above. The
Base Rent during the option period shall be as follows:
(a) For the period commencing February 1, 2001 through and including
January 31, 2006, the sum derived by multiplying One Million, Six Hundred Sixty-
Two Thousand, Four Hundred Seventy-Six and 00/100 Dollars ($1,662,476) (being
$3.95 per annum per square foot of rentable area in the Building) (the "Base
Rent") by the CPI Adjustment (as defined below) which sum shall be due and
payable in sixty equal monthly installments during the option period; provided,
however, that in no case shall the Base Rent be less than $1,662,476. In
calculating the CPI Adjustment, Landlord may rely on the relevant Consumer Price
Index (defined below) information as reported by the Bureau of National Affairs
("BNA"), Commerce Clearing House ("CCH"), Prentice-Hall ("P-H") or other
nationally recognized consumer or labor reporting service.
(b) When used in this Lease, the following terms shall have the
following meanings:
(1) "CPI Adjustment" shall mean that fraction of which the
numerator shall be the Consumer Price Index as announced and in effect
for the month of January, 2001, and the denominator of which shall be
the Consumer Price Index (as defined below) for month of January,
1996.
(2) "Consumer Price Index" shall mean the Consumer Price Index,
All Urban Consumers (U.S. City Average; yearly average; 1982-84 = 100)
being publicly announced or reported for the month and year in
question and as compiled by the United States Department of Labor
Bureau of Labor Statistics. If said CPI should in the future be
compiled on a different basis, appropriate adjustments shall be made
for purposes of said computations. If the United States Department of
Labor Bureau of Labor Statistics no longer compiles and publishes the
Consumer Price Index, any comparable index published by any other
branch or department of the federal government, or the statistics
reflecting cost of living changes, as compiled by any institution,
organization or individual, generally recognized as an authority by
financial and insurance institutions, shall be used as a basis for
such adjustments.
53. UNCONDITIONAL OBLIGATION. The obligation of Tenant to pay all
Rent and Additional Rent and other sums as provided hereunder and the obligation
of Tenant to perform Tenant's covenants and duties hereunder, constitute
independent and unconditional obligations to be performed at all times provided
for hereunder. Tenant waives and relinquishes all rights which Tenant might
have to claim any nature of lien against or withhold, or deduct from or offset
against, any rental and other sums provided hereunder to be paid to Landlord by
Tenant.
<PAGE>
54. JOINT AND SEVERAL LIABILITY OF TENANTS Intentionally omitted.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and date as first above written.
TENANT:
WITNESS: UNITED STATIONERS SUPPLY CO.
_____________________________ By_____________________________
Title:_________________________
LANDLORD:
WITNESS: ROBINSON PROPERTIES, L.P., a
Pennsylvania Limited
Partnership
_____________________________ By_____________________________
Title:_________________________
<PAGE>
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
On this, the _____ day of January, 1996, before me, the undersigned
officer, personally appeared _______________________, who acknowledged himself
to be the ____________________ of UNITED STATIONERS SUPPLY CO., an Illinois
corporation, and that he as such _________________________, being authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as ________________.
In witness whereof, I hereunto set my hand and official seal.
Sworn to and subscribed to
before me this _____ day
of January, 1996.
______________________________
Notary Public
My Commission Expires:
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) SS:
COUNTY OF ALLEGHENY )
On this, the _____ day of January, 1996, before me, the undersigned
officer, personally appeared Stephen G. Robinson, who acknowledged himself to be
the Managing General Partner of Robinson Properties, L.P., a limited
partnership, and that he as such Managing General Partner, being authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing the name of the limited partnership by himself as Managing General
Partner.
In witness whereof, I hereunto set my hand and official seal.
Sworn to and subscribed to
before me this _____ day
of January, 1996.
_______________________________
Notary Public
My Commission Expires:
<PAGE>
Exhibit 10.97
REAL ESTATE AGREEMENT
---------------------
THIS AGREEMENT is made this 9th day of January, 1996, by and between UNITED
STATIONERS SUPPLY CO., an Illinois corporation ("Seller") and SEID STREET, LTD.,
an Ohio limited liability Company ("Purchaser").
The parties agree as follows:
1. Premises. Seller shall sell to Purchaser and Purchaser shall purchase
from Seller, at the price and on the terms and conditions set forth herein, fee
simple marketable title (subject to Permitted Exceptions hereinafter defined) in
and to certain improved real property, consisting of approximately 24 acres,
more or less, together with improvements thereon or attached thereto, including,
but not limited to, a certain warehouse/office building of approximately Two
Hundred Thirty-Three Thousand (233,000) square feet, and all easements, rights
and privileges appurtenant thereto, including all right, title and interest of
Seller in and to any land lying in the bed of any street, road or avenue opened
or proposed in front of or adjoining the premises, and all riparian rights, said
premises being commonly known as 9450 Allen Drive, Valley View, Cuyahoga County,
Ohio, as described in Exhibit A attached hereto and by this reference made a
part hereof ("Premises").
<PAGE>
2. Purchase Price. Purchaser shall pay Seller the sum of Five Million Nine
Hundred Sixty-Eight Thousand Dollars ($5,968,000.00) for the Premises ("Purchase
Price"). The Purchase Price shall be paid to Seller as follows:
(a) Concurrently with the execution of this Agreement, Purchaser shall
deposit into escrow with Continental Title Agency Corp. ("Escrow Agent") the sum
of Fifty Thousand Dollars ($50,000.00) on account of the Purchase Price (the
"Earnest Money"). The Earnest Money will be deposited into an interest-bearing
account for the benefit of Purchaser.
(b) Upon satisfaction of the conditions specified in Section 3(a) and (b)
below, Purchaser shall deposit with the Escrow Agent the additional sum of Fifty
Thousand Dollars ($50,000.00) on account of the Purchase Price (the "Additional
Earnest Money"). The Additional Earnest Money will be added to the interest-
bearing account described in Section 2(a) above.
(c) Purchaser shall pay the balance of the Purchase Price, plus or minus
applicable adjustments and prorations, at Closing in cash, cashier's check or
wire transfer, as the parties shall agree.
3. Conditions Precedent to Closing. Purchaser's obligations hereunder
are subject to the satisfaction of the following conditions:
(a) Within forty-five (45) days after the date of this Agreement, Purchaser
shall have the right to conduct such
2
<PAGE>
engineering, environmental, and feasibility studies, including soil tests,
borings, drainage tests and similar tests on the Premises as Purchaser deems
necessary to determine the suitability of the Premises for Purchaser's proposed
use, and Purchaser shall have determined, in its reasonable discretion, that the
Premises are suitable for Purchaser's proposed use. Such studies shall be
conducted by Purchaser at its sole cost and expense. Seller agrees to allow
Purchaser reasonable access to the Premises to conduct such studies. In the
event Purchaser is not satisfied, then Purchaser may terminate this Agreement by
giving written notice thereof to the Seller and to the Escrow Agent, in which
event all funds and documents deposited by the parties with the Escrow Agent or
each other shall be returned forthwith to the party who so deposited the same
and the parties shall thereupon be released from any further obligations
hereunder each to the other. The parties acknowledge, however, that in the event
Purchaser is satisfied and/or this condition precedent is waived, nothing
contained herein shall be construed as prohibiting Purchaser from reasonable
access to the Premises or from conducting additional studies, review and tests
after the expiration of the aforesaid 45-day period provided such access shall
not interfere with Seller's normal operations in the conduct of its business.
Purchaser shall save, defend, indemnify, and hold Seller harmless from and
against all claims, lawsuits, judgments, losses, liabilities, or expenses of any
kind
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or nature which may be incurred by Seller as the result of Purchaser's
examination, tests, or studies on the Premises (excluding the discovery of any
preexisting condition on the Premises). The obligations of Purchaser imposed by
the preceding sentence shall survive any termination of this Agreement and shall
survive Closing;
(b) Within seventy-five (75) days of the date of this Agreement, Purchaser
shall have received a commitment for a first mortgage loan on the Premises in
the amount of not less than Five Million Two Hundred Thousand Dollars
($5,200,000.00) or such lesser amount as Purchaser shall accept, with an
interest rate and on terms reasonably acceptable to Purchaser. If Purchaser
makes a good faith effort but is unable to obtain a commitment for the mortgage
loan contemplated herein, or reasonably believes that it cannot comply with the
terms and conditions of such commitment, Purchaser will so notify Seller in
writing within the time specified, indicating the interest rate and terms which
would be acceptable to Purchaser. If Seller is not so notified within said
seventy-five (75) days, Purchaser shall for all purposes be deemed to have
secured such commitment or to have agreed to purchase the Premises without
financing or based upon any mortgage commitment actually obtained. If Seller is
so notified, Seller may, at Seller's option, within thirty (30) days after said
notice, elect to provide purchase money financing or to secure a mortgage
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commitment on behalf of Purchaser upon the same terms and conditions previously
indicated by Purchaser as being acceptable. In such case, Purchaser agrees to
furnish Seller all requested credit and financial information and to sign
commercially reasonable papers relating to application for such mortgage
commitment. If Seller is unable or unwilling to secure such commitment or to
accept purchase money financing, this Agreement shall be of no further force and
effect, and the Earnest Money shall be returned to Purchaser.
(c) The conditions of the title to the Premises and survey matters shall
have been approved by Purchaser in accordance with the procedure set forth in
Sections 11 and 12.
(d) Prior to Closing, Purchaser shall have received an executed original of
Seller's certification of nonforeign status made pursuant to Section 1445 of the
Internal Revenue Code and in a form substantially similar to Exhibit B attached
hereto and incorporated by this reference;
(e) Prior to Closing and after satisfaction of the conditions set forth in
Sections 3(a) and (b) above, Seller agrees that the Purchaser shall have the
right to file, at Purchaser's sole cost and expense, any and all plans required
in order to obtain a building permit, zoning or rezoning, subdivision or lot
split, or any other approval or permit from any and all governmental authorities
having jurisdiction over the Premises.
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Seller agrees that, upon Purchaser's request, Seller shall join in the execution
of any application or plat required in order to obtain such permit or approval,
and that Seller otherwise shall cooperate with Purchaser with respect to any
permit or approval process. Without limiting the foregoing, Seller also agrees
that it will not institute any legal proceedings against Purchaser and/or any
governmental authority in opposition to any building permit, zoning or rezoning,
subdivision, lot split or other approval or permit sought by Purchaser with
respect to the Premises.
(f) Purchaser shall have the periods specified in Sections 3(a) and (b) in
which to determine whether the conditions set forth therein are satisfied and,
in the case of the condition of title and survey matters, the periods set forth
in Sections 11 and 12. If any of such conditions are not satisfied, in the
reasonable judgment of Purchaser, Purchaser may terminate this Agreement upon
written notice to Seller within the applicable time, (subject to the right of
Seller, if it elects, to seek to obtain or provide financing in accordance with
Section (3)(b)). Absent such written notice to Seller, Purchaser shall be
deemed to have waived all unsatisfied conditions and shall proceed to close this
transaction.
4. Risk of Condemnation and Loss
(a) if any governmental entity or any other entity with the power of
condemnation gives Seller notice that it intends to
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commence condemnation of or commences condemnation for all or any portion of or
interest in the Premises or improvements thereto, Seller shall immediately
notify Purchaser of such event. In such event, Purchaser may, at its option
within ten (10) days of receipt of such notice from Seller, terminate this
Agreement and neither party shall have any further rights or obligations under
this Agreement, except as provided in Section 22. Should Purchaser elect not to
exercise the foregoing option to terminate this Agreement, Seller shall appoint
Purchaser as its agent to conduct all negotiations with the condemning party
and, at Closing, shall assign to Purchaser all of its rights against the
condemning party or proceeds received from the condemning party. In such case,
the sale provided for herein shall be closed without reduction in or adjustment
to the Purchase Price.
(b) All risk of loss or damage to the Premises from fire or other casualty
shall remain with the Seller to the date of transfer of title. If, prior to
Closing, the Premises or any portion thereof, is totally or partially damaged by
any casualty, Seller shall promptly so notify Purchaser, and Purchaser shall, to
the extent that the cost of repair of the damage equals or exceeds Fifty
Thousand Dollars ($50,000.00), have the right, for a period of ten (10) days
after receipt of such notice, to terminate the Agreement by written notice to
Seller. If the Agreement is terminated pursuant to this Section 4(b), neither
party hereto
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shall be liable to the other hereunder, except for Purchaser's obligations under
Section 3(a) (if still appropriate in light of the scope of damage) and this
Agreement shall be null and void. If Purchaser shall not terminate this
Agreement or if there shall be damage to the Premises not in excess of Fifty
Thousand Dollars ($50,000.00), the parties shall proceed to Closing, in which
event Purchaser shall be entitled to a credit against the Purchase Price in an
amount equal to the cost of restoring the Premises to a condition substantially
equivalent to that which existed immediately prior to the occurrence of the
casualty (as calculated by a reputable contractor or engineer retained by
Purchaser and reasonably acceptable to Seller). Notwithstanding the above, the
Closing Date shall be postponed (by no more than sixty (60) days) if Purchaser's
mortgagee so requires in order to insure that the provisions of this Section
shall be complied with by the parties.
(c) Seller covenants and agrees to maintain insurance coverage on the
Premises in an amount of not less than the Purchase Price through the Closing
Date, and to cooperate with Purchaser in the event of the occurrence of any
casualty described in Section 4(b).
5. Taxes and Assessments: Closing Costs.
(a) Real estate taxes, general and special ("Taxes") (and personal property
taxes, utilities, and other similar items, if any) shall be prorated between the
parties as of the date of
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Closing, such that credits and charges for the Closing Date and all days
preceding the Closing Date shall be allocated to Seller, and credits and charges
for all days after the Closing Date shall be allocated to Purchaser. The
Purchase Price shall be adjusted at the Closing to reflect the prorations.
(b) If the actual amount of Taxes is not known on the Closing Date, Taxes
shall be prorated on the basis of the last available certified duplicates and
rates, with Seller and Purchaser re-prorating Taxes upon issuance of the actual
tax bills. All special assessments, reassessed assessments, and/or respread
Taxes upon the Premises shall be paid out of Seller's funds at Closing.
(c) If any errors or omissions are made regarding adjustments and
prorations as aforesaid, the parties shall make the appropriate corrections
promptly upon the discovery thereof. If any estimations are made at the Closing
regarding adjustments or prorations, the parties shall make the appropriate
correction promptly when accurate information becomes available. Any corrected
adjustment or proration shall be paid in cash to the party entitled thereto.
(d) Seller shall not assign any policies of liability or property damage
insurance covering the Premises. No insurance premiums shall be prorated.
Purchaser shall pay for recording fees and for one-half of any Closing fees,
including escrow fees. Transfer taxes and assessments, deed stamps and one-half
of any
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Closing fees, including escrow fees, shall be paid by Seller. Each party shall
pay its own attorneys' fees and all expenses incurred by it other than expenses
specifically enumerated in this Section 5.
6. Deed. Subject to Purchaser's review and acceptance of Title Evidence
defined in Section 11 hereinafter, Seller shall convey the Premises to Purchaser
by general warranty deed (the "Deed") conveying good and marketable,
indefeasible fee simple title to the Premises subject only to the following
(collectively the "Permitted Exceptions"):
a. Building and zoning laws, ordinances, state and federal
regulations;
b. Current real estate taxes and special assessments;
c. Rights-of-way, easements, restrictions, reservations and
mineral rights of record (which are approved by Purchaser
pursuant to Section 11 hereof);
d. Acts done or suffered or judgments against Purchaser or any
person claiming by, through or under Purchaser.
Such deed shall contain a legal description of the Premises which is based
upon and consistent with the survey of the Premises provided for in Section 12.
In addition to the obligations required to be performed hereunder by Seller
at the Closing, Seller agrees to perform such other acts, and/or to execute and
deliver to Purchaser such
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further instruments, documents and other materials, as are reasonably requested
by Purchaser at or subsequent to Closing in order to effectuate the consummation
of the transaction contemplated herein and to vest title to the Premises in
Purchaser, including, without limitation, the assignment of all rights of Seller
in and to any easements for the benefit of the Premises; provided, however, that
the foregoing instruments and other materials, if any, shall not enlarge the
scope of Seller's liabilities hereunder.
7. Possession. Purchaser shall be entitled to possession of the Premises
at Closing. The Premises shall be delivered in substantially the same condition
of repair and working order as at the date of signing this Agreement, free of
debris and in broom-clean condition. If the Premises are not so delivered to
Purchaser, Seller agrees to reimburse Purchaser for the cost of making such
repairs and cleaning as necessary to achieve such condition of the Premises.
Prior to Closing, Seller shall have removed from the Premises all personal
property stored or in use thereon which belongs to Seller or others that is not
to be conveyed to Purchaser under the terms of this Agreement (the "Excluded
Personalty). If Seller fails to remove such Excluded Personalty prior to
Closing, Purchaser may remove and dispose of such
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Excluded Property as it sees fit, and it may recover its costs of doing so from
the Seller.
Purchaser represents that it has investigated the Premises and/or will have
further investigated the Premises pursuant to Section 3(a) above to Purchaser's
satisfaction. Except as otherwise provided in this Agreement, Purchaser agrees
that the Premises are being sold in its present condition "AS IS".
8. Closing. The term "Closing" as used in this Agreement means the
payment by Purchaser to Seller of the Purchase Price and the delivery by Seller
to Purchaser of the Deed. Unless otherwise agreed by the parties, Closing shall
take place on July 1, 1996, at 10:00 a.m. Cleveland time. This transaction shall
be closed through an escrow that is to be held by Continental Title Agency Corp.
(also sometimes referred to herein as the "Title Company"), in accordance with
the general provisions of the usual form of escrow agreement then in use by such
Title Company for transactions similar to this with such special provisions
inserted as may be required to conform with this Agreement. Each party shall
execute and deliver on a timely basis all escrow instructions, deeds, funds, and
other documents reasonably necessary to accomplish Closing. In addition to, and
not in limitation of, the foregoing:
a. On or before the Closing Date, Seller shall execute items (i),
(ii), (iii) and (iv) below and
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deliver or cause to be delivered to the Title Company all of the
items listed below:
(i) The Deed;
(ii) Any instruments then required pursuant to Section 6;
(iii) Title Affidavits, if any, required by the Title Company;
(iv) Seller's affidavit of non-foreign status, as contemplated
by Section 1445 of the Internal Revenue Code of 1986, as
amended; and
b. On or before the Closing date, Purchaser shall deliver or cause
to be delivered to Title Company all of the items listed below:
(i) The balance of the Purchase Price, subject to the
prorations as hereinafter provided.
c. The transactions provided for in this Agreement shall be completed
by the Title Company on the Closing Date by doing the following:
(i) by delivering the Deed to Purchaser by filing the Deed for
record in Deed Records of Cuyahoga County, Ohio (which
shall be deemed delivery to Purchaser);
(ii) by causing the issuance of the Title Policy, subject only
to the Permitted Exceptions, and forwarding the Title
Policy to Purchaser with a copy to Seller;
(iii) by prorating taxes and assessments, in accordance with
Section 5 with respect to the Premises, and paying and
charging Purchaser and Seller for those costs and expenses
to be paid by Seller and Purchaser pursuant to Section 11;
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(iv) by delivering to Purchaser the FIRPTA Affidavit executed by
Seller; and
(v) by preparing and forwarding to both Purchaser and Seller two
(2) signed copies of the Title Company's Settlement
Statement setting forth all receipts and disbursements
provided for herein.
Purchaser shall, concurrent with Title Company's performance of the
foregoing items, deliver to Seller (or cause to deliver, by instruction to its
first mortgagee), in cash or by wire transfer, the Purchase Price less the full
amount of Seller's closing costs under Section 5), the payoff of all mortgages,
liens or other encumbrances which can be satisfied with the payment of money,
and prorations and credits to which Purchaser is entitled.
d. In the event the Title Company is unable to simultaneously perform
all instructions set forth in Section 8(c)(i) through (v) on the Closing Date,
the Title Company shall so notify Seller and Purchaser, and shall retain all
documents deposited with the Title Company until receipt by the Title Company of
written instructions executed by Seller and Purchaser or by a Court of competent
jurisdiction.
e. If either Purchaser or Seller (i) disapproves any condition
referred to in this Agreement within the applicable time period and in the
manner set forth in the Agreement, or (ii) is otherwise allowed to terminate
this Agreement and cancel the
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Escrow, without thereby committing an act of default under this Agreement or the
Escrow and does so, all obligations of the parties under this Agreement shall,
except as otherwise set forth, terminate and neither party shall have any
further obligation to the other under this Agreement. In such event, Escrow
Agent shall return all funds (after deducting its charges, if its charges are to
be borne by the party depositing such funds) and documents then in Escrow to the
party depositing same, and each party shall promptly return all documents in the
possession of such party to the other party. If Escrow fails to close due to a
breach of this Agreement by Seller, Seller agrees to promptly direct Escrow
Agent to return the Escrow Deposit to Purchaser.
f. In the event Escrow fails to close because of failure of
Purchaser to comply with its obligations hereunder, the Escrow cancellation
charges shall be paid by Purchaser. In the event Escrow fails to close because
of failure of Seller to comply with its obligations hereunder, such costs shall
be paid by Seller. In the event Escrow shall fail to close for any other
reason, such costs shall be divided equally between the parties.
g. Section 1445 of the Internal Revenue Code provides that the
transferee of a United States real property interest must deduct and withhold a
tax equal to ten percent (10%) of the amount realized by the transferor on the
disposition, if the
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transferor is a foreign person. Seller is not a foreign person, and the "FIRPTA"
certification will be provided to Purchaser as provided for in Section 3(c)
hereinabove.
9. Brokers. Purchaser warrants to Seller that, other than The Galbreath
Company ("Galbreath"), no person or other entity of any sort is entitled to any
commissions or other fees, broker's fee, finder's fee, or other payment by
reason of the action of Purchaser in connection with this transaction, Seller
warrants to Purchaser that, other than Grubb & Ellis ("Grubb"), no person or
other entity of any sort is entitled to any commission, broker's fee, finder's
fee, or any other payment by reason of the action of Seller in connection with
this transaction. Upon and in the event of Closing, Seller shall pay a
commission to Grubb in the total amount of One Hundred Thirty-Two Thousand
Dollars ($132,000.00). Purchaser shall be responsible for any and all
commission to be paid to Galbreath upon and in the event of Closing. Each party
shall hold harmless, indemnify, and defend the other from and against all claims
by parties other than The Galbreath Company and Grubb & Ellis for commissions or
other fees which arise from or are based upon the actions of the indemnifying
party and which constitute a violation of the indemnifying party's warranty
contained in this Section 9.
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10. Default. If Purchaser fails to close this transaction when and as
required hereby, Seller may terminate this Agreement, in which case Seller shall
be entitled to all remedies as Seller may have at law or in equity. If Seller
fails to close this transaction in accordance with its terms, Purchaser may
terminate this Agreement. The foregoing remedy shall be in addition to any
other remedy Purchaser may have at law or in equity, including but not limited
to the right of specific performance.
11. Title Commitment; Defects.
a. The Seller shall cause the Title Company to issue and deliver its
commitment (the "Commitment") for issuance of an ALTA owner's policy (Form B -
revised 10-17-70) of title insurance covering the Premises in the full amount of
the Purchase Price, which Commitment shall show marketable fee simple title to
the Premises to be good in Seller. The Commitment shall show the results of a
special tax search of the Premises. Copies of the Commitment, together with
copies of each document affecting title to the Premises, shall be delivered to
Purchaser not later than twenty (20) days after the date of this Agreement. The
cost and expense of the Commitment shall be borne by the Seller.
b. The Commitment and the Survey (as hereinafter defined in Section
12) are referred to as the "Title Evidence". Purchaser shall notify Seller of
Purchaser's disapproval of any
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matter contained in the Title Evidence within ten (10) days after Purchaser's
receipt of all of the Title Evidence and copies of the documents referred to in
the Title Evidence as exceptions or exclusions from coverage. If the Title
Evidence is not satisfactory to Purchaser (Collectively, "Defects"), those
Defects shall, as a condition to Purchaser's obligations under this Agreement,
be cured or removed from the Title Evidence within thirty (30) days after notice
to Seller of the item of Title Evidence disclosing the Defects, or at Closing if
the Defects consist of mortgages, other security instruments or monetary liens
that Seller intends to discharge and cancel at the Closing out of the Purchase
Price. If Seller elects not to cure and remove all Defects, this Agreement may
be terminated, at Purchaser's election, by written notice given to Seller within
five (5) days after expiration of the period allowed for cure or Purchaser may,
at Purchaser's sole election, proceed to close this transaction notwithstanding
any Defects. Upon termination, the parties will be release from further
liability hereunder, except for Purchaser's obligations, if any, under
Section 3.
c. Notwithstanding any provision of this Section 11 to the contrary,
Seller shall have the obligation, on or prior to the Closing Date, to secure
releases, discharges, or satisfactions, or otherwise cure at no cost to
Purchaser, any Defect which is a lien for the payment of money only (except real
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estate taxes and assessments which shall be prorated in accordance with Section
5), including, without limitation, all mortgages, any lien or encumbrance which
may be released or discharged by the payment of a definite sum of money or any
exception to title which arose after the date of this Agreement as the result of
the act or violation of Seller or anyone claiming by, from, through or under
Seller.
d. It shall be a condition precedent to Purchaser's obligation to
consummate the transaction contemplated hereby that the Title Company can and
will, upon filing the instruments of conveyance of record, issue its ALTA
owner's fee policy (Form B revised 10-17-70) of title insurance (the "Title
Policy") in the full amount of the Purchase Price, at standard rates, insuring
Purchaser as the owner in fee simple of the Premises subject only to the
Permitted Exceptions, and without the exception for certain of the standard
printed exceptions (encroachments, overlaps, boundary line disputes, or any
other matters which would be disclosed by an accurate survey or inspection of
the Premises, easements or claims of easements not shown by the public records,
or any lien or right to a lien for services, labor, or materials furnished to
the Premises, imposed by law, and not shown by the public records), unless and
except to the extent that any such matters included in the so-called standard
printed exceptions have been approved or waived by Purchaser.
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The Title Policy shall also affirmatively insure: (i) Purchaser's right to use
any appurtenant easements in accordance with their terms and conditions; (ii)
contiguity of the parcels described in Exhibit "A" (if more than one parcel);
(iii) that the Premises has the benefit of full and free ingress and egress,
both pedestrian and vehicular, to and from a public highway, either directly or
by a perpetual easement; and (iv) that the Premises is zoned for its intended
purpose of an office, warehousing and distribution facility. Seller agrees to
execute and deliver to the Title Company such affidavits and instruments as may
be reasonably required to permit the Title Company to issue Purchaser's Title
Evidence in the form required by this subsection and to provide a copy of such
affidavits and instruments to Purchaser. The parties hereto agree that the
Seller shall bear all of the cost of the Title Policy.
e. Notwithstanding the foregoing, in no event shall the Closing take
place later than September 1, 1996, unless a later date shall be mutually agreed
upon by Seller and Purchaser.
12. Survey. Within sixty (60) days after the date of this Agreement,
Seller shall cause a registered surveyor or professional engineer to prepare a
survey (the "Survey") in form sufficient to enable the Title Company to delete
from the Title Policy the so-called standard exception for matters disclosed by
an accurate survey. If Purchaser so requests, a perimeter legal
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description of the Premises as prepared by such surveyor or engineer shall be
used to describe the Premises in the Deed. The cost and expense of such survey
shall be borne by the Seller.
The Survey shall include:
(a) a full metes and bounds legal description of the Premises;
(b) identification of all perimeter lines with distance, angles and
monuments either set or found at each corner;
(c) a statement of the total acreage contained in the Premises and
specifically identifying the portion of the Premises and the
acreage thereof in any public highway, right-of-way or dedicated
street;
(d) identification of all streets adjacent to the Premises, and
further identification of all right-of-way lines, including for
both their respective distance from the nearest intersection
streets;
(e) identification of all curb cuts, driveways and fences;
(f) the location of all structures and improvements on the Premises;
(g) identification of all utility lines servicing the Premises
(including sewer, gas, electric and telephone), together with the
recording information of all easements over private property
through which such lines pass between the Premises and a properly
dedicated and accepted street;
(h) identification of all easements and rights-of-way either of
record or visible on the ground which either benefit or burden
the Premises, indicating for each recording information as to the
volume and page of recording and date of recording, or stating
that the easement is unrecorded;
(i) identification of all front, rear and side building set-back
lines;
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(j) identification of all encroachments of the Premises onto
adjoining land and all encroachments onto the Premises by
improvements on adjoining land, or a positive statement that no
encroachment exists;
(k) the point of beginning of the legal description and the true
point of beginning of the Premises and all calls of the legal
description between them; and
(l) a statement that no portion of the Premises is located within a
flood plain or flood way area as designated by the U.S.
Department of Interior, or indicating which portions are located
within such flood plain or flood way.
In the event the Survey discloses any encroachments, overlaps, boundary line
disputes or any other matter affecting title to the Premises or which violates
any law, rule, or regulation, such matter(s) shall be considered to be a
Defect(s) and the relative rights and obligations of the parties with respect
thereto shall be governed by the provisions of Section 11(b) hereof.
13. Environmental Matters.
a. Purchaser shall cause a reputable environmental evaluation and/or
consulting firm (the "Consultant") selected by Purchaser to conduct an
environmental inspection and audit of the Premises (the "Audit"). The cost and
expense of such Audit shall be borne by Purchaser. Purchaser and Seller shall
cooperate to insure that the Audit is performed as soon as practicable and is
completed no later than thirty-five (35) days from execution of this Agreement,
and shall assist the Consultant in designing the
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parameters of the Audit which shall include without limitation a view of the
Premises, inquiry into present and past uses of the Premises, review of records
of the United States Environmental Protection Agency, the Ohio Environmental
Protection Agency, or other governmental entity having jurisdiction relating to
environmental matters, field observations, determination of the integrity of any
above-ground and underground storage or process tanks, and such additional
investigation and testing as Purchaser and the Consultant shall agree are
appropriate to determine if the Premises has been contaminated by, or contains
any pollutant, industrial or other waste, or toxic or hazardous waste, substance
or material, including but not limited to those defined, registered or listed as
such pursuant to the Ohio Revised Code, Comprehensive Environmental Response
Compensation and Liability Act or the Toxic Substances Control Act and any lead
paint, asbestos or asbestos-containing material ("environmental condition"). In
addition to providing any information reasonably requested by the Consultant,
Seller shall cooperate with Purchaser and the Consultant throughout the course
of the Audit and shall cooperate in any other way reasonably requested by
Purchaser or the Consultant. Promptly upon completion of the Audit, the
Consultant shall deliver a copy of the Audit to Purchaser. The report shall
certify that an appropriate inquiry was made into the previous ownership and
uses of the Premises
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consistent with good commercial and customary practices, in an effort to
minimize possible liability of Purchaser for an environmental condition.
b. Purchaser shall have until 5:00 p.m. on the forty-fifth (45th) day
from execution of this Agreement to accept or reject said Audit. If Purchaser
rejects said Audit, Purchaser shall have the right to terminate this Agreement
by giving Seller notice of such termination on or before 5:00 p.m. on such date.
Thereafter, neither of the parties hereto shall be liable to the other hereunder
and this Agreement shall be null and void except for Purchaser's obligations, if
any, under Section 3(a). If Purchaser fails to terminate this Agreement within
such forty-five (45) days or fails to complete or have the Audit completed
within forty-five (45) days after the date hereof, then Purchaser shall be
deemed to have accepted the environmental status of the Premises and this
transaction shall proceed to Close in accordance with the terms and conditions
contained herein.
c. If required by Purchaser or its mortgagee, such Audit shall be
updated (the "Update") by the Consultant at or prior to the Closing. If an
adverse change has occurred between the date of the Audit and the completion of
the Update, Purchaser shall have the rights afforded to it pursuant to Section
13(b) hereinabove.
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14. Environmental Representations. As an inducement to Purchaser to
purchase the Premises, Seller hereby represents to Purchaser that, to the best
of Seller's knowledge:
(a) Seller has not caused and will not cause, and there never has
occurred during the time Seller has occupied the Premises, the release of any
"hazardous substance" on the Premises as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended;
(b) Seller has not caused any lead paint, asbestos or asbestos-
containing material to be placed on or under the Premises;
(c) There are no underground storage tanks on or under the Premises;
(d) The Premises are not subject to any federal, state, or local
"Superfund" lien, proceeding claim, liability or action, or the threat or
likelihood thereof, for the cleanup, removal, or remediation of any such
"hazardous substance" from the Premises;
(e) Seller has at all times complied with all applicable federal,
state, and local environmental laws and regulations applicable to the Premises
and the operations conducted thereon.
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15. Additional Seller's Warranties and Representations.
a. Seller hereby represents and warrants to Purchaser that, on the
date hereof:
(i) Seller is a Illinois corporation, duly organized and validly
existing under the laws of the State of Illinois.
(ii) Seller has full power and authority to enter into this
Agreement and to perform its obligations hereunder, and this
Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in
accordance with its terms. The Board of Directors of Seller
has approved this Agreement and the transactions
contemplated herein.
(iii) To the best of Seller's knowledge, there are no outstanding
written or oral leases covering or in any way affecting the
Premises that will survive the Closing, and no person or
entity has any right to acquire the Premises (whether by
option to purchase, contract, or otherwise).
(iv) Neither the execution of this Agreement nor the consummation
of the transaction contemplated hereby will constitute a
violation of or be in conflict with or constitute a default
under any term or provision of any agreement or instrument
to which Seller is a party or by which the Premises or any
part thereof is bound.
(v) To the best of Seller's knowledge, there are no service or
maintenance contracts or other agreements of any type
whatsoever affecting the Premises, which cannot be
terminated by Purchaser on thirty (30) days notice.
(vi) Seller has received no notices nor to Seller's best
knowledge are there any legal or administrative proceedings
or other legal or governmental actions with respect to the
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Premises which have been commenced or threatened.
(vii) Seller has not requested, given its consent for or otherwise
received notice of any pending zoning variance or change
with respect to the Premises.
(viii) The Premises are free from mechanics' liens or the
possibility of the rightful filing thereof.
(ix) Any information with respect to the Property that Seller has
delivered to Purchaser is true and complete in all material
respects.
b. Seller shall notify Purchaser of facts of which it hereafter may
receive notice which would cause any of the warranties and representations
contained in this Agreement to be untrue on the Closing Date. All of the
foregoing representations and warranties shall survive the Closing and shall not
be merged into the Deed.
16. Purchaser's Warranties and Representations.
a. Purchaser hereby represents and warrants to Seller that, on the
date hereof:
(i) Purchaser is an Ohio limited liability company organized and
duly formed under the laws of the State of Ohio.
(ii) Purchaser has full power and authority to enter into this
Agreement and to perform its obligations hereunder, and this
Agreement constitutes the legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
(iii) Neither the execution of this Agreement nor the consummation
of the transaction
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<PAGE>
contemplated hereby will constitute a violation of or be in
conflict with or constitute a default under any term or
provision of any agreement or instrument to which Purchaser
is a party or by which the Premises or any part thereof are
bound.
17. Assignment. Neither this Agreement nor any rights arising under it
may be assigned or mortgaged by either party without the prior written consent
of the other party, and any attempt to transfer this Agreement or any rights or
interests arising hereunder, by operation of law or otherwise, without such
consent shall be void and of no force or effect,
18. Modification Waivers. No part of this Agreement may be amended or
modified without the express written consent of both parties. Neither party
shall be held to have waived any of its rights hereunder except by delivery of a
written instrument expressing a clear and specific intent to waive such right.
19. Notices. Any notice or demand required or permitted to be given
under the terms of this Agreement shall be deemed to be effective and to have
been duly given or made if given by any of the following methods:
(a) On first attempted delivery, if deposited in the United States
mail, in a sealed envelope, postage prepaid, by registered or certified mail,
return receipt requested, or hand delivered, respectively addressed as follows:
28
<PAGE>
To Purchaser:
Seid Street, Ltd.
320 Wood Ridge
Aurora, Ohio 44202
Attn: Roger Seid, Member
Telephone number: (216) 562-7343
with copy to:
Kenneth B. Liffman, Esq.
McCarthy, Lebit, Crystal
& Haiman Co., L.P.A.
1800 Midland Building
101 Prospect Avenue, West
Cleveland, Ohio 44ll5
Telephone Number: (216) 696-1422
Telecopy Number: (216) 696-1210
To Seller:
United Stationers Supply Co.
2200 East Golf Road
Des Plaines, IL 60016-1267
Attention: Exec. Vice President and CFO
Telecopy number (708)* 699-4716
Telephone number (708)* 699-5000, Ext. 2135
with copy to:
Otis H. Halleen General Counsel
2200 East Golf Road
Des Plaines, IL 60016-1267
Telecopy number (708)* 699-3193
Telephone number (708)* 699-5000, Ext. 2309
*effective January 20, 1996, area code will be (847)
(b) Sent to the above address via an established national overnight
delivery service (such as Federal Express), charges prepaid, or
29
<PAGE>
(c) Sent via any electronic communications method, provided the sender
obtains written confirmation of receipt of the communication by the electronic
communication equipment at the office of the addressee listed above, provided,
if this method is used, the party shall immediately follow such notice with a
second notice in the method set forth in (a) or (b) above.
20. Enforcement and Attorneys' Fees. In the event suit or other
action is instituted to enforce or interpret any of the terms or obligations
under this Agreement, the prevailing party shall be entitled to recover its
costs and reasonable attorneys' fees from the other party as determined by the
court.
21. Integration. This Agreement contains the entire agreement of the
parties concerning the subject hereof, including all oral understandings or
agreements, and there are no collateral understandings or agreements or
representations or warranties not expressly included herein.
22. Survival. All representations and warranties made herein shall be
true and correct as of Closing and shall survive Closing. All obligations of
either party to hold harmless, indemnify, or defend the other party shall
survive Closing.
23. Time. Time is of the essence of this Agreement.
24. Tax Reporting. The parties hereby designate the Escrow Agent to
serve as "Real Estate Broker", as defined in Section 6045
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<PAGE>
of the Internal Revenue Code as amended, for the purpose of making such reports
and filing such returns as shall be required thereunder from time to time.
25. Title Company. It is hereby agreed that Continental Title Agency Corp.,
605 Bond Court Building, Cleveland, Ohio 44ll4, shall act as Title Company and
Escrow Agent in regard to this transaction, and this Agreement shall constitute
instructions to said Title Company both as to Title Company and Escrow Agent
subject to the terms and conditions of its regular and usual printed form of
acceptance, insofar as such terms and conditions are applicable to and are
consistent with this Agreement. In the event of any inconsistency between such
acceptance and this Agreement, this Agreement shall control. In addition, the
Title Company agrees to assume full responsibility for compliance with
subsection (e) of Section 6045 of the Internal Revenue Code of 1986 ("I.R.C."),
by filing a return in accordance with subsection (a) of Section 6045 I.R.C., and
a statement under subsection (b) of Section 6045 I.R.C., with respect to this
transaction. After receipt of a copy of this Agreement and acceptance of these
terms by the Title Company, the Title Company shall acknowledge its acceptance
of these terms and its agreement with this Section 24 by delivering to the
Seller and the Purchaser, forthwith, a signed and dated copy of the document
attached hereto and referred to as "Acknowledgment of Title Company".
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<PAGE>
26. Further Assurances. Provided it does not enlarge the liabilities of the
parties hereunder, the Seller and Purchaser both agree that each one, at any
time and from time to time upon request of the other, will do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further acts, deeds, assignments, transfers, conveyances, and
assurances as may be required for the conveyance of the Premises by the Seller,
its successors and assigns to the Purchaser, its successors and assigns.
27. Section Headings. All section headings and other titles and captions
herein are for convenience only, do not form any substantive part of this
Agreement, and shall not restrict or enlarge any substantive provisions hereof
or thereof.
28. Applicable Law. This Agreement shall be governed by the laws of the
State of Ohio.
29. Successors and Assigns. This Agreement shall be binding upon, and inure
to the benefit of the parties hereto and their respective successors, personal
representatives and assigns; provided, however, that nothing contained herein
shall be construed as waiving the restriction against assignment set forth in
Section 16 hereinabove.
IN WITNESS WHEREOF, the parties have executed multiple counterparts of this
Agreement, each of which shall be deemed an original thereof, as of the date
first above written.
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<PAGE>
SELLER: PURCHASER:
UNITED STATIONERS SUPPLY CO. SEID STREET, LTD., an Ohio
Limited Liability Company
By: By:
------------------------ ---------------------------
Daniel H. Bushell Roger Seid, Member
Executive Vice President
and CFO
ACKNOWLEDGMENT
--------------
OF
--
TITLE COMPANY
-------------
The undersigned hereby acknowledges receipt of that certain Agreement
between United Stationers Supply Co. and Seid Street, Ltd. and agrees to be
bound by the terms of said Agreement as they pertain to the responsibilities and
obligations of the Title Company set forth in said Agreement.
CONTINENTAL TITLE AGENCY CORP.
Dated: _____________, 1996 By ____________________________
33
<PAGE>
EXHIBIT 10.98
REAL ESTATE AGREEMENT
---------------------
BY THIS AGREEMENT, made and entered into this 19th day of October, 1995,
UNITED STATIONERS, INC. ("Seller") and BOISE CASCADE OFFICE PRODUCTS CORPORATION
("Purchaser") do hereby agree as follows:
1. Premises. Seller shall sell to Purchaser and Purchaser shall
purchase from Seller, at the price and on the terms and conditions set forth
herein, the real property and all appurtenances and improvements thereto which
are located in Cobb County, Georgia, and are more particularly described in
Exhibit A, attached hereto and by this reference made a part hereof
("Premises").
2. Personal Property. The personal property described in Exhibit C,
attached hereto and by this reference made a part hereof, is included in the
sale of the Premises ("Personal Property"). At Closing, Seller shall deliver to
Purchaser a bill of sale substantially in the form of Exhibit C. Seller
represents and warrants that it has or at Closing will have good and marketable
title to such Personal Property, free and clear of all liens, claims, and
encumbrances.
3. Purchase Price. Purchaser shall pay Seller the sum of $4,000,000 for
the Premises and $220,000 for the Personal Property, ("Purchase Price"). The
Purchase Price shall be paid at Closing as hereinafter defined).
4. Conditions Precedent to Closing. Purchaser's obligations
hereunder are subject to the satisfaction of the following conditions:
(a) Purchaser shall have had sufficient opportunity to have completed
an examination of the Premises and conducted such engineering, environmental,
and feasibility studies, including soil tests and borings on the Premises as are
necessary to determine the physical and economical suitability of the Premises
for Purchaser's proposed use, in order for Purchaser to have determined, in its
reasonable discretion, that the Premises are suitable for Purchaser's proposed
use and that its proposed use is economically feasible.
<PAGE>
Such studies shall be conducted by Purchaser at its sole cost and expense.
Seller agrees to allow Purchaser reasonable access to the Premises to conduct
such studies. Purchaser shall save, defend, indemnify, and hold Seller harmless
from and against all claims, lawsuits, judgments, losses, liabilities, or
expenses of any kind or nature which may be incurred by Seller as the result of
Purchaser's negligence or misconduct with respect to any examination, test, or
study on the Premises, excluding the discovery of any preexisting condition on
the Premises. The obligations of Purchaser imposed by the preceding sentence
shall survive any termination of this Agreement and shall survive Closing;
(b) Purchaser shall have received an executed original of Seller's
certification of nonforeign status made pursuant to Section 1445(b)(2) of the
Internal Revenue Code and in a form substantially similar to Exhibit B attached
hereto and incorporated by this reference;
(c) Purchaser shall have determined to its satisfaction that
utilities, including water, sanitary sewer, storm sewer, natural gas, and
electricity are available to the Premises in a location and capacity adequate to
accommodate Purchaser's intended use of the Premises;
(d) Purchaser shall have determined to its satisfaction that the
zoning of the Premises will permit Purchaser's proposed use of the Premises;
(e) The conditions of the title to the Premises and survey matters
shall have been approved by Purchaser in accordance with the procedure set forth
in Sections 13 and 14.
Within ten days of full execution of this Agreement, Seller shall
deliver to Purchaser a copy of each existing survey, plat map, environmental or
soils study, and the like in Seller's possession which further describes the
Premises in order to assist Purchaser in its investigation of the Premises.
Purchaser shall have 45 days from date hereof in which to determine
whether the conditions set forth in this Section 4 are satisfied and, in the
case of the condition of title and survey matters, the periods set forth in
Sections 13 and 14. If any of such
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<PAGE>
conditions are not satisfied, in the sole judgment of Purchaser, Purchaser may
terminate this Agreement upon written notice to Seller within 60 days. Absent
such written notice to Seller, Purchaser shall be deemed to have waived all
unsatisfied conditions. If Purchaser terminates this Agreement pursuant to the
foregoing option, neither party shall have any further rights or obligations
under this Agreement, except as provided in Section 22.
5. Risk of Condemnation.
(a) If any governmental entity or any other entity with the power of
condemnation gives Seller notice that it intends to commence condemnation of or
commences condemnation for all or any portion of or interest in the Premises or
improvements thereto, Seller shall immediately notify Purchaser of such event.
Purchaser may, at its option, terminate this Agreement and neither party shall
have any further rights or obligations under this Agreement, except as provided
in Section 22. Should Purchaser elect not to exercise the foregoing option to
terminate this Agreement, Seller shall appoint Purchaser as its agent to conduct
all negotiations with the condemning party and, at Closing, shall assign to
Purchaser all of its rights against the condemning party or proceeds received
from the condemning party. In such case, the sale provided for herein shall be
closed without reduction in or adjustment to the Purchase Price.
(b) If all or any material portion of the improvements to the
Premises are destroyed at any time prior to Closing, Seller shall promptly
provide Purchaser with a written report describing the damage. Purchaser may
within 15 days thereafter and prior to Closing terminate this Agreement. If
this Agreement is so terminated, neither party shall have any further obligation
to the other hereunder, except as provided in Section 22.
If Purchaser elects not to terminate this Agreement or if the damages
are not material, the sale provided for herein shall be Closed without reduction
or other adjustment in the Purchase Price except that the Purchaser shall be
entitled to the proceeds of any property damage insurance carried on the damaged
or destroyed improvements (other than proceeds of insurance on any of Seller's
property not intended to be transferred hereunder). In such event,
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<PAGE>
Seller shall permit and authorize Purchaser to conduct all negotiations with
claims adjusters representing the carriers of such coverage and shall assist in
Purchaser's efforts to collect such proceeds.
6. Taxes and Assessments: Closing Costs. Real estate taxes (and personal
property taxes, utilities, and other similar items, if any) shall be prorated
between the parties as of the date of Closing. Seller shall not assign any
policies of liability or property damage insurance covering the Premises. No
insurance premiums shall be prorated. Purchaser shall be entitled to a credit
against the Purchase Price for the amount of any unpaid special assessments.
Purchaser shall pay for recording fees and for one-half of any Closing fees,
including escrow fees. Transfer taxes and assessments, deed stamps and one-half
of any Closing fees, including escrow fees, shall be paid by Seller. Each party
shall pay its own attorneys' fees and all expenses incurred by it other than
expenses specifically enumerated in this Section 6.
7. Deed. Seller shall convey the Premises to Purchaser by general
warranty deed conveying marketable title to the Premises subject only to the
following exceptions:
A. Building and zoning laws, ordinances, state and federal
regulations;
B. Current real estate taxes;
C. Rights-of-way, easements, restrictions, reservations and
mineral rights of record (which are approved by Purchaser
pursuant to Section 13 hereof;
D. Acts done or suffered or judgments against Purchaser or any
person claiming by, through or under Purchaser.
Such deed shall contain a legal description of the Premises which is based upon
and consistent with the survey of the Premises provided for in Section 14.
8. Possession. Purchaser shall be entitled to possession of the
Premises at Closing. The Premises shall be delivered in the same condition of
repair and working order as at the date of signing this Agreement, free of
debris and in broom-clean condition. If the
4
<PAGE>
Premises are not so delivered to Purchaser, Seller agrees to reimburse Purchaser
for the cost of making such repairs and cleaning as necessary to achieve such
condition of the Premises. In the event Seller cannot deliver possession of the
Premises to Purchaser on January 15, 1996, Purchaser shall be entitled to a
refund of $220,000. In the event such delay extends beyond February 15, 1996,
Purchaser may, at its option, terminate this Agreement and obtain a full refund
of the Purchase Price. The foregoing remedy shall be in addition to any other
remedy Purchaser may have at law or in equity, including but not limited to the
right of specific performance.
Prior to Closing, Seller shall have removed from the Premises all
personal property (to include product inventory, leased equipment and personal
effects of employees) stored or in use thereon which belongs to Seller or others
that is not to be conveyed to Purchaser pursuant to Paragraph 2 of this
Agreement. If Seller fails to remove such personal property prior to Closing,
Purchaser may remove and dispose of such personal property as it sees fit, and
it may recover its costs of doing so, net of any salvage value of the personal
property, from the Seller.
9. Warranty of Title. Seller warrants that it has or will have at Closing
good and marketable title to the Premises, free and clear of all liens, claims,
and encumbrances except for restrictions, reservations, easements, and mineral
interests of record shown in the Commitment (as hereinafter defined).
10. Closing. The term "Closing" as used in this Agreement means the
payment by Purchaser to Seller of the Purchase Price at Closing and the
delivery by Seller to Purchaser of the general warranty deed. Unless otherwise
agreed by the parties, Closing shall take place on January 15, 1996. This
transaction shall be closed through an escrow that is to be held by a local
office of First American Title Insurance Company. Each party shall execute and
deliver on a timely basis all escrow instructions, deeds, funds, and other
documents reasonably necessary to accomplish Closing.
11. Brokers. Purchaser warrants to Seller that no person or other entity
of any sort is entitled to any commission, broker's fee, finder's fee, or other
payment by reason of the action of Purchaser
5
<PAGE>
in connection with this transaction. Seller warrants to Purchaser that no person
or other entity of any sort is entitled to any commission, broker's fee,
finder's fee, or any other payment by reason of the action of Seller in
connection with this transaction. Each party shall hold harmless, indemnify, and
defend the other from and against all claims by third parties for such
commissions or other fees which arise from or are based upon the actions of the
indemnifying party and which constitute a violation of the indemnifying party's
warranty contained in this Section 11.
12. Default. If Purchaser fails to close this transaction when and as
required hereby, Seller may terminate this Agreement, in which case Purchaser
shall have no further rights or interest in the Premises. The foregoing remedy
shall be in addition to any other remedy Seller may have at law or in equity.
If Seller fails to close this transaction in accordance with its
terms, Purchaser may terminate this Agreement. The foregoing remedy shall be in
addition to any other remedy Purchaser may have at law or in equity, including
but not limited to the right of specific performance.
13. Title Approval. Seller shall deliver to Purchaser, within 20 days
from the date hereof, at Seller's expense,a commitment for title insurance (the
"Commitment") from First American Title Insurance Company for title insurance in
the amount of the purchase price, and legible copies of all recorded instruments
affecting the Premises and recited as exceptions in the Commitment. If Purchaser
has an objection to items disclosed in such Commitment, Purchaser shall have 10
days after receipt of such instrument and the property survey described in
Section 14 to make written objections to Seller. If Purchaser makes such
objections, Seller shall have 15 days from the date such objections are
disclosed to cure the same, and the Closing date shall be extended if necessary.
If the objections are not satisfied within such time period, Purchaser may (i)
terminate this Agreement and neither party shall have any further rights or
obligations under this Agreement, except as provided in Section 22, or (ii)
waive the unsatisfied objections and close the transaction in accordance with
this Agreement, except that the amount of all
6
<PAGE>
monetary encumbrances shall be credited against the Purchase Price. If Purchaser
does not notify Seller in writing of objections to the condition of title within
the time period provided for above, Purchaser shall be deemed to have agreed to
accept title to the Premises in the condition shown in the Commitment. Seller
shall bear the cost of the title insurance.
14. Property Survey. Within 30 days from date hereof, Seller, at Seller's
sole cost and expense, shall cause to be delivered to Purchaser a current survey
of the Premises prepared by a surveyor acceptable to the parties and the title
company closing this transaction. The survey shall certify to the Purchaser and
the title company that: (i) the survey was made and staked on the ground; (ii)
the survey shows the location of all improvements, highways, streets, roads,
railroads, rivers, creeks or other waterways, fences, easements and rights-of-
way on or adjacent to the Premises, if any; (iii) there are no visible
discrepancies, conflicts or encroachments except as shown on the survey; (iv)
the survey is a true, correct and accurate representation of the Premises; (v)
the survey sets forth the number of total acres/square feet comprising the
Premises, together with a metes and bounds description thereof; (vi) the current
zoning; and (vii) the Premises do not lie within a designated flood plain area.
All easements and rights-of-way shall be referenced to the recording information
applicable to the documents creating such easements or rights-of-way which have
been recorded with the county clerk of the county in which the Premises are
located. The survey shall locate and mark all corners and angles of the Premises
perimeter on the ground with permanent, buried iron surveyor's stakes.
If the survey discloses any condition or defect in the legal
description or physical condition of the Premises (including, without
limitation, encroachments, failure to close any legal descriptions,
discrepancies between the legal description in Seller's chain of title and the
surveyed legal description, or the existence of easements) which, in the sole
discretion of Purchaser, are unacceptable or will interfere with its intended
use of the Premises, Purchaser may by notice given to Seller within 10 days of
Purchaser's
7
<PAGE>
receipt of such survey, object to such defect. If the Seller fails to effect a
cure of the defect complained of within 15 days thereafter, Purchaser may at its
option exercised by delivery of written notice either: (i) terminate this
Agreement or (ii) elect to Close without cure of the defect complained of. If
the Purchaser elects to terminate this Agreement, neither party shall have any
further obligation hereunder, except as provided in Section 22. If the Purchaser
fails to notify Seller of any objection to survey defects within the timeframe
provided for above, Purchaser shall be deemed to have agreed to accept the
Premises subject to all of the survey defects disclosed by the survey.
15. Environmental Representations and Warranties. As an inducement to
Purchaser to purchase the Premises, Seller hereby covenants, represents, and
warrants to Purchaser the following:
(a) Seller has not caused and will not cause, and there never has
occurred during the time Seller has occupied the Premises, the release of any
"hazardous substance" on the Premises as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended;
(b) Seller has not caused any asbestos or asbestos-containing
material to be placed on or under the Premises;
(c) There are currently no underground storage tanks on or under the
Premises and there have not been any underground storage tanks on or under the
Premises at any time in the past;
(d) To the best of Seller's knowledge, the Premises are not subject
to any federal, state, or local "Superfund" lien, proceeding, claim, liability
or action, or the threat or likelihood thereof, for the cleanup, removal, or
remediation of any such "hazardous substance" from the Premises;
(e) Seller has at all times complied with all applicable federal,
state, and local environmental laws and regulations applicable to the Premises
and the operations conducted thereon;
(f) As of the date of Closing, Seller will possess and be in full
compliance with all environmental permits, licenses, and other governmental
approvals that are required with respect to the Premises and the activities
conducted thereon; and
8
<PAGE>
(g) Seller agrees, to the maximum extent permitted by law, to
indemnify, defend and save Boise Cascade and its successors in interest in the
Premises harmless from and against any and all claims, demands, causes of
action, proceedings and/or suits, damages (actual and punitive), including the
cost of correcting or compensating for injuries (to persons, property, the
environment, or natural resources), and for fines, interest, penalties, losses,
and other costs (including engineering costs and attorneys fees), and
liabilities (hereinafter referred to as "Indemnifiable Damages") which are
asserted against or are incurred by Boise Cascade, its agents, licensees,
invitees, contractors, or assigns, or its successors in interest in the Premises
("Indemnified Parties"), as a result (direct or indirect) of, the untruth or
inaccuracy of any of the foregoing matters represented and warranted by Seller
to Boise Cascade or the breach of any of the foregoing covenants and warranties
of Seller, whether discovered prior to or after Closing. The foregoing
indemnification shall include all attorneys' fees incurred by the Indemnified
Party in resolving issues that constitute breaches of the foregoing warranties.
This indemnity does not extend to contamination of the Premises occurring after
the Closing, nor does it extend to contamination caused solely by the negligent
or willful act of any of the Indemnified Parties, nor does it extend to any
matter covered by that certain Environmental Indemnity Agreement dated January
31, 1992 among Boise Cascade Office Products Corporation and Boise Cascade
Corporation as Indemnifying Parties and Associated Stationers, Inc., which
agreement, and the obligations set forth therein, remain in full force and
effect for the benefit of Seller as successor-in-interest to Associated
Stationers, Inc. and shall survive the Closing forever.
The obligations imposed upon Seller by this environmental indemnity
provision shall not be offset by any claims which may be made by Seller against
any of the Indemnified Parties, except under the Environmental Indemnity
Agreement dated January 31, 1992, and shall survive the Closing forever.
The foregoing indemnification obligations shall apply regardless of
whether such Indemnifiable Damages are founded upon municipal,
9
<PAGE>
state, or federal, statutory or common law, rules or principles or this
Agreement. All Indemnified Damages shall be paid by Seller to the Indemnified
Party making the claim within 30 days of presentment for payment by any of the
Indemnified Parties.
Any Indemnified Party making a claim under this Section 15 shall give
prompt notice to the Seller of the assertion of any claim, or the commencement
of any suit, action or proceeding in respect to which indemnification may be
sought hereunder, specifying, if known, the facts pertaining thereto and the
amount or an estimate of the amount of the liability arising therefrom. Any
Indemnified Party's failure to give such notice shall not relieve the Seller of
any liability hereunder (except to the extent that the Seller has suffered
actual prejudice thereby). The Seller shall assume the defense of any such suit,
action or proceeding at its own expense, and the Indemnified Parties shall have
the right (but not the duty) to participate in the defense thereof. The Seller
and the Indemnified Parties shall cooperate in the defense of prosecution
thereof and shall take all such actions as may be reasonably requested by the
other in connection therewith. No investigation by any of the Indemnified
Parties at or prior to the Closing shall relieve the Seller of any liability
hereunder.
This Section 15 shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that regardless of any such succession or assignment, the parties
hereto shall continue to be liable for their respective obligations contained
herein.
16. Access to Premises. Upon execution of this Agreement, Purchaser and
its consultants or invitees shall be entitled to reasonable access to the
Premises during normal business hours upon reasonable notice to Seller for the
purpose of designing changes to the Premises.
17. Assignment. Neither this Agreement nor any rights arising under it
may be assigned or mortgaged by either party without the prior written consent
of the other party, and any attempt to transfer this Agreement or any rights or
interests arising hereunder, by
10
<PAGE>
operation of law or otherwise, without such consent shall be void and of no
force or effect.
18. Modification; Waivers. No part of this Agreement may be amended or
modified without the express written consent of both parties. Neither party
shall be held to have waived any of its rights hereunder except by delivery of a
written instrument expressing a clear and specific intent to waive such right.
19. Notices. Any notice or demand required or permitted to be given
under the terms of this Agreement shall be deemed to have been duly given or
made if given by any of the following methods:
(a) Deposited in the United States mail, in a sealed envelope,
postage prepaid, by registered or certified mail, return receipt requested, or
hand delivered, respectively addressed as follows:
To Boise Cascade: Boise Cascade Office Products
Corporation
Attention: General Counsel
One Jefferson Square
P.O. Box 50
Boise, ID 83728
Telecopy number (208) 394-4934
Telephone number (208) 384-7696
with a copy to: Boise Cascade Office Products
Corporation
Attention: Vice President &
General Manager
800 W. Bryn Mawr Ave.
Itasca, IL 60143
To Seller: United Stationers Supply Co.
2200 East Golf Road
Des Plaines, IL 60016
Attention: President
Telecopy number (708) 699-0891
Telephone number (708) 699-5000
With a copy to: Otis H. Halleen
800 East Northwest Highway
Suite 700
Palatine, IL 60067
Telecopy number (708) 705-9608
Telephone number (708) 705-3886
(b) Sent to the above address via an established national overnight
delivery service (such as Federal Express), charges prepaid, or
11
<PAGE>
(c) Sent via any electronic communications method, provided the
sender obtains written confirmation of receipt of the communication by the
electronic communication equipment at the office of the addressee listed above;
provided, if this method is used, the party shall immediately follow such notice
with a second notice in the method set forth in (a) or (b) above. Notices shall
be effective when sent or when hand delivered.
20. Enforcement and Attorneys' Fees. In the event suit or other action is
instituted to enforce or interpret any of the terms or obligations under this
Agreement, the prevailing party shall be entitled to recover its costs and
reasonable attorneys' fees from the other party as determined by the court.
21. Integration. This Agreement contains the entire agreement of the
parties concerning the subject hereof, including all oral understandings or
agreements, and there are no collateral understandings or agreements or
representations or warranties not expressly included herein.
22. Survival. All representations and warranties made herein shall be
true and correct as of Closing and shall survive Closing. All obligations of
either party to hold harmless, indemnify, or defend the other party shall
survive Closing, including but not limited to Seller's obligations set forth
in Section 15.
23. Time. Time is of the essence to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
SELLER:
UNITED STATIONERS SUPPLY CO.
By Daniel H. Bushell
------------------
Title EVP & CFO
---------------
PURCHASER:
BOISE CASCADE OFFICE PRODUCTS CORPORATION
By __________________________
Title CEO/PRES
--------
EXHIBIT A
---------
REAL PROPERTY DESCRIPTION
-------------------------
12
<PAGE>
The property located at 4800 Highlands Parkway, Smyrna, Georgia,
legally described as follows:
13
<PAGE>
TRANSFEROR'S CERTIFICATION OF NONFOREIGN STATUS
-----------------------------------------------
To inform Boise Cascade Office Products Corporation, a Delaware
corporation ("Transferee"), that withholding of tax under Section 1445 of the
Internal Revenue Code of 1954, as amended ("Code"), will not be required upon
the transfer of certain real property to the Transferee by United Stationers
Supply Co., an Illinois corporation ("Transferor"), the undersigned hereby
certifies the following on behalf of the Transferor:
1. The Transferor is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Code and the
Income Tax Regulations promulgated hereunder),
2. The Transferor's U.S. employer identification number is 36-2431718, and
3. The Transferor's office address is 2200 East Golf Road, Des Plaines,
Illinois 60016.
The Transferor understands that this Certification may be disclosed to
the Internal Revenue Service by the Transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
The Transferor understands that the Transferee is relying on this
Certification in determining whether withholding is required upon said transfer.
Under penalty of perjury, I declare that I have examined this
Certificate and, to the best of my knowledge and belief, it is true, correct,
and complete, and I further declare that I have authority to sign this document
on behalf of the Transferor.
Date of this _______ day of _________________, 19___.
TRANSFEROR:
United Stationers Supply Co.
By _______________________________
Its _______________________________
14
<PAGE>
BILL OF SALE
------------
For valuable consideration, the receipt of which is acknowledged, UNITED
STATIONERS SUPPLY CO. ("United"), an Illinois corporation, having its principal
place of business at 2200 East Golf Road, Des Plaines, Illinois 60016, hereby
sells, transfers, assigns and conveys to BOISE CASCADE OFFICE PRODUCTS
CORPORATION ("Boise Cascade"), all of United's rights, title, and interest in
the following personal property:
Personal Property: All warehouse and office property located at 4800
Highlands Parkway, Smyrna, Georgia, (excluding United's product inventory,
any leased equipment, and personal effects of employees) and including, but
not limited to, all pallet racking, all conveyor systems, all bin shelving,
all mobile equipment, both powered and non-powered and all associated
batteries and chargers, all owned security systems, all office furniture,
wall fixtures, cafeteria equipment, and telephone and voice mail systems.
United hereby represents and warrants to Boise Cascade that United is the
absolute owner of the Personal Property, that the Personal Property is free and
clear of all liens, charges, and encumbrances, and that United has full right,
power, and authority to sell the Personal Property and to execute this Bill of
Sale.
ALL WARRANTIES OF QUALITY, FITNESS AND MERCHANTABILITY ARE EXPRESSLY EXCLUDED.
- -----------------------------------------------------------------------------
IN WITNESS WHEREOF, this Bill of Sale has been executed by the undersigned
effective as of _____________________, 1996.
UNITED STATIONERS SUPPLY CO.
By ______________________________
Title ___________________________
15
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNITED STATIONERS INC.
--------------------------------------
United Stationers Supply Co., an Illinois corporation
United Stationers Hong Kong Limited, a corporation organized under the laws of
Hong Kong
United Worldwide Limited, a corporation organized under the laws of Hong Kong
United Business Computers, Inc., a Delaware corporation
<PAGE>
EXHIBIT 23.2
CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated June 27, 1995 and January 29, 1996 with respect
to the consolidated financial statements of United Stationers Inc. as of and
for the seven months ended March 30, 1995 and the year ended December 31, 1995
included in the Registration Statement on Form S-2 and related Prospectus of
United Stationers Inc. dated February 20, 1996.
/s/ Ernst & Young LLP
Chicago, Illlinois
February 20, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of Associated Holdings, Inc.
as of December 31, 1994 and for the years ended December 31, 1993 and 1994 and
to the reference to our Firm under the caption "Experts" included in this
registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 16, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of United Stationers Inc. as
of August 31, 1993 and 1994 and for the years ended August 31, 1992, 1993 and
1994 and to the reference to our Firm under the caption "Experts" included in
this registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 16, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,660
<SECURITIES> 0
<RECEIVABLES> 273,142
<ALLOWANCES> 7,315
<INVENTORY> 381,618
<CURRENT-ASSETS> 690,008
<PP&E> 231,095
<DEPRECIATION> 31,114
<TOTAL-ASSETS> 1,001,383
<CURRENT-LIABILITIES> 334,543
<BONDS> 0
<COMMON> 1,153
18,041
0
<OTHER-SE> 28,871
<TOTAL-LIABILITY-AND-EQUITY> 1,001,383
<SALES> 1,751,462
<TOTAL-REVENUES> 1,751,462
<CGS> 1,370,522
<TOTAL-COSTS> 1,370,522
<OTHER-EXPENSES> 323,383
<LOSS-PROVISION> 5,169
<INTEREST-EXPENSE> 46,186
<INCOME-PRETAX> 11,371
<INCOME-TAX> 5,128
<INCOME-CONTINUING> 6,243
<DISCONTINUED> 0
<EXTRAORDINARY> 1,449
<CHANGES> 0
<NET-INCOME> 4,794
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
