<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
THE SECURITIES ACT OF 1933
------------------------
UNITED STATIONERS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5112 36-3141189
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
2200 EAST GOLF ROAD OTIS H. HALLEEN
DES PLAINES, ILLINOIS 60016-1267 VICE PRESIDENT, SECRETARY AND GENERAL
(847) 699-5000 COUNSEL
(address, including zip code, and 2200 EAST GOLF ROAD
telephone number, including area code, DES PLAINES, ILLINOIS 60016-1267
of registrant's principal executive (847) 699-5000
offices) FAX: (847) 699-3193
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
COPIES TO:
MARY R. KORBY MICHAEL M. BOONE
WEIL, GOTSHAL & MANGES LLP HAYNES AND BOONE, LLP
100 CRESCENT COURT, SUITE 1300 901 MAIN STREET, SUITE 3100
DALLAS, TEXAS 75201-6950 DALLAS, TEXAS 75202
(214) 746-7700 (214) 651-5000
FAX: (214) 746-7777 FAX: (214) 651-5940
------------------------------
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(2) OFFERING PRICE(2)
<S> <C> <C> <C>
Common Stock, par value $0.10 per share................. 4,600,000(1) $34.25 $157,550,000
Warrants to purchase Common Stock(3).................... 1,115,568 -- --
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $0.10 per share................. $47,742.43
Warrants to purchase Common Stock(3).................... --
</TABLE>
(1) Includes 600,000 shares that are to be sold upon exercise of the
Underwriters' over-allotment option and the shares to be issued upon
exercise of the Warrants.
(2) 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.
(3) Warrants are to be sold by certain Selling Stockholders to the Underwriters
and exercised in connection with this Offering. No additional consideration
will be paid in respect of the sale of such Warrants. Includes Warrants to
purchase 278,568 shares of Common Stock to be sold upon exercise of the
Underwriters' over-allotment option.
------------------------------
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>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1997
PROSPECTUS
4,000,000 SHARES
[LOGO]
COMMON STOCK
------------
Of the 4,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by United Stationers Inc. (the "Company" or "United Stationers") and
2,000,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of shares of Common Stock by the Selling Stockholders. See "Principal
and Selling Stockholders."
The Common Stock, par value $0.10 per share (the "Common Stock"), is quoted
on the Nasdaq National Market under the symbol "USTR." On September 2, 1997, the
last reported sale price of the Common Stock was $35.00 per share. See "Common
Stock Price Range and Dividend Policy."
-------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
-----------------
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 SELLING
PUBLIC COMMISSIONS(1) 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
Underwriters against certain liabilities, including liabilities arising
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company (including certain expenses
payable on behalf of the Selling Stockholders), estimated at $475,000.
(3) The Selling Stockholders have granted the Underwriters an option exercisable
within 30 days hereof to purchase up to an additional 600,000 shares of
Common Stock on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If such shares are purchased, the total Price
to Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
-------------------
The shares of Common Stock 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 said offer and to reject orders in whole
or in part. It is expected that delivery of the Common Stock will be made on or
about , 1997 at the offices of Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167.
-------------------
BEAR, STEARNS & CO. INC.
MORGAN STANLEY DEAN WITTER
ROBERTSON, STEPHENS & COMPANY
CHASE SECURITIES INC.
, 1997
<PAGE>
[MAP ENTITLED "DISTRIBUTION NETWORK"]
[PHOTOGRAPHS OF PRODUCTS AND CATALOGS]
[CHART ENTITLED "THE COMPANY'S ROLE IN THE BUSINESS PRODUCTS INDUSTRY"]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ALSO ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."
------------------------
United Stationers-Registered Trademark- 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. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "UNDERWRITING." 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" OR "UNITED STATIONERS" 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 MERGERS OF
ASSOCIATED WITH UNITED AND ASI WITH USSC ON MARCH 30, 1995 (COLLECTIVELY, THE
"MERGER").
THE COMPANY
United Stationers is the leading broad line wholesale distributor of
business products in North America. The Company offers more than 30,000
stockkeeping units ("SKUs"), including traditional office products, office
furniture, computer supplies, facilities management supplies and janitorial and
sanitation supplies. The Company's customer base is comprised of more than
15,000 resellers, including office products dealers, office furniture dealers,
office products superstores, mass merchandisers, computer products resellers,
mail order companies and sanitary supply distributors. United Stationers serves
its customers through an integrated nationwide network of 41 business products
distribution centers and 15 janitorial and sanitation distribution centers. In
addition to its broad product offering, the Company provides value-added
marketing and logistics services to both manufacturers and resellers. For the 12
months ended June 30, 1997, the Company had net sales of approximately $2.4
billion and operating income of approximately $123.0 million, making it the
largest broad line business products wholesaler in North America, with annual
sales of more than twice its next largest competitor.
The Company estimates that the U.S. business products industry generated
sales of more than $100 billion in manufacturers' shipments in 1995 (based on
independent industry sources). In recent years, this industry has experienced
significant consolidation at all levels of the supply chain, including
manufacturers, wholesalers and resellers. During this period, the Company has
strengthened its competitive position by: (i) leveraging its significant scale;
(ii) emphasizing cost-effective operations and systems; (iii) stocking the
broadest range of business products in the industry; and (iv) providing a high
level of customer service, including quick and accurate order fulfillment and
consistent on-time and accurate order delivery. Throughout this consolidation,
the Company has successfully maintained relationships with a diverse customer
base, with no single reseller accounting for more than 6% of the Company's net
sales in 1996.
As competition within the business products industry has increased,
resellers have focused on broadening their product offerings on a cost-effective
basis as well as providing high in-stock order fill rates on same day and
overnight delivery to end users. A primary goal of the Company is to be the
reseller's "wholesale partner of choice" by assisting its customers in achieving
these objectives and enabling them to increase their own profitability and
return on assets. United Stationers offers one-stop shopping to its customers by
providing a comprehensive inventory of products from more than 500
manufacturers. As the Company's product line is much larger and broader than
that which resellers can economically stock themselves, resellers can rely on
the Company to offer safety stock (inventory back-up on high volume items) and
to stock certain slower-moving, generally higher margin products. As a result of
volume purchasing, the Company often qualifies for better pricing and terms than
are available to resellers. In addition, the Company can offer significantly
lower minimum order quantities than are available to resellers directly from
manufacturers.
United Stationers also provides a broad range of value-added services to
resellers. The Company produces catalogs (available in paper form, on CD-ROM and
through seamless links to the Company's web site) for its resellers to customize
and use as consumer marketing tools. For the 1997 catalog season, the Company
circulated more than 10 million broad line and specialized catalogs. The
Company's order entry systems allow resellers to place orders electronically
with the Company, thereby increasing a reseller's efficiency. Further, the
Company is able to deliver pre-sold products directly to the reseller's
customers or to the reseller for delivery to the end user without further
packaging. Through its state-of-the-art information systems and integrated
nationwide network of distribution centers, the Company has been able to achieve
a high order fill rate, which is
3
<PAGE>
an important benefit to resellers in providing timely deliveries to end users.
All of these services are provided in such a manner that the end user has no
knowledge of the Company's role in the supply chain, as all catalogs and
packaging are customized with the name of the reseller, allowing the reseller to
maintain and foster end-user relationships. By utilizing the Company's services
and products, resellers have begun to realize the economic value of reducing the
number of SKUs they carry and are increasingly relying upon the Company for
direct order fulfillment. The Company believes that this trend of "de-stocking"
by resellers will continue.
United Stationers is an integral part of the supply chain for resellers.
Additionally, manufacturers value the Company as both a cost-effective
distribution channel and as a sales outlet that provides broad geographic
exposure for their products. United Stationers also facilitates the introduction
of new products by manufacturers through the use of the Company's widely
distributed marketing materials. By serving as a distribution channel for
manufacturers, the Company assumes credit risk and cost-effectively breaks bulk
shipments into individual orders for overnight delivery, allowing manufacturers
to realize efficiencies in order administration, warehousing and freight costs.
Manufacturers also rely on the Company to reach smaller resellers who are not
large enough to purchase directly due to their small order sizes and the related
high delivery costs.
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution, the
Company believes its role as a wholesaler will continue to expand and that it
can achieve above industry-average growth rates by:
- CAPTURING A GREATER SHARE OF EXISTING CUSTOMERS' PURCHASES. The Company
believes that it has the opportunity to capture a portion of the sales of
business products currently sold directly by manufacturers to resellers
without wholesaler involvement (currently only approximately 20% of
manufacturers' shipments of business products move through wholesalers).
The Company believes that as resellers intensify their focus on asset
management, return on investment and inventory efficiency, they will
continue de-stocking and increasingly rely on United Stationers' products
and services to meet end-user requirements for a high order fill rate on
an overnight basis.
- EXPANDING ITS CUSTOMER BASE. The Company plans to continue to expand its
customer base by: (i) maintaining and building its business with
commercial dealers and contract stationers; (ii) developing additional
programs for marketing and buying groups; (iii) continuing to focus on
complementary markets, including specialty dealers; and (iv) expanding
geographically, both within the United States and, potentially,
internationally.
- OFFERING A BROADER LINE OF PRODUCTS AND SERVICES. The Company's product
line expansion plans include developing its newer product categories, such
as office furniture, computer supplies and peripherals, facilities
management supplies and janitorial and sanitation supplies and potentially
offering new products or services. The Company also plans to continue to
expand its line of private brand products.
- CAPITALIZING ON CROSS-SELLING OPPORTUNITIES. The Company believes that
its various products and services are complementary and that there are
significant opportunities to cross-sell to existing customers. By
implementing this strategy, management believes the Company can enhance
sales as resellers purchase a broader selection of products offered by the
Company, thereby reducing end-user procurement costs and enhancing
reseller profitability.
- INCREASING TECHNOLOGICAL CAPABILITIES AND UTILIZING ELECTRONIC
COMMERCE. The Company intends to continue to invest in information
systems enhancements and customer interfaces that management believes will
allow it to capture a growing percentage of its customers' business. In
addition, as the Internet becomes increasingly important as a marketing
channel, the Company is positioned to participate in this trend with
direct, on-line access by its resellers to its 25,000 SKU general line
catalog.
- MAKING STRATEGIC ACQUISITIONS. The Company believes it can enhance its
growth by continuing to make strategic acquisitions, such as the
acquisition of Lagasse Bros., Inc. ("Lagasse") in 1996, which
substantially increased the Company's position in the janitorial and
sanitation supplies product category. The Company intends to target
acquisitions that expand its customer base, increase its geographic reach
and/ or broaden its product offering.
4
<PAGE>
RECENT DEVELOPMENTS
Net sales for the two months ended August 31, 1997 were up 12.5%, compared
with the same period a year ago (on an equivalent work-day basis). Management
believes that the United Parcel Service ("UPS") work stoppage had an
insignificant effect on the Company's sales during the work stoppage. Upon
commencement of the UPS work stoppage, the Company implemented its contingency
plan to use alternate delivery service providers. Management estimates that the
Company incurred approximately $0.9 million of increased delivery cost due to
the UPS work stoppage.
During the third quarter of 1997, the Company reviewed a potential
acquisition opportunity. The Company subsequently determined not to proceed and
terminated discussions. Consequently, the Company has incurred an estimated $0.6
million of expenses in connection with business, accounting, tax and legal due
diligence, which will be expensed in the third quarter of 1997.
In anticipation of the Offering, the Company redeemed all of its outstanding
Preferred Stock (as defined) for an aggregate of approximately $21.3 million on
September 2, 1997. See "Description of Capital Stock-- Preferred Stock."
In addition, the Company is currently pursuing an Asset Backed
Securitization (the "ABS") transaction that is intended to be a
bankruptcy-remote and off-balance sheet financing, in order to reduce the
Company's cost of capital. The ABS would involve the sale of the Company's
accounts receivable and, if consummated, is expected to result in a lower
accounts receivable balance and senior revolver loan balance than is reported in
the Company's historical financial statements included herein. There can be no
assurance that the Company will consummate the ABS.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........................ 2,000,000 shares
Common Stock offered by the Selling Stockholders (1)....... 2,000,000 shares
Common Stock to be outstanding after the Offering (2)...... 14,456,755 shares
Use of Proceeds............................................ To repay certain
outstanding indebtedness.
See "Use of Proceeds."
Nasdaq National Market symbol.............................. USTR
</TABLE>
- --------------------------
(1) Includes 661,804 shares of Common Stock to be issued upon exercise of
warrants held by certain of the Company's senior lenders and certain other
holders (the "Lender Warrants") and 175,196 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") in connection with the Offering. See "Certain
Transactions" and "Principal and Selling Stockholders."
(2) Based on the number of shares outstanding at September 2, 1997 after giving
effect to the sale and exercise of the Warrants. Does not include: (i)
2,631,768 shares of Common Stock issuable upon exercise of employee stock
options ("Employee Stock Options") granted to certain employees and
directors of the Company pursuant to the Company's 1992 Management Equity
Plan, as amended (the "Management Equity Plan"); (ii) 399,175 shares
issuable upon exercise of the Warrants that will remain outstanding after
the Offering; and (iii) 758,994 shares of the Company's Nonvoting Common
Stock, par value $0.01 per share ("Nonvoting Common Stock") that will remain
outstanding after the Offering. See "--Anticipated Nonrecurring Charges" and
"Description of Capital Stock."
5
<PAGE>
ANTICIPATED NONRECURRING CHARGES
In connection with the acquisition of ASI in 1992 and the Merger in 1995,
certain members of management of the Company were granted Employee Stock Options
to acquire approximately 2.6 million shares of Common Stock (the "Merger
Incentive Options"). As a result of this Offering and the sale of shares by
certain of the Selling Stockholders, the Merger Incentive Options will vest and
become immediately exercisable. This event will require the Company to recognize
a nonrecurring, noncash compensation charge during the fourth quarter of 1997
based on the fair market value of the Common Stock on the date of the closing of
the Offering. Based on an assumed offering price of $34.25 per share, the
Company would recognize a charge equal to $48.1 million ($28.6 million net of
tax benefit of $19.5 million) or approximately $1.67 per share. Each $1.00
change in the fair market value of the Common Stock could result in a maximum
adjustment to such compensation expense of approximately $2.4 million ($1.4
million net of tax benefit of $1.0 million) or approximately $0.08 per share.
See "Principal and Selling Stockholders" and "Certain Transactions--Option and
Restricted Stock Awards."
In addition, the Company expects to recognize a nonrecurring extraordinary
loss from early extinguishment of debt during the fourth quarter of 1997 related
to the redemption premium of $6.4 million ($3.8 million net of tax benefit of
$2.6 million) and write-off of certain related capitalized financing costs of
approximately $3.3 million ($2.0 million net of tax benefit of $1.3 million), or
an aggregate of $0.34 per share, as a result of the redemption of $50.0 million
aggregate principal amount of USSC's 12 3/4% Senior Subordinated Notes due 2005
(the "Notes") with the proceeds of this Offering. See "Use of Proceeds."
Finally, the Company is currently negotiating the termination of certain
Management Agreements (as defined) in exchange for aggregate payments of
approximately $3.3 million. As a result, the Company expects to recognize a
one-time nonrecurring charge during the fourth quarter of 1997 of approximately
$3.3 million ($2.0 million net of tax benefit of $1.3 million) or approximately
$0.12 per share in connection with the termination and buy-out of such
agreements. See "Certain Transactions--Management Agreements."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares
of pre-Merger United Common Stock pursuant to a tender offer (the "Tender
Offer"). Immediately thereafter, Associated merged with and into United, and
ASI, a wholly owned subsidiary of Associated, merged with and into USSC, a
wholly owned subsidiary of United. Although United was the surviving corporation
in the Merger, the transaction was treated as a reverse acquisition for
accounting purposes, with Associated deemed the acquiring corporation.
Therefore, the historical income statement and other 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.
Set forth below are (i) summary historical financial data; (ii) summary
supplemental pro forma data and the combined results of operations of United and
Associated for the period prior to the Merger; and (iii) summary pro forma data
reflecting the Offering, the use of proceeds therefrom, the redemption of all of
the Company's outstanding Series A Preferred Stock, $0.01 par value ("Series A
Preferred Stock"), and Series C Preferred Stock, $0.01 par value ("Series C
Preferred Stock" and, collectively with the Series A Preferred Stock, the
"Preferred Stock"), effected on September 2, 1997 and related transactions. The
summary supplemental pro forma data, the summary supplemental combined
historical data and pro forma data are intended for informational purposes only
and are not necessarily indicative of either financial position or results of
operations in the future, or that would have occurred had the events described
below 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, the "Unaudited
Consolidated Pro Forma Financial Statements," and related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994
-------------------------- 1995
SUPPLEMENTAL ----------------------------- YEAR ENDED
ASSOCIATED COMBINED COMPANY SUPPLEMENTAL DECEMBER 31,
HISTORICAL HISTORICAL(1) HISTORICAL PRO FORMA(2) 1996
----------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(3):
Net sales............................................. $ 470,185 $ 1,990,363 $ 1,751,462 $ 2,201,860 $ 2,298,170
Cost of goods sold.................................... 382,299 1,645,821 1,446,949 1,820,590 1,907,209
----------- ------------- -------------- ------------- -------------
Gross profit.......................................... 87,886 344,542 304,513 381,270 390,961
Operating expenses:
Warehousing, marketing and administrative expenses.. 69,765 285,500 237,197 299,861(4) 277,957
Restructuring charge................................ -- -- 9,759(5) -- --
----------- ------------- -------------- ------------- -------------
Income from operations................................ 18,121 $ 59,042 57,557 $ 81,409 113,004
------------- -------------
------------- -------------
Interest expense, net................................. 7,725 46,186 57,456
----------- -------------- -------------
Income before income taxes and extraordinary item..... 10,396 11,371 55,548
Income taxes.......................................... 3,993 5,128 23,555
----------- -------------- -------------
Income before extraordinary item...................... 6,403 6,243 31,993
Extraordinary item.................................... -- (1,449)(6) --
----------- -------------- -------------
Net income............................................ 6,403 4,794 31,993
Preferred stock dividends issued and accrued.......... 2,193 1,998 1,744
----------- -------------- -------------
Net income attributable to common stockholders........ $ 4,210 $ 2,796 $ 30,249
----------- -------------- -------------
----------- -------------- -------------
Net income per common and common equivalent share:
Income before extraordinary item.................... $ 0.51 $ 0.33 $ 2.03
Extraordinary item.................................. -- (0.11) --
----------- -------------- -------------
Net income.......................................... $ 0.51 $ 0.22 $ 2.03
----------- -------------- -------------
----------- -------------- -------------
Weighted average shares outstanding (in thousands).... 8,309 12,913 14,923
PRO FORMA INCOME STATEMENT DATA:
Interest expense...................................... $ 51,601
Net income............................................ 35,477
Preferred stock dividends issued and accrued.......... --
Net income attributable to common stockholders........ 35,477
Net income per common and common equivalent share..... 2.10
Weighted average shares outstanding (in thousands).... 16,927
OTHER DATA:
EBITDA(7)............................................. $ 23,505 $ 86,003 $ 81,241 $ 111,880 $ 139,046
EBITDA margin(8)...................................... 5.0% 4.3% 4.6% 5.1% 6.1%
Ratio of debt and capital lease obligation to
EBITDA.............................................. 2.7x 6.8x 4.3x
Cash provided by operating activities................. $ 14,088 $ 26,329 $ 1,609
Cash (used in) provided by investing activities....... (554) (266,291) (49,871)
Cash (used in) provided by financing activities....... (12,676) 249,773 47,221
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
INCOME STATEMENT DATA(3):
Net sales............................................. $1,122,571 $1,245,062
Cost of goods sold.................................... 932,833 1,031,586
---------- ----------
Gross profit.......................................... 189,738 213,476
Operating expenses:
Warehousing, marketing and administrative expenses.. 136,697 150,434
Restructuring charge................................ -- --
---------- ----------
Income from operations................................ 53,041 63,042
Interest expense, net................................. 29,641 28,528
---------- ----------
Income before income taxes and extraordinary item..... 23,400 34,514
Income taxes.......................................... 9,918 14,635
---------- ----------
Income before extraordinary item...................... 13,482 19,879
Extraordinary item.................................... -- --
---------- ----------
Net income............................................ 13,482 19,879
Preferred stock dividends issued and accrued.......... 862 917
---------- ----------
Net income attributable to common stockholders........ $ 12,620 $ 18,962
---------- ----------
---------- ----------
Net income per common and common equivalent share:
Income before extraordinary item.................... $ 0.83 $ 1.28
Extraordinary item.................................. -- --
---------- ----------
Net income.......................................... $ 0.83 $ 1.28
---------- ----------
---------- ----------
Weighted average shares outstanding (in thousands).... 15,117 14,865
PRO FORMA INCOME STATEMENT DATA:
Interest expense...................................... $ 25,629
Net income............................................ 21,604
Preferred stock dividends issued and accrued.......... --
Net income attributable to common stockholders........ 21,604
Net income per common and common equivalent share..... 1.28
Weighted average shares outstanding (in thousands).... 16,868
OTHER DATA:
EBITDA(7)............................................. $ 66,231 $ 76,623
EBITDA margin(8)...................................... 5.9% 6.2%
Ratio of debt and capital lease obligation to
EBITDA.............................................. -- --
Cash provided by operating activities................. $ 50,606 $ 92,904
Cash (used in) provided by investing activities....... 1,640 (4,451)
Cash (used in) provided by financing activities....... (52,825) (80,759)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
BALANCE SHEET DATA: HISTORICAL PRO FORMA(9)
--------- -------------
<S> <C> <C>
Working capital............................................................ $ 377,000 $ 382,061
Total assets............................................................... 1,039,125 1,035,620
Total debt and capital lease(10)........................................... 518,966 482,719
Redeemable preferred stock................................................. 20,702 --
Redeemable warrants........................................................ 30,996 --
Total stockholders' equity................................................. 87,704 197,582
</TABLE>
- --------------------------
(1) Supplemental combined historical data for the year ended December 31, 1994
represent a combination, without pro forma adjustments, of historical
financial data for Associated derived from its audited consolidated
financial statements for the fiscal year ended December 31, 1994, and
historical financial data for United derived from its unaudited consolidated
financial statements for the twelve-month period ended December 31, 1994.
This information is presented to facilitate a better understanding of the
combined operations prior to the Merger.
(2) Supplemental pro forma data for the year ended December 31, 1995 are based
on the audited consolidated financial statements of the Company for the
fiscal year ended December 31, 1995 (which includes the results of
operations of Associated for twelve months but excludes United for the three
months ended March 30, 1995) and the unaudited consolidated financial
statements of United for the three-month period ended March 30, 1995 giving
effect to (i) increased depreciation expense of $1.3 million resulting from
the write-up of certain fixed assets to fair value, (ii) additional
incremental goodwill amortization, (iii) elimination of nonrecurring
compensation expense of $1.5 million relating to certain employee stock
options recognized as a result of the Merger and (iv) the elimination of
$37.6 million in costs described in (4) below. This information is presented
to facilitate a better understanding of the combined operations prior to the
Merger.
(3) 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
1995 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
Information" included elsewhere herein.
(4) Supplemental pro forma operating expenses for the year ended December 31,
1995 exclude the following items: (i) a restructuring charge of $9.8 million
related to the Merger which was recorded by the Company during the year
ended December 31, 1995; and (ii) Merger-related costs of $27.8 million
recorded by United during the three months ended March 30, 1995.
(5) Restructuring charge is related to the Company's consolidation plan in
connection with the Merger.
(6) Loss on early retirement of debt, net of tax benefit of $1.0 million.
(7) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt and is
also one of the financial measures by which certain covenants under the
Company's Credit Agreement (as hereinafter defined) are calculated. However,
EBITDA should not be considered in isolation or as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. Also, the EBITDA definition used herein may not be comparable to
similarly titled measures reported by other companies.
(8) EBITDA margin represents EBITDA as a percentage of net sales.
(9) See "Unaudited Consolidated Pro Forma Financial Statements" for a discussion
of the adjustments used in the preparation of this data.
(10) Includes current maturities.
8
<PAGE>
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK IN ADDITION TO THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS MAY CONTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR
THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
FOLLOWING MATTERS AND CERTAIN OTHER FACTORS NOTED THROUGHOUT THIS PROSPECTUS,
AND ANY EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART, CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH
RESPECT TO ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
IN SUCH FORWARD-LOOKING STATEMENTS.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with business products manufacturers and other national, regional and
specialty wholesalers of business products, office furniture, computer products,
janitorial and sanitation supplies and related items. Some of these 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 business products industry, together with increased
advertising, has heightened price awareness among end users. Such heightened
price awareness has led to margin pressure on business products. In the event
that such a trend continues, the Company's profit margins could be adversely
affected. Further, the Company could be adversely affected by the loss of a
major customer. See "Business--Competition."
CONSOLIDATION
Consolidation continues throughout all levels of the business 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,
(ii) the ability of larger resellers who grow primarily through acquisitions to
qualify for larger volume rebates than the acquired companies would have
qualified for on a stand-alone basis, and (iii) 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. See "Business--The Business
Products Industry."
SUBSTANTIAL LEVERAGE
The Company has significant debt and debt service obligations. Assuming the
Offering and the resulting use of proceeds to redeem a portion of the
outstanding Notes (including a redemption premium thereon) and to repay
approximately $7.2 million of outstanding indebtedness under the Term Loan
Facilities (as defined) had occurred on June 30, 1997, the Company would have
had on that date (i) $482.7 million of long-term indebtedness (including current
maturities) and $197.6 million of total stockholders' equity, and (ii) long-term
indebtedness to total stockholders' equity ratio of 2.4 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
9
<PAGE>
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
defined) is payable at variable rates. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Indebtedness."
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"
and "Description of Indebtedness."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture (as amended, the "Indenture") governing the Notes of USSC and
the credit agreement governing the Company's senior secured credit facilities
(as amended, 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, any
of which could have a material adverse effect on the financial condition of the
Company. In addition, the Company is a holding company which has no significant
assets other than the capital stock of USSC, and therefore, relies on dividends
and distributions from USSC as its sole source of cash. The right of the Company
to participate in dividends or other distributions from USSC are subject to
restrictions by the Indenture and the Credit Agreement, as well as the prior
rights of creditors of USSC and other statutory restrictions. See "Description
of Indebtedness."
CHANGING END-USER DEMANDS AND SEASONALITY
The Company's sales and profitability are largely dependent on its ability
to continually enhance its product offerings in order to meet changing end-user
demands. End-users traditional demands for business 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 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
10
<PAGE>
delivery were to diminish substantially or end-user demand for a higher
proportion of low margin products were to increase substantially.
Although the Company's sales are 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. Any impact
upon sales during this peak season could have a disproportionate effect on the
Company's results of operations for the full year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Seasonality."
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 manufacturers'
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 have a
material effect on the Company's net sales, gross margins and net income, and
the timing of such changes throughout the year could materially impact quarterly
results.
EFFECT OF CHANGES IN THE ECONOMY
Demand for business 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.
POTENTIAL 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 that expire at various times during
the next three years. Although the Company considers its relations with
employees to be good, a prolonged labor dispute could have a material adverse
effect on the Company's business (including its ability to deliver its products
in a timely manner) 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 handling and freight costs. The Company has not experienced any
work stoppages during the past five years.
The Company's ability to receive and deliver products is largely dependent
on the availability of trucking and package delivery services utilized by
manufacturers and the Company. Therefore, the occurrence of a strike or other
work stoppage by any such service provider could materially affect the Company's
sales and profitability. See "Prospectus Summary--Recent Developments."
DEPENDENCE ON TECHNOLOGY
The Company believes that the successful operation of its business depends
to a large extent on its computerized inventory management, order processing and
distribution systems. The Company may, from
11
<PAGE>
time to time, experience delays, complications or expenses in integrating and
operating these systems, any of which could have a material adverse effect upon
the Company's results of operations and financial condition. While the Company
believes that its computer systems will be adequate for its future needs, such
systems may require modification, improvement or replacement as the Company
grows or as technologies make these systems obsolete. For example, the Company
is currently taking steps to make all necessary modifications to its systems for
the year 2000. Anticipated expenses for these modifications are in the range of
$4.2 to $4.7 million and will be incurred during the next two years. Any such
modifications, improvements or replacements may require substantial expenditures
to design and implement and may require interruptions in operations during
periods of implementation, any of which could have a material adverse effect on
the Company's results of operations and financial condition. Further, since
approximately 90% of the Company's orders are received electronically, any
disruption of a significant reseller's computer systems could have an adverse
impact on the Company's sales. The Company's service levels also would be
affected in the event of an interruption in operation of its telecommunications
network on a company-wide scale for an extended period of time, although the
Company has developed contingency plans to limit its exposure to such risks.
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. Frederick B. Hegi,
Jr., the Company's non-executive Chairman of the Board, Mr. Randall W.
Larrimore, 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 these individuals could have a material adverse
effect on the Company. The Company has entered into employment agreements with
the executive officers listed above. The Company currently does not have any
"key man" life insurance for its key personnel. See "Management."
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 $39.1 million in net proceeds from the sale of an aggregate of
1,202,166 shares of Common Stock offered hereby ($45.8 million if the
Underwriters' over-allotment option is exercised in full). Mr. Hegi, the
Company's Chairman of the Board, is an indirect general partner of Wingate
Partners and Wingate II and a general partner of Wingate Affiliates and Wingate
Affiliates II. 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
the Merger Incentive Options held by management of the Company to vest and
become immediately exercisable. The Company will recognize a non-recurring,
non-cash compensation charge in connection with such event. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General Information--Employee Stock Options" and "Certain
Transactions-- Option and Restricted Stock Awards."
INFLUENCE OF CERTAIN STOCKHOLDERS
As of the date of this Prospectus and after giving effect to the Offering,
Wingate, Cumberland Capital Corporation ("Cumberland") and its affiliates, and
Mr. Daniel J. Good and his affiliates will beneficially own approximately 33.4%,
10.0% and 0.9%, respectively, of the outstanding shares of Common Stock (29.9%,
8.9% and 0.7%, respectively, if the Underwriters' over-allotment option is
exercised in full). Two of the current seven directors of the Company are
affiliates of Wingate Partners or Wingate II. In addition,
12
<PAGE>
Mr. Gary G. Miller, who is the President and a stockholder of Cumberland, and
Mr. Good each 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
Currently, there are approximately 3.1 million publicly held shares of
Common Stock. As a result of this relatively small number of publicly held
shares, the market price for 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."
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of this Offering, the Company
will have 14,456,755 shares of Common Stock outstanding, and 758,994 shares of
Nonvoting Common Stock outstanding. In addition, 399,175 shares will be issuable
upon exercise of outstanding Warrants, and 2,631,768 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 7,140,828
shares (not including 392,183 shares issuable upon exercise of outstanding
Lender Warrants and 758,994 shares issuable upon conversion of Nonvoting Common
Stock) will be freely tradable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"). Subject to Rule
144 under the Securities Act (as currently in effect), after 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 7,315,927 of the
remaining shares (7,064,010 shares if the Underwriters' over-allotment option is
exercised in full) will become eligible at various times for sale in the public
marketplace. 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,
Common Stock held by Arab Banking Corporation (B.S.C.) and all shares of
Nonvoting Common Stock held by Chase Manhattan Investment Holdings, L.P.
(successor to Chase Manhattan Investment Holdings, Inc.) ("CMIH") (collectively
representing an aggregate of 392,183 shares of Common Stock and 758,994 shares
of Nonvoting Common Stock after the Offering). See "Certain
Transactions--Registration Rights Agreement." In July 1997, 173,449 Lender
Warrants were converted into Common Stock. The Company also intends to register
under the Securities Act the shares of Common Stock issuable upon exercise of
certain Employee Stock Options. Following the consummation of this Offering and
expiration of the 90-day lock-up described in "Underwriting," 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
The Company has available for issuance 1,500,000 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. 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
13
<PAGE>
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. No shares of preferred stock are currently outstanding. See
"Description of Capital Stock--Preferred Stock."
The Company's Restated Certificate of Incorporation (as amended from time to
time, the "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 Credit Agreement
provides that the occurrence of a change of control (which term includes the
ownership by Wingate and, in certain circumstances, Good Capital (as defined)
and Cumberland and certain affiliates, of less than 2,061,580 shares of Common
Stock, or any person or group acquiring a greater number of shares of Common
Stock than Wingate) shall constitute an event of default thereunder, and the
lenders thereunder may declare all borrowings outstanding under the Credit
Agreement to become due and payable immediately, which could have a material
adverse effect on the Company and could have the effect of deterring or delaying
a takeover attempt. See "Description of Indebtedness--Credit Facilities."
Finally, 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 of either United or USSC or
certain significant changes in the composition of the Board of Directors of
either United or USSC), the Company shall be obligated to offer to repurchase
all outstanding Notes at a purchase price of 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption.
Such obligation, if it arose, could have a material adverse effect on the
Company and could have the effect of deterring or delaying 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., a privately
held office products wholesaler with annual revenues of more than $400.0
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.
To further its geographical presence and increase market share, in October 1992
Associated acquired Lynn-Edwards Corp., a privately held office products
wholesaler.
On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares
of pre-Merger United common stock and, 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. On October 31, 1996,
USSC acquired all of the capital stock of Lagasse, the largest wholesaler of
janitorial and sanitation supplies in the U.S. with annual sales of
approximately $80.0 million.
The principal executive offices of the Company are located at 2200 East Golf
Road, Des Plaines, Illinois 60016-1267 and the telephone number is (847)
699-5000.
USE OF PROCEEDS
The net proceeds to the Company from this Offering (using an assumed
offering price of $34.25 and after deducting applicable underwriting discounts
and estimated expenses payable by the Company) are estimated to be approximately
$64.6 million. Such net proceeds will be contributed to USSC to enable USSC to
(i) exercise its Equity Clawback Option (as defined under "Description of
Indebtedness-- Notes") and thereby redeem $50.0 million of the outstanding
Notes, all accrued but unpaid interest thereon and pay the redemption premium
thereon of approximately $6.4 million, and (ii) reduce by approximately $7.2
million the indebtedness under the Term Loan Facilities (as defined below) with
any remaining proceeds. The repayment of indebtedness under the Term Loan
Facilities would cause a permanent reduction of the amount borrowable
thereunder.
The partial redemption of the Notes and the repayment of indebtedness under
the Term Loan Facilities described above will be effected as soon as practicable
following consummation of the Offering. Pending such redemption, the Company
will use the net proceeds allocated to such redemption 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" for a description of additional provisions of the
Notes and the Term Loan Facilities and the Company's use of the proceeds
therefrom.
The Term Loan Facilities under the Credit Agreement (the "Term Loan
Facilities") consist of a Tranche A term loan facility (the "Tranche A
Facility") and a Tranche B term loan facility (the "Tranche B Facility"). The
Tranche A Facility bears interest at prime plus 0.25% to 1.25% or, at the
Company's option, LIBOR plus 1.50% to 2.50%. The Tranche A Facility is payable
in 20 quarterly installments, beginning on December 31, 1996, and matures on
September 30, 2001. The Tranche B Facility bears interest at prime plus 1.25% to
1.75% or, at the Company's option, LIBOR plus 2.50% to 3.00%. The Tranche B
Facility is payable in 28 quarterly installments, beginning on December 31,
1996, and matures on September 30, 2003. The Term Loan Facilities were amended
on October 31, 1996 to: (i) extend maturities; (ii) amend pricing and covenants;
and (iii) provide additional financing that was used to fund a portion of the
purchase price of Lagasse. See "Description of Indebtedness--Credit Facilities."
The Company will not receive any of the proceeds from the sale of 2,000,000
shares (2,600,000 shares if the Underwriters' over-allotment option is
exercised) of Common Stock by the Selling Stockholders.
15
<PAGE>
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
The Common Stock is quoted on 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:
<TABLE>
<CAPTION>
HIGH LOW
------- ---------
<S> <C> <C> <C> <C> <C>
1995
First Quarter...................................................... *
Second Quarter..................................................... $ 9 5/16 $
Third Quarter...................................................... $ 15 1/2 $
Fourth Quarter..................................................... $ 27 3/4 $
1996
First Quarter...................................................... $ 30 1/4 $
Second Quarter..................................................... $ 24 1/2 $
Third Quarter...................................................... $ 24 1/2 $
Fourth Quarter..................................................... $ 23 $
1997
First Quarter...................................................... $ 21 3/4 $
Second Quarter..................................................... $ 27 1/4 $
Third Quarter (through September 2, 1997).......................... $ 38 $
<CAPTION>
<S> <C> <C>
1995
*
8 9/16
8 11/16
13 3/4
1996
21 1/2
19 1/2
17 1/2
19 1/2
1997
18 3/4
19
23 7/8
</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 September 2, 1997, the last reported sale price of the Common Stock as
quoted on the Nasdaq National Market was $35.00 per share, and there were
approximately 1,000 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
restricted by the Credit Agreement and the Indenture and is subject to statutory
restrictions. See "Risk Factors--Restrictions Imposed by Terms of Indebtedness"
and "Description of Indebtedness."
16
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of June 30, 1997 on a historical basis and on an as adjusted basis giving
effect to (i) the issuance and sale by the Company of shares of Common Stock
offered hereby at an assumed public offering price of $34.25 per share and the
application of the net proceeds therefrom to redeem a portion of the outstanding
Notes and prepay certain indebtedness under the Term Loan Facilities, (ii) the
exercise of certain Warrants in connection with the Offering, (iii) the
redemption of all of the outstanding shares of Preferred Stock effected
September 2, 1997, and (iv) the 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
Consolidated Pro Forma Financial Statements of the Company, together with the
related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
(DOLLARS IN THOUSANDS)
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Current portion of long-term debt and capital lease obligation........................... $ 23,714 $ 23,714
Long-term debt, net of current portion:
Revolving credit facility.............................................................. 161,000 181,923
Term loan facilities................................................................... 152,238 145,068
12 3/4% Senior Subordinated Notes due 2005............................................. 150,000 100,000
Other long-term debt and capital lease obligation...................................... 32,014 32,014
---------- -----------
Total long-term debt and capital lease obligation.................................. 495,252 459,005
Redeemable preferred stock:
Series A............................................................................... 8,412 --
Series C............................................................................... 12,290 --
---------- -----------
Total redeemable preferred stock................................................... 20,702 --
Redeemable warrants (1).................................................................. 30,966 --
Stockholders' equity:
Common stock, $0.10 par value; 40,000,000 shares authorized;
11,446,306 shares issued and outstanding (historical).................................. 1,145
14,283,306 shares issued and outstanding (as adjusted) (1)(2).......................... 1,428
Nonvoting common stock, $0.01 par value;
5,000,000 shares authorized; 758,994 shares issued and outstanding (3)................. 8 8
Capital in excess of par value (1)..................................................... 45,046 190,813
Retained earnings...................................................................... 41,505 5,333
---------- -----------
Total stockholders' equity......................................................... 87,704 197,582
---------- -----------
Total capitalization (including current portion of long-term debt and capital lease
obligation)...................................................................... $ 658,338 $ 680,301
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Lender Warrants (redeemable warrants) exercisable for an aggregate of
661,804 shares of Common Stock and Preferred B Warrants exercisable for an
aggregate of 175,196 shares of Common Stock will be exercised in connection
with the Offering. See "Principal and Selling Stockholders" and
"Underwriting." The remaining 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) 2,631,768 shares of Common Stock issuable upon exercise
of Employee Stock Options, (ii) 1,236,175 shares (399,175 shares on an as
adjusted basis) of Common Stock issuable upon exercise of Warrants, and
(iii) 758,994 shares (758,994 shares on an as adjusted basis) of Common
Stock issuable upon conversion of outstanding shares of Nonvoting Common
Stock. See "Description of Capital Stock."
(3) Does not include 1,053,987 shares (392,183 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."
17
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Consolidated Pro Forma Financial Statements are
based on the historical financial statements of the Company. The pro forma
income statement gives effect to (i) the Offering (based on an assumed offering
price of $34.25) and application of the Company's net proceeds therefrom to
redeem a portion of the Notes and a portion of the Term Loan Facilities, (ii)
the exercise of certain Warrants in connection with the Offering, (iii) the
redemption of all outstanding Preferred Stock of the Company effected September
2, 1997, all as more fully described in the notes to Unaudited Consolidated Pro
Forma Financial Statements below, as if all such transactions were effected as
of the beginning of the period presented. The pro forma balance sheet is
presented giving effect to (i) the above transactions, (ii) the termination of
the put feature of the Lender Warrants, and (iii) nonrecurring charges described
below as if these transactions were effected on June 30, 1997.
The pro forma income statement data excludes the following nonrecurring
charges expected to be recognized in the fourth quarter of 1997 relating to the
anticipated completion of the Offering and application of the Company's net
proceeds therefrom: (i) a noncash charge of approximately $48.1 million ($28.6
million net of tax benefit of $19.5 million) or approximately $1.67 per share in
compensation expense arising because certain Merger Incentive Options will
become exercisable upon the occurrence of a Vesting Event, and (ii) an
extraordinary loss from early extinguishment of debt during the fourth quarter
of 1997 related to the redemption premium of $6.4 million ($3.8 million net of
tax benefit of $2.6 million) and write-off of certain capitalized financing
costs of approximately $3.3 million ($2.0 million net of tax benefit of $1.3
million), or an aggregate of $0.34 per share, as a result of the redemption of
$50 million aggregate principal amount of Notes with the proceeds of this
Offering. The compensation expense described in (i) above is based on options
outstanding at June 30, 1997 and an assumed offering price of $34.25. Each $1.00
change in the fair market value of the Common Stock could result in a maximum
adjustment to such compensation expense of approximately $2.4 million ($1.4
million net of tax benefit of $1.0 million) or approximately $.08 per share. See
"Certain Transactions--Option and Restricted Stock Awards," "--Interests of
Certain Persons in the Offering," and Note 9 to the Consolidated Financial
Statements of the Company included elsewhere herein. For pro forma balance sheet
purposes, these nonrecurring charges have been reflected as a reduction of
retained earnings.
The Unaudited Consolidated 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 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 Consolidated 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, together with the
related notes thereto, included elsewhere herein.
18
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 18,313 $ -- $ 18,313
Accounts receivable.............................................. 262,887 -- 262,887
Inventories...................................................... 425,801 -- 425,801
Other............................................................ 23,659 -- 23,659
------------ ------------ ------------
Total current assets........................................... 730,660 -- 730,660
Net property, plant and equipment.................................. 166,883 -- 166,883
Goodwill........................................................... 113,337 -- 113,337
Other.............................................................. 28,245 (3,505 (a) 24,740
------------ ------------ ------------
Total assets................................................... $ 1,039,125 $ (3,505) $ 1,035,620
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligation... $ 23,714 $ -- $ 23,714
Accounts payable................................................. 219,199 -- 219,199
Accrued expenses................................................. 97,887 (1,060 (b) 96,827
Accrued income taxes............................................. 12,860 (4,001 (c) 8,859
------------ ------------ ------------
Total current liabilities...................................... 353,660 (5,061) 348,599
Deferred income taxes.............................................. 37,318 (20,407 (d) 16,911
Long-term obligations:
Long-term debt................................................... 495,014 (36,247 (e) 458,767
Other long-term liabilities...................................... 13,761 -- 13,761
Redeemable preferred stock......................................... 20,702 (20,702 (f) --
Redeemable warrants................................................ 30,966 (30,966 (g) --
Stockholders' equity:
Common stock (voting)............................................ 1,145 283(h) 1,428
Nonvoting common stock........................................... 8 -- 8
Capital in excess of par value................................... 45,046 145,767(i) 190,813
Retained earnings................................................ 41,505 (36,172 (j) 5,333
------------ ------------ ------------
Total stockholders' equity..................................... 87,704 109,878 197,582
------------ ------------ ------------
Total liabilities and stockholders' equity..................... $ 1,039,125 $ (3,505) $ 1,035,620
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
19
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................................................... $ 2,298,170 $ -- $ 2,298,170
Cost of goods sold................................................. 1,907,209 -- 1,907,209
------------ ----------- ------------
Gross profit....................................................... 390,961 -- 390,961
Total operating expenses........................................... 277,957 -- 277,957
------------ ----------- ------------
Income from operations............................................. 113,004 -- 113,004
Interest expense................................................... 57,456 (5,855)(k) 51,601
------------ ----------- ------------
Income before income taxes......................................... 55,548 5,855 61,403
Income taxes....................................................... 23,555 2,371(l) 25,926
------------ ----------- ------------
Net income......................................................... 31,993 3,484 35,477
Preferred stock dividends issued and accrued....................... 1,744 (1,744)(m) --
------------ ----------- ------------
Net income attributable to common shareholders..................... $ 30,249 $ 5,228 $ 35,477
------------ ----------- ------------
------------ ----------- ------------
Net income per common and common equivalent share.................. $ 2.03 $ 2.10
------------ ------------
------------ ------------
Weighted average shares outstanding (in thousands)................. 14,923 16,927
OTHER DATA:
EBITDA(1).......................................................... $ 139,046 $ 139,046
EBITDA margin(2)................................................... 6.1% 6.1%
</TABLE>
- ------------------------
(1) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt and is
also one of the financial measures by which certain covenants under the
Company's Credit Agreement are measured. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. Also, the EBITDA
definition used herein may not be comparable to similarly titled measures
reported by other companies.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
20
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................................ $ 1,245,062 $ -- $ 1,245,062
Cost of goods sold................................................... 1,031,586 -- 1,031,586
------------ ----------- ------------
Gross profit......................................................... 213,476 -- 213,476
Total operating expenses............................................. 150,434 -- 150,434
------------ ----------- ------------
Income from operations............................................... 63,042 -- 63,042
Interest expense..................................................... 28,528 (2,899)(k) 25,629
------------ ----------- ------------
Income before income taxes........................................... 34,514 2,899 37,413
Income taxes......................................................... 14,635 1,174(l) 15,809
------------ ----------- ------------
Net income........................................................... 19,879 1,725 21,604
Preferred stock dividends issued and accrued......................... 917 (917)(m) --
------------ ----------- ------------
Net income attributable to common shareholders....................... $ 18,962 $ 2,642 $ 21,604
------------ ----------- ------------
------------ ----------- ------------
Net income per common and common equivalent share.................... $ 1.28 $ 1.28
------------ ------------
------------ ------------
Weighted average shares outstanding (in thousands)................... 14,865 16,869
OTHER DATA:
EBITDA(1)............................................................ $ 76,623 $ 76,623
EBITDA margin(2)..................................................... 6.2% 6.2%
</TABLE>
- ------------------------
(1) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt and is
also one of the financial measures by which certain covenants under the
Company's Credit Agreement are measured. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. Also, the EBITDA
definition used herein may not be comparable to similarly titled measures
reported by other companies.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
21
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The pro forma financial statements have been prepared giving effect to the
following:
(1) The offering price for the shares of Common Stock is assumed to be
$34.25 per share.
(2) The Pro Forma Balance Sheet reflects a noncash charge of approximately
$50.4 million ($30.0 million net of tax benefit of $20.4 million) or
approximately $1.75 per share in compensation expense to be recognized
because the Merger Incentive Options will become exercisable upon
consummation of the Offering. Such compensation expense is based on
exercise prices and options outstanding at June 30, 1997 and an assumed
offering price of $34.25. Each $1.00 change in the fair market value of
the Common Stock could result in a maximum adjustment to such
compensation expense of approximately $2.4 million ($1.4 million net of
tax benefit of $1.0 million) or approximately $0.08 per share. See
"Certain Transactions--Option and Restricted Stock Awards." For pro forma
income statement purposes, this one-time nonrecurring noncash charge has
been excluded.
(3) Income taxes have been provided for pro forma adjustments at 40.5%.
Pro forma adjustments have been made to the Pro Forma Balance Sheet to
reflect the following effects of the Offering and use of proceeds therefrom
(dollars in thousands):
(a) Write-off of capitalized financing costs relating to the redemption of a
portion of the Notes and the reduction of the Term Loan Facilities.
(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 Merger Incentive Options.
(e) Redemption of Notes.................................... $ 50,000
Reduction of Term Loan Facilities...................... 7,645
Proceeds from the exercise of Warrants................. 92
Redemption of all outstanding Preferred Stock.......... (21,015)
Payment of Offering-related fees....................... (475)
-------------
$ 36,247
-------------
-------------
(f) Redemption of all of the outstanding shares of Preferred Stock, together
with accrued and unpaid dividends thereon through June 30, 1997.
22
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(g) Exercise of a portion of the Lender Warrants and termination of the put
feature of the remaining portion of the Lender Warrants.
(h) Issuance of shares of Common Stock by the Company in
conjunction with the Offering........................ $ 200
Adjustment due to exercise of Lender Warrants.......... 66
Adjustment due to exercise of Preferred B Warrants..... 17
-------------
$ 283
-------------
-------------
(i) Issuance of shares of Common Stock by the Company in
conjunction with the Offering (net of underwriting
discounts and commissions)........................... $ 64,880
Adjustment to additional paid in capital for
Offering-related fees................................ (475)
Adjustment due to exercise of Lender Warrants.......... 16,644
Adjustment due to exercise of Preferred B Warrants..... 9
Adjustment due to termination of the put feature of the
remaining Lender Warrants............................ 14,322
Adjustment to Merger Incentive Options (see (2)
above)............................................... 50,387
-------------
$ 145,767
-------------
-------------
(j) Adjustment for compensation expense relating to Merger
Incentive Options (net of tax benefit of $20,407).... $ (29,980)
Adjustment due to loss on early retirement of debt (net
of tax benefit of $4,001)............................ (5,879)
Accrual of Preferred Stock dividends................... (313)
-------------
$ (36,172)
-------------
-------------
Pro forma adjustments have been made to the Pro Forma Income Statement to
reflect the following:
(k) Adjustment to interest expense and amortization of financing costs for,
(i) the redemption of a portion of the Notes and reduction of the Term
Loan Facilities using the proceeds of the Offering and (ii) net increased
debt from retirement of Preferred Stock.
(l) Income tax effect of the pro forma adjustments.
(m) Adjustment of Preferred Stock dividends for redemption of all of the
outstanding shares of Preferred Stock effected on September 2, 1997.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below and on the following pages is selected historical
consolidated financial data for the Company. 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 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.
Associated was formed in January 1992 in conjunction with the Associated
Transaction. Associated commenced operations on January 31, 1992. 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 have 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 years ended December 31, 1995 (which for income statement and
operating and other data includes Associated only for the three months ended
March 31, 1995 and the results of the Company for the nine months ended December
31, 1995) and 1996 have been derived from the consolidated financial statements
of the Company, which have been audited by Ernst & Young LLP, independent
auditors. The data for the six months ended June 30, 1996 and 1997 are derived
from unaudited condensed consolidated financial statements and in the opinion of
management reflect all adjustments considered necessary for the fair
presentation of such data. Results for the six months ended June 30, 1997 are
not necessarily indicative of results that may be achieved for a full
twelve-month period. 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" and "--Historical Liquidity and
Capital Resources" and the Consolidated Financial Statements of the Company and
Associated, together with the related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
THE COMPANY
ASSOCIATED HOLDINGS, INC. ------------------------------------------
-----------------------------------
JANUARY 31(1) YEAR ENDED DECEMBER YEAR ENDED DECEMBER SIX MONTHS ENDED
TO 31, 31, JUNE 30,
DECEMBER 31, -------------------- -------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $ 359,779 $ 455,731 $ 470,185 $1,751,462 $2,298,170 $1,122,571 $1,245,062
Cost of goods sold................ 295,668 375,226 382,299 1,446,949 1,907,209 932,833 1,031,586
------------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 64,111 80,505 87,886 304,513 390,961 189,738 213,476
Operating expenses(2)............. 53,758 69,527 69,765 246,956 277,957 136,697 150,434
------------- --------- --------- --------- --------- --------- ---------
Income from operations............ 10,353 10,978 18,121 57,557 113,004 53,041 63,042
Interest expense.................. 5,626 7,235 7,725 46,186 57,456 29,641 28,528
------------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item.............. 4,727 3,743 10,396 11,371 55,548 23,400 34,514
Income taxes...................... 1,777 781 3,993 5,128 23,555 9,918 14,635
------------- --------- --------- --------- --------- --------- ---------
Income before extraordinary
item............................ 2,950 2,962 6,403 6,243 31,993 13,482 19,879
Extraordinary item(3)............. -- -- -- (1,449) -- -- --
------------- --------- --------- --------- --------- --------- ---------
Net income........................ 2,950 2,962 6,403 4,794 31,993 13,482 19,879
Preferred dividends............... 1,449 2,047 2,193 1,998 1,744 862 917
------------- --------- --------- --------- --------- --------- ---------
Net income attributable to common
stockholders.................... $ 1,501 $ 915 $ 4,210 $ 2,796 $ 30,249 $ 12,620 $ 18,962
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
Net income per common and common
equivalent share:
Income before extraordinary
item.......................... $ 0.19 $ 0.11 $ 0.51 $ 0.33 $ 2.03 $ 0.83 $ 1.28
Extraordinary item.............. -- -- -- (0.11) -- -- --
------------- --------- --------- --------- --------- --------- ---------
Net income...................... $ 0.19 $ 0.11 $ 0.51 $ 0.22 $ 2.03 $ 0.83 $ 1.28
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
Cash dividends declared per
share........................... -- -- -- -- -- -- --
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY
ASSOCIATED HOLDINGS, INC. ------------------------------------------
-----------------------------------
JANUARY 31(1) YEAR ENDED DECEMBER YEAR ENDED DECEMBER SIX MONTHS ENDED
TO 31, 31, JUNE 30,
DECEMBER 31, -------------------- -------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(4)......................... $ 14,875 $ 16,481 $ 23,505 $ 81,241 $ 139,046 $ 66,231 $ 76,623
EBITDA margin(5).................. 4.1% 3.6% 5.0% 4.6 (6) 6.1% 5.9% 6.2%
Ratio of EBITDA to interest
expense......................... 2.6x 2.3x 3.0x 1.8x 2.4x 2.2x 2.7x
Ratio of debt and capital lease
obligation to EBITDA............ 5.3x 5.2x 2.7x 6.8x 4.3x -- --
Capital expenditures, net......... $ 4,289 $ 3,273 $ 554 $ 8,017 $ (2,886) $ (2,501) $ 4,451
Cash provided by (used in)
operating activities............ 19,759 (12,084) 14,088 26,329 1,609 50,606 92,904
Cash (used in) provided by
investing activities............ (96,796) (3,276) (554) (266,291) (49,871) 1,640 (4,451)
Cash provided by (used in)
financing activities............ 85,290 8,095 (12,676) 249,773 47,221 (52,825) (80,759)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 46,396 $ 57,302 $ 56,454 $ 355,465 $ 404,973 $ 330,946 $ 377,000
Total assets............................ 179,069 190,979 192,479 1,001,383 1,109,867 936,653 1,039,125
Total debt and capital lease obligation
(7)................................... 78,297 86,350 64,623 551,990 600,002 498,498 518,966
Redeemable preferred stock.............. 18,949 20,996 23,189 18,041 19,785 18,903 20,702
Redeemable warrants..................... 1,435 1,435 1,650 39,692 23,812 29,949 30,996
Total stockholders' equity.............. 10,466 11,422 24,775 30,024 75,820 52,210 87,704
</TABLE>
- ------------------------------
(1) Information for the month ended January 31, 1992 has been omitted because it
represents Associated's predecessor operations and the information is not
comparable to that of Associated.
(2) For the year ended December 31, 1995, includes restructuring charge of $9.8
million related to the Company's consolidation plan in conjunction with the
Merger.
(3) Loss on early retirement of debt, net of tax benefit of $1.0 million.
(4) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt and is
also one of the financial measures by which certain covenants under the
Company's Credit Agreement is measured. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. Also, the EBITDA
definition used herein may not be comparable to similarly titled measures
reported by other companies.
(5) EBITDA margin represents EBITDA as a percentage of net sales.
(6) EBITDA margin for the year ended December 31, 1995 would have been 5.2% if
adjusted to exclude restructuring charge.
(7) Includes current maturities.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto appearing elsewhere herein.
Certain information presented herein includes forward-looking statements
regarding the Company's future results of operations. The Company is confident
that its expectations are based on reasonable assumptions given its knowledge of
its operations and business. However, there can be no assurance that the
Company's actual results will not differ materially from its expectations. The
matters referred to in forward-looking statements may be affected by the risks
and uncertainties involved in the Company's business including, among others,
competition with business products manufacturers and other wholesalers,
consolidation of the business products industry, the ability to maintain gross
profit margins, the ability to achieve future cost savings, changing end-user
demands, changes in manufacturer pricing, service interruptions and availability
of liquidity and capital resources.
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 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. 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 and subsequent 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 year ended December 31, 1994 and on the pro forma results of operations for
the Company for the year ended December 31, 1995. The pro forma and combined
historical results of operations do not purport to be indicative of the results
that would have been obtained had such transactions been completed for the
period presented or that may be obtained in the future.
GENERAL INFORMATION
GROSS PROFIT MARGINS. In recent years, 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. The Company anticipates that such pressures will 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,
including 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 increase in sales of these types of products has adversely affected the
Company's overall gross profit margin, this increase has contributed to an
increase in total operating income. The Company expects such sales to increase
as a percentage of total sales in the future.
RESTRUCTURING CHARGE. The historical results for the twelve months ended
December 31, 1995 include a restructuring charge of $9.8 million ($5.9 million
net of tax benefit of $3.9 million). This restructuring charge includes
severance costs totaling $1.8 million. The Company's consolidation plan related
to the Merger specified that 330 distribution, sales and corporate positions,
180 of which related to pre-Merger
26
<PAGE>
Associated, were to be eliminated substantially within one year following the
Merger. The Company achieved its target with the related termination costs of
approximately $1.8 million charged against a reserve. The restructuring charge
also includes distribution center closing costs totaling $6.7 million and SKU
reduction costs totaling $1.3 million. The consolidation plan called for the
closing of eight redundant distribution centers, six of which related to
pre-Merger Associated, and the elimination of overlapping inventory items from
the Company's catalogs substantially within the one-year period following the
Merger. Estimated distribution center closing costs included (i) the net
occupancy costs of leased facilities after being vacated and until expiration of
each applicable lease and (ii) the losses on the sale of owned facilities and
the facilities' furniture, fixtures and equipment. Estimated SKU reduction costs
included losses on the sale of inventory items which have been discontinued
solely as a result of the Merger.
EMPLOYEE STOCK OPTIONS. In September 1995, the Board of Directors approved
an amendment to the Company's Management Equity Plan to allow for the issuance
of additional Employee Stock Options to key management employees of the Company.
The Management Equity Plan was designed to increase 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
additional shares of Common Stock were granted to key management employees. Some
of such Merger Incentive Options were granted at an exercise price below the
then fair market value of the Common Stock. The exercise price of certain Merger
Incentive Options increases by $0.625 on a quarterly basis effective April 1,
1996.
The Merger Incentive Options granted under the Management Equity Plan do not
vest to the employee until the occurrence of an event (a "Vesting Event") that
causes Wingate and its affiliates to have received at least a full return of
their Common Stock 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 prices of the Merger Incentive
Options. Based upon an assumed offering price of $34.25 and Merger Incentive
Options that will become exercisable upon the occurrence of a Vesting Event, the
Company would recognize a nonrecurring noncash charge of $48.1 million in
compensation expense ($28.6 million net of tax benefit of $19.5 million), if a
Vesting Event were to occur. Each $1.00 change in the fair market value of
Common Stock could result in a maximum adjustment to such compensation expense
of approximately $2.4 million ($1.4 million net of tax effect of $1.0 million).
See "Prospectus Summary-- Anticipated Nonrecurring Charges."
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 the LIFO method provided a better
matching of current costs and current revenues, and that earnings reported under
the LIFO method were 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
(Inventories) to the Consolidated Financial Statements of the Company included
elsewhere herein.
RECLASSIFICATION OF DELIVERY AND OCCUPANCY COSTS. During the fourth quarter
of 1996, the Company reclassified its delivery and occupancy costs from
operating expenses to cost of goods sold to conform the Company's presentation
to others in the business products industry. See Note 3 (Reclassification) to
the Consolidated Financial Statements included elsewhere herein.
HISTORICAL, PRO FORMA AND COMBINED RESULTS OF OPERATIONS
The following table of summary historical, pro forma (see Note 4 to the
Consolidated Financial Statements of the Company included elsewhere herein) and
combined historical financial data is intended for informational purposes only
and is not necessarily indicative of either financial position or results of
27
<PAGE>
operations in the future, or that would have occurred had the events described
in the first paragraph under "--Overview" above occurred on January 1, 1995. 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, 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 year ended December 31, 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 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
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>
SUPPLEMENTAL
PRO FORMA
COMBINED DECEMBER 31, HISTORICAL
1994 1995 1996
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales..................................... $ 1,990,363 100.0% $ 2,201,860 100.0% $ 2,298,170 100.0%
Gross profit.................................. 344,542 17.3 381,270 17.3 390,961 17.0
Operating expenses............................ 285,500 14.3 299,861 13.6 277,957 12.1
Income from operations........................ 59,042 3.0 81,409 3.7 113,004 4.9
EBITDA........................................ 86,003 4.3 111,880 5.1 139,046 6.1
</TABLE>
COMPARISON OF HISTORICAL RESULTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND
PRO FORMA RESULTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 4.4% to $2,298.2 million for 1996 from
$2,201.9 million for 1995. This increase was primarily the result of higher unit
sales in all product categories. In addition, the Micro United division of the
Company continued to report strong growth resulting from the underlying strength
in the marketplace. The Company's year-long focus on improving the consistency
and reliability of its service has led to increased sales and higher customer
and consumer satisfaction.
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.3% in 1995.
This decrease reflected a shift in the Company's product mix, the continuing
consolidation of the Company's dealer base and deflation across the Company's
product mix.
OPERATING EXPENSES. Operating expenses decreased as a percentage of net
sales to 12.1% in 1996, compared with 13.6% in 1995. This decrease was primarily
due to the realization of Merger synergies, cost containment, productivity
improvements and leveraging of fixed expenses.
INCOME FROM OPERATIONS. Income from operations as a percentage of net sales
increased to 4.9% in 1996 from 3.7% in 1995.
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 was primarily
the result of changes in unit volume rather than changes in prices. Sales grew
in all geographic regions. In addition, the sales growth was attributable to an
increase in the sale of computer-related products through the Company's Micro
United division.
28
<PAGE>
GROSS MARGIN. Gross profit as a percentage of net sales was 17.3% in both
1995 and 1994. The gross profit margin in 1995 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 in 1995 by higher sales of computer-related products and
commodity items which typically carry lower gross profit margins, offset by
lower freight and occupancy costs.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased to 13.6% in 1995 from 14.3% in 1994. The decrease in operating
expenses as a percentage of net sales was primarily due to increased operating
efficiencies, improved productivity and increased economies of scale as a result
of a higher sales base.
INCOME FROM OPERATIONS. Income from operations as a percentage of net sales
was 3.7% in 1995 compared with 3.0% in 1994.
HISTORICAL RESULTS OF OPERATIONS
COMPARISON OF THE HISTORICAL RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND 1996
NET SALES. Net sales were $1,245.1 million in the first six months of 1997,
a 10.9% increase over net sales of $1,122.6 million in the first six months of
1996. On an equivalent workday basis, sales were up 11.8% from the comparable
prior-year first six months. This included incremental growth resulting from the
Lagasse acquisition. The Company is experiencing sales strength within all
product segments and geographic regions.
GROSS MARGIN. Gross margin as a percentage of net sales increased to 17.2%
in the first six months of 1997 from 16.9% in the comparable period of 1996. The
increase reflected the favorable impact of inventory investment purchases and
lower delivery costs as a percentage of net sales.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
declined to 12.1% in the first six months of 1997 from 12.2% in the first six
months of 1996. The decline in operating expenses as a percentage of net sales
was primarily the result of improved productivity and the leveraging of fixed
expenses on a higher sales base. However, the 1997 results were impacted by
incremental expenses related to the use of outside consultants to facilitate
additional systems enhancements and to accelerate the Company's strategic
planning process. These were planned expenditures which are expected to
contribute to the Company's long-term growth and profitability.
INCOME FROM OPERATIONS. Income from operations as a percentage of net sales
increased to 5.1% in the first six months of 1997 from 4.7% in the first six
months of 1996.
INTEREST EXPENSE. Interest expense as a percentage of net sales was 2.3% in
the first six months of 1997, compared with 2.6% in the comparable period in
1996. This reduction reflects the leveraging of fixed interest costs against
higher sales and lower interest rates on variable rate debt, partially offset by
interest expense on debt used to acquire Lagasse.
INCOME BEFORE INCOME TAXES. Income before income taxes as a percentage of
net sales was 2.8% in the first six months of 1997, compared with 2.1% in the
first six months of 1996.
NET INCOME. Net income before Preferred Stock dividends was $19.9 million
in the first six months of 1997, compared with $13.5 million in the first six
months of 1996.
COMPARISON OF HISTORICAL FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased 31.2% to $2,298.2 million for 1996 from
$1,751.5 million for 1995. This increase was primarily the result of the Merger
for a full twelve months in 1996. Sales in 1995 include only nine months of
United's sales.
29
<PAGE>
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.4% in 1995.
This decrease reflected a shift in the Company's product mix, the continuing
consolidation of the Company's dealer base and deflation across the Company's
product mix.
OPERATING EXPENSES. Operating expenses decreased as a percentage of net
sales to 12.1% in 1996, compared with 14.1% in 1995. The 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). The decline in the operating expense ratio
before the restructuring charge (12.1% in 1996 versus 13.5% in 1995) was
primarily due to the realization of merger synergies, cost containment,
productivity improvements and leveraging of fixed expenses.
INCOME FROM OPERATIONS. Income from operations as a percentage of net sales
increased to 4.9% in 1996 from 3.3% in 1995.
INTEREST EXPENSE. Interest expense as a percentage of net sales was 2.5% in
1996, compared with 2.6% in 1995. This reduction reflects the leveraging of
fixed interest costs against higher sales, partially offset by funding required
to acquire Lagasse (see Note 1 to the Consolidated Financial Statements of the
Company included elsewhere herein).
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes and extraordinary item as a percentage of net sales increased to 2.4% in
1996 from 0.7% in 1995.
NET INCOME. Net income as a percentage of net sales increased to 1.4% in
1996 from 0.3% in 1995 resulting from the aforementioned reasons. Net income in
1995 includes an extraordinary item, loss on the early retirement of debt
related to the Merger of $2.4 million ($1.4 million net of tax benefit of $1.0
million) or 0.1% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are
recorded throughout the year including inventory shrinkage, required LIFO
reserve, manufacturers' allowances, advertising costs and various expense items.
During the fourth quarter of 1996, the Company recorded approximately $3.0
million of additional net income relating to the refinement of estimates
recorded in the prior three quarters.
COMPARISON OF HISTORICAL FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES. Net sales were $1,751.5 million for 1995 compared with $470.2
million in 1994. The increase was primarily the result of the Merger. Sales in
1995 include nine months of United's sales.
GROSS MARGIN. Gross profit as a percentage of net sales decreased to 17.4%
in 1995 from 18.7% in 1994. The lower gross profit margin reflects a shift in
product mix, the Merger and the change in the method of accounting for inventory
from the FIFO method to the LIFO method. See Note 3 (Inventories) to the
Consolidated Financial Statements of the Company included elsewhere herein.
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased to 14.1% in 1995 from 14.8% 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 13.5% in 1995. The decrease in operating
expenses as a percentage 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 percentage of net sales
was 3.3% in 1995 (after the restructuring charge) compared with 3.9% in 1994.
Before such restructuring charge, income from operations in 1995 was 3.9%.
30
<PAGE>
INTEREST EXPENSE. Interest expense as a percentage of net sales was 2.6% in
1995 compared to 1.7% in 1994. The increase reflects additional debt needed to
consummate the Merger and higher interest rates in 1995.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes and extraordinary item as a percentage of net sales was 0.7% in 1995
compared with 2.2% in 1994.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item was $6.2
million in 1995 compared with $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.
NET INCOME. Net income was $4.8 million in 1995 compared with $6.4 million
in 1994. Net income in 1995 includes an extraordinary item, loss on the early
retirement of debt related to the Merger of $2.4 million ($1.4 million net of
tax benefit of $1.0 million) or 0.1% of net sales.
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.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the credit facilities under the Credit Agreement
consisted of $174.7 million of term loan borrowings under the Term Loan
Facilities and up to $325.0 million of revolving loan borrowings under the
Revolving Credit Facility. This agreement was amended to provide funding for the
acquisition of Lagasse, to extend the maturities, to adjust the pricing and to
revise certain covenants. In addition, the Company has $150.0 million aggregate
principal amount of Notes due 2005, $29.8 million of industrial revenue bonds
and a $2.2 million mortgage outstanding. The Company expects to use the proceeds
of this Offering to redeem $50.0 million aggregate principal amount of the Notes
and any accrued but unpaid interest thereon and pay the redemption premium
thereon and to repay a portion of the Company's indebtedness under the Term Loan
Facilities. See "Use of Proceeds."
The Term Loan Facilities consist of $117.8 million under the Tranche A
Facility and $56.9 million under the Tranche B Facility. Quarterly payments
under the Tranche A Facility range from $4.98 million at June 30, 1997 to $8.30
million at September 30, 2001. Quarterly payments under the Tranche B Facility
range from $0.22 million at June 30, 1997 to $6.64 million at September 30,
2003. On March 31, 1997, principal payments of $15.9 million and $7.4 million
were paid from Excess Cash Flow (as defined in the Credit Agreement) at December
31, 1996 for the Tranche A Facility and Tranche B Facility, 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 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 be attributable to Eligible Inventory); plus the aggregate amount of
cover for Letter of Credit Liabilities (as defined in the Credit Agreement). In
addition, for each fiscal year, the Company must repay revolving loans so that
for a period of 30 consecutive days in each fiscal year the aggregate revolving
loans do not exceed $250.0 million. The Revolving Credit Facility matures on
October 31, 2001. As of June 30, 1997, $118.5 million remained available for
borrowing under the Revolving Credit Facility.
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, 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
certain other personal and real property of USSC and its domestic subsidiaries.
31
<PAGE>
The loans outstanding under the Term Loan Facilities and the Revolving
Credit Facility generally bear interest as determined within a set range with
the rate based on the ratio of total debt (excluding any undrawn amounts under
any letters of credit) to EBITDA. The Tranche A Facility and the Revolving
Credit Facility bear interest at prime plus 0.25% to 1.25% or, at the Company's
option, LIBOR plus 1.50% to 2.50%. The Tranche B Facility bears interest at
prime plus 1.25% to 1.75% or, at the Company's option, LIBOR plus 2.50% to
3.00%.
The Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of this
type. As of June 30, 1997, the Company was in compliance with all covenants
contained in the Credit Agreement.
The Credit Agreement permits capital expenditures for the Company of up to
$15.0 million for its fiscal year ending December 31, 1997, plus $6.2 million of
unused capital expenditures, approximately $7.8 million of unused Excess Cash
Flow, and $11.1 million of proceeds from the disposition of certain property,
plant and equipment from the Company's fiscal year ended December 31, 1996.
Capital expenditures will be financed from internally generated funds and
available borrowings under the Credit Agreement. The Company expects gross
capital expenditures to be approximately $12.0 million to $14.0 million in 1997.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the Credit Agreement,
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.
United is a holding company and, as a result, its 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 United.
The Company may attempt to acquire other businesses as part of its growth
strategy. The Company currently has no agreements to acquire any such
businesses. Should the Company be successful in identifying an acquisition
candidate, however, the Company may require additional financing to consummate
such a transaction. Acquisitions involve certain inherent risks and
uncertainties. Therefore, the Company can give no assurances with respect to
whether it will be successful in identifying such a business to acquire, whether
it will be able to obtain financing to complete such an acquisition or whether
the Company will be successful in operating the acquired business.
In addition, the Company is currently pursuing an Asset Backed
Securitization (the "ABS") transaction that is intended to be a
bankruptcy-remote and off-balance sheet financing, in order to reduce the
Company's cost of capital. The ABS would involve the sale of the Company's
accounts receivable and, if consummated, is expected to result in a lower
accounts receivable balance and senior revolver loan balance than is reported in
the Company's historical financial statements included herein. There can be no
assurance that the Company will consummate the ABS.
32
<PAGE>
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
The statement of cash flows for the Company for the periods indicated is
summarized below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ----------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities............. $ 14,088 $ 26,329 $ 1,609 $ 50,606 $ 92,904
Net cash (used in) provided by investing activities... (554) (266,291) (49,871) 1,640 (4,451)
Net cash (used in) provided by financing activities... (12,676) 249,773 47,221 (52,825) (80,759)
</TABLE>
COMPARISON OF HISTORICAL CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1996
Net cash provided by operating activities during the first six months of
1997 increased to $92.9 million from $50.6 million in the comparable prior-year
period. This increase was due to higher net income, a decrease in accounts
receivable and a decrease in inventory offset by a decrease in accounts payable.
Net cash used in investing activities during the first six months of 1997
was $4.5 million compared with $1.6 million provided in the first six months of
1996. The increase in cash used was due to an increase in capital investments
during 1997 and a decrease in proceeds from the sale of property, plant and
equipment.
Net cash used in financing activities during the first six months of 1997
was $80.8 million compared with $52.8 million in the first six months of 1996.
This increase was due to the required payment of $23.3 million paid from Excess
Cash Flow (as defined in the Credit Agreement) in 1997, compared with $9.0
million in 1996 and the reduction of debt due to lower working capital
requirements.
COMPARISON OF HISTORICAL CASH FLOWS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
AND 1995
Net cash provided by operating activities for 1996 declined to $1.6 million
from $26.3 million in 1995. This reduction was due to an increased investment in
inventory and a decrease in accrued liabilities offset by higher net income and
an increase in accounts payable. The increase in net cash provided by operating
activities of $26.3 million in 1995 from $14.1 million in 1994 was primarily the
result of the Merger.
Net cash used in investing activities during 1996 was $49.9 million,
compared with $266.3 million in 1995. The decrease is due to the Merger in 1995
offset by the acquisition of Lagasse on October 31, 1996. Also, the Company
collected $11.1 million in 1996 from the successful sale of closed facilities
and related equipment. The increase in net cash used in investing activities of
$266.3 million in 1995 from $0.6 million in 1994 was primarily the result of the
Merger.
Net cash provided by financing activities in 1996 was $47.2 million,
compared with $249.8 million in 1995. The decrease was due to the financing of
the Merger in 1995 offset by additional borrowings to finance the purchase of
Lagasse. The increase in net cash provided by financing activities of $249.8
million in 1995 from net cash used of $12.7 million in 1994 was also primarily
the result of the Merger.
INFLATION/DEFLATION AND CHANGING PRICES
Inflation and deflation can have an impact on the Company's earnings. During
inflationary times, the Company generally seeks to increase prices to its
customers, thereby creating incremental gross profit resulting from the sale of
inventory purchased at lower prices. Alternatively, significant deflation may
adversely affect the Company's profitability.
33
<PAGE>
YEAR 2000 MODIFICATIONS
The Company is currently taking steps to make all necessary modifications to
its systems for the year 2000. Anticipated expenses for these modifications are
in the range of $4.2 million to $4.7 million and will be incurred during the
next two years.
SEASONALITY
Although the Company's sales are 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 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.
34
<PAGE>
BUSINESS
OVERVIEW
United Stationers is the leading broad line wholesale distributor of
business products in North America. The Company offers more than 30,000 SKUs,
including traditional office products, office furniture, computer supplies,
facilities management supplies and janitorial and sanitation supplies. The
Company's customer base is comprised of more than 15,000 reseller customers,
including office products dealers, office furniture dealers, office products
superstores, mass merchandisers, computer products resellers, mail order
companies, and sanitary supply distributors. United Stationers serves its
customers through an integrated nationwide network of 41 business products
distribution centers and 15 janitorial and sanitation distribution centers. In
addition to its broad product offering, the Company provides value-added
marketing and logistics services to both manufacturers and resellers. For the 12
months ended June 30, 1997, the Company had net sales of approximately $2.4
billion and operating income of approximately $123.0 million, making it the
largest broad line business products wholesaler in North America, with annual
sales of more than twice its next largest competitor.
THE BUSINESS PRODUCTS INDUSTRY
The Company operates in a large and fragmented industry that has been
experiencing consolidation (with sales of more than $100 billion in
manufacturers' shipments in 1995 based on independent industry sources). The
business products industry consists of several different channels by which
business products are distributed from the manufacturer to the end user,
including resellers buying through wholesalers and resellers purchasing directly
from manufacturers. Consolidation has occurred in recent years throughout all
levels of the business products industry. As a result of this consolidation, the
distinct boundaries that once clearly defined distribution channels have become
blurred. Over the last decade, office products superstores (which largely buy
directly from manufacturers) have entered virtually every major metropolitan
market. Despite the industry consolidation, no single reseller accounted for
more than 6% of the Company's net sales in 1996. The business products industry
consists principally of wholesalers, business products dealers (including
commercial, contract and retail), office products superstores, computer
resellers, office furniture dealers, sanitary supply distributors, mail order
companies and mass merchandisers, each as described in greater detail below:
BUSINESS PRODUCTS WHOLESALERS. The wholesale segment of the business
products industry consists of national, specialty and regional wholesalers. The
Company competes with one other national business products wholesaler 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 and
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.
BUSINESS PRODUCTS DEALERS. Business 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 (e.g.,
Staples and Office Depot) and retail dealers. The most significant reseller
channel for office products distribution continues to be commercial dealers and
contract stationers that 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 while calling on a customer. Major commercial dealers and contract
stationers purchase in large quantities directly from manufacturers and rely
upon wholesalers for safety stock and certain slower-moving generally higher
margin SKUs in order to provide 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 strategies to adapt to lower gross
margins and reduce their operating expenses.
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 5,000 to 7,000 products), purchase in volume,
typically take delivery at their stores directly from manufacturers and offer
many of their products at discounts from manufacturers' suggested list prices.
Virtually every major metropolitan area in the United States is now served by at
least one, and most by more than one, office products superstore. 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 inventory levels.
COMPUTER RESELLERS. Because computer supplies are now widely used in
offices, more business 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 business products industry. Although nearly all broad line office
products dealers sell office furniture, approximately 75% of all new office
furniture is sold through office furniture dealers.
SANITARY SUPPLY DISTRIBUTORS. This customer class is now included in the
business products industry as wholesalers have expanded their product offerings
to include janitorial and sanitation supplies.
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 business 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.
COMPETITIVE STRENGTHS
During the last several years, the Company has strengthened its competitive
position in the business products industry through the following:
SIGNIFICANT SCALE. As the largest broad line business products wholesaler
in North America, the Company qualifies for substantial volume allowances and
can realize significant economies of scale. In
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addition, the Company's size and nationwide service and distribution
capabilities enable it to: (i) service the demands of large national, regional,
local and individual reseller accounts by offering products from over 500
manufacturers; (ii) seek cost-effective sourcing of products both in North
America and internationally; and (iii) mitigate the effect of local or regional
economic downturns.
COST EFFECTIVE OPERATIONS. The Company seeks cost reductions at both the
corporate and operating levels in order to improve its efficiency. Examples of
such cost reduction efforts include: (i) reduced merchandise procurement and
handling costs through higher manufacturers' incentives and better terms; (ii)
continued efforts to increase inventory efficiency without lowering order fill
rates; (iii) reduced payroll and benefits costs through improved labor
allocation and higher productivity; (iv) reduced freight costs through ongoing
refinements to delivery systems; (v) increased sourcing of certain products from
lower cost sources; (vi) streamlining of work practices and procedures; and
(vii) increased leveraging of fixed costs over an increasing sales base.
BROAD PRODUCT SELECTION. Stocking over 30,000 SKUs, the Company offers the
broadest selection of business products in the industry, providing resellers
with one-stop shopping for their business products needs. The Company's size
allows it to maintain a broad product selection, thereby enabling its customers
to hold less inventory while still providing end users with a high level of
service.
HIGH LEVEL OF CUSTOMER SERVICE. The Company believes that a key component
of its success has been its focus on customer service and support. Customer
service includes: ease of ordering, rapid access to information, high order fill
rates, on-time accurate shipments and value-added management and marketing
assistance. The Company's integrated computer information system serves an
important role in providing a high level of customer service, as it allows the
Company to provide resellers with the ability to manage electronically critical
business functions, including order entry, purchasing, pricing, accounts
receivable, accounts payable and inventory control. This integrated computer
system also is designed, in part, to enable the Company 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 also supports resellers' marketing efforts by designing
informative, user-friendly catalogs and other marketing materials.
The Company continues to introduce additional services, such as its "wrap
and label" program that offers resellers the option to receive prepackaged
orders customized (and labeled with the reseller's name) to meet the
specifications of particular end users. The Company can also drop ship orders
directly to end users on behalf of resellers. These services allow resellers to
lower their inventory investment and minimize handling costs.
STRATEGY
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution, the
Company believes its role as a wholesaler will continue to grow and that it can
achieve above industry average growth rates by:
CAPTURING A GREATER SHARE OF EXISTING CUSTOMERS' PURCHASES. The Company
believes that it has the opportunity to capture a portion of the sales of
business products currently sold directly by manufacturers to resellers and end
users without wholesaler involvement. The Company estimates that only
approximately 20% of business products sales are made through wholesale
distributors and that approximately 80% are made directly from manufacturers to
resellers. As resellers intensify their focus on asset management and return on
investment, the Company believes that they will increasingly rely on the
Company's value-added marketing and logistics services to meet end-user
requirements for a high and accurate order fill rate on an overnight basis. The
Company also believes that the focus by resellers on inventory efficiency
leading to de-stocking will continue in the foreseeable future, creating an
opportunity
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to capture a greater percentage of the resellers' purchases. Further, the
Company believes that manufacturers support this shift to wholesaler involvement
for products that are ordered in less-than-case quantities because of the
relatively high handling costs of such orders.
EXPANDING ITS CUSTOMER BASE. 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; (iii) continuing to focus on
complementary markets, including specialty dealers (e.g., furniture, computer
and janitorial and sanitation supply distributors); and (iv) expanding
geographically, and including potentially into international markets.
OFFERING A BROADER LINE OF PRODUCTS AND SERVICES. While United Stationers
carries the broadest product line in the industry, it continues to enhance its
product and service offerings to meet changing end-user demands. The Company's
product line expansion plans include developing its newer product categories,
such as office furniture, computer supplies and peripherals, facilities
management supplies and janitorial and sanitation supplies and potentially
offering new products and services. The Company believes that these product
categories will allow it to make additional sales to existing reseller customers
and thereby strengthen its position with such resellers as a one-stop shopping
experience. Such products also allow the Company to enter into new distribution
channels and add new types of resellers beyond broad line office products
dealers, expanding its customer base.
The Company also continues to expand its line of private brand products,
including approximately 1,200 products under the Universal-TM- brand name.
Private brand products represented approximately 10% of the Company's net sales
in 1996. The Company believes its private brand products offer significant
benefits both to resellers, by providing an alternative to brand name products
that offers similar quality at a moderate price, and to 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.
CAPITALIZING ON CROSS-SELLING OPPORTUNITIES. Historically, the Company has
marketed its business products and services primarily to office products
resellers, including commercial dealers, contract stationers, retail dealers and
office products superstores. As the Company has expanded into new product lines
(e.g., janitorial and sanitation supplies), its sales efforts have been focused
primarily on traditional distributors of these specialty products. Although the
Company will continue to utilize these marketing channels as its primary method
of product distribution, the Company believes that its various products and
services are complementary and that significant opportunities exist to
cross-sell to its existing customer base. It is the Company's goal to become
known among its customers not just as an office products distributor, but as a
distributor of a broad range of products and services for the office. Management
believes that by implementing this strategy, the Company can enhance sales to
its existing customer base as resellers purchase a broader selection of products
offered by the Company, thereby reducing procurement cost and enhancing reseller
profitability.
INCREASING TECHNOLOGICAL CAPABILITIES AND PARTICIPATING IN ELECTRONIC
COMMERCE. The Company intends to continue to invest in systems enhancements as
well as customer interfaces to make its systems more user friendly. 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. In 1996, approximately 90% of the
Company's orders were received electronically. As the Company increases the
functionality of its proprietary systems, the Company believes it will be able
to garner a growing percentage of its customers' business.
As the Internet becomes increasingly important as a marketing channel, the
Company is positioned to participate in this trend. The Company currently
provides resellers with access to its 25,000 SKU general
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line catalog, online through seamless links to its web site. This service allows
resellers to place orders electronically with the Company for overnight delivery
as well as to provide a hot link on their own web site to the Company's general
line catalog for use by end users.
MAKING STRATEGIC ACQUISITIONS. The Company believes it can enhance its
growth by continuing to make strategic acquisitions that would allow the Company
to expand its customer base and broaden its product line. This growth strategy
has already proved to be successful for the Company with the acquisition of
Lagasse in 1996. Potential areas for acquisition include existing product
categories in which the Company now operates (such as, office furniture,
computer supplies and peripherals, facilities management supplies and janitorial
and sanitation supplies). The Company also would consider acquisition
opportunities in new areas that allow it to create additional value for its
customers and end users.
PRODUCTS
The Company's current product offerings, comprised of more than 30,000 SKUs,
may be divided into five 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 Company's traditional office product offerings are quite deep,
including, for example, more than 1,000 different SKUs of ring binders and 800
types of file folders.
COMPUTERS AND RELATED SUPPLIES. The Company offers computer supplies,
peripherals and hardware with major brand names to computer resellers and office
products dealers. These products constituted approximately 25% of the Company's
1996 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 14% of the Company's 1996 net sales. The
Company's "Pro-Image" consulting 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
support office products dealers as well as to attract new furniture dealers.
JANITORIAL AND SANITATION SUPPLIES. The Company's dedicated marketing
effort for janitorial and sanitation supplies was created in 1993 with the
development of United Facility Supply. In October 1996, the Company acquired
Lagasse, the largest pure wholesaler of janitorial and sanitation supplies in
North America. The Company currently distributes these products through 15
Lagasse distribution centers.
OTHER PRODUCTS. The Company's newest product categories encompass
facilities management 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).
PURCHASING AND MERCHANDISING
As the largest business products wholesaler in North America, the Company
qualifies for substantial volume allowances and can realize significant
economies of scale. The Company obtains products from over 500 manufacturers,
for many of whom the Company believes it is a significant customer. In 1996, no
supplier accounted for more than 15% of the Company's aggregate purchases. As a
centralized corporate function, the Company's merchandising department
interviews and selects suppliers and products for
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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.
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 6% of
the Company's net sales in 1996.
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 growing larger. As a
result, net sales to these commercial dealers and contract stationers as a group
have grown 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. To adapt to this
highly competitive environment, many retail dealers, commercial dealers and
contract stationers have joined 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 purchasing power.
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 and to non-stocking resellers.
MARKETING AND CUSTOMER SUPPORT
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.
Substantially all of the Company's 30,000 SKUs are sold through its
comprehensive general line catalogs, promotional pieces and specialty catalogs
for the office products, office furniture, facilities management supplies and
other specialty markets. The Company produces 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; Facilities and Maintenance Supplies Catalog featuring janitorial,
maintenance, food service, warehouse, mailroom supplies and products and
supplies used for meetings and presentations; and the Lagasse Catalog offering
janitorial and sanitation supplies. In addition, the
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Company produces the following quarterly promotional catalogs: Action 2000
featuring over 1,000 high-volume commodity items, and Computer Concepts,
featuring computer supplies, peripherals, accessories and furniture. The Company
also produces separate quarterly flyers covering general office supplies, office
furniture and Universal-TM- products. The majority of the expenses related to
the production of such catalogs is borne by the Company's suppliers. 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. Also, the Company offers an electronic catalog available on CD-ROM
and through the Company's web site.
The Company also offers to its resellers a variety of electronic order entry
systems and business management and marketing programs that enhance the
resellers' ability to manage their businesses profitably. For instance, the
Company maintains electronic data interchange 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 forward its
customers' orders directly to the Company, resulting in the delivery of pre-sold
products to the reseller or directly to its customers. The Company estimates
that in 1996, it received approximately 90% of its orders electronically.
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.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 150 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.
PRODUCT DISTRIBUTION AND DELIVERY SYSTEMS
The Company has a network of 41 business products regional distribution
centers located in 36 metropolitan areas in 25 states in the United States, most
of which carry the Company's full line of inventory. The Company also maintains
15 Lagasse distribution centers that carry a full line of janitorial and
sanitation supplies. The Company supplements its regional distribution centers
with 24 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 350 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 aided by its proprietary,
computer-driven inventory locator 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 that 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
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contribute to the Company's high order fill rate and efficient levels of
inventory balances. See "Risk Factors--Potential Service Interruptions."
Another service offered by the Company to resellers is its "wrap and label"
program, that offers resellers the option to receive prepackaged orders
customized to meet the specifications of particular end users. For example, when
a reseller receives orders from a number of separate end users, the Company can
group and wrap 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. The Company also can ship orders
directly to end users on behalf of resellers.
TECHNOLOGY
The Company believes its management information systems, telecommunications
network and warehouse automation system, along with its participation in
electronic commerce are integral to the Company's success and have enabled the
Company to achieve one of the lowest cost structures and highest levels of
service in the industry.
The Company operates one of the few fully integrated management information
systems in the industry. Order entry, fulfillment and billing, along with
inventory replenishment and accounts payable disbursement, are all automated.
The Company's management information systems are designed to process over
600,000 customer orders per day, supporting relatively short order-to-delivery
time windows. Management believes speed and accuracy are important in the highly
competitive business products industry. Over 90% of the orders received from the
Company's customers are electronic orders and over 85% of the Company's purchase
orders to its 500 suppliers are transmitted electronically.
The Company also employs a sophisticated warehouse automation system. In
certain locations, computerized conveyor systems, carousels and bar-code
scanning are utilized to increase efficiency and quality. The Company
continuously enhances its warehousing operations through the use of technology
to meet the changing business environment and customer and consumer
requirements.
The Company believes electronic commerce conducted over the Internet will
grow in importance in the future and has invested in developing its own
interactive web site (www.unitedstationers.com), an Intranet and software
products available to its reseller customers. Electronic product catalogs are
available both over the Internet and in CD-ROM versions.
Management plans to continue to invest in technology to improve quality,
reliability and cost-effective operations. The Company believes its systems are
sufficient to meet its current needs and estimates it will spend $2.0 million in
computer-related capital improvements in 1997.
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
"--Product Distribution and Delivery Systems." Manufacturers typically sell
their products through a variety of distribution channels, including wholesalers
and resellers.
Competition among the Company and other wholesalers is based primarily on
breadth of product lines, availability of products, speed of delivery to
resellers, order fill rates, net pricing to resellers and the
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quality of 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.
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).
EMPLOYEES
As of June 30, 1997, the Company employed approximately 5,000 persons.
The Company considers its relations with 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. The Company has not
experienced any work stoppages during the past five years. See "Risk
Factors--Potential Service Interruptions."
LEGAL PROCEEDINGS
Although 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 the financial condition or results of operations of
the Company.
TRADEMARKS
The trade names United Stationers, Micro United, Universal, United Facility
Supply, and others, are actively used and are significant to the Company's
business. All of these marks have been federally registered with the United
States Patent and Trademark Office.
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 owns its office facility in Des Plaines,
Illinois which 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.
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DISTRIBUTION CENTERS. The Company presently has more than 7.5 million
square feet of warehouse space in 41 business products distribution centers and
15 Lagasse distribution centers. The Company also operates 24 local distribution
points. The following table sets forth information regarding the principal
leased and owned distribution centers:
<TABLE>
<CAPTION>
APPROX. SQUARE FEET
METROPOLITAN --------------------
STATE CITY AREA SERVED OWNED LEASED
- ---------------------------------- ------------------ -------------------- --------- ---------
<S> <C> <C> <C> <C>
Arizona........................... Tempe Phoenix -- 110,000
California........................ Bell Los Angeles -- 24,960
City of
Industry(1) Los Angeles 344,487 125,000
Sacramento(1) Sacramento -- 119,260
Sacramento Sacramento -- 263,000
Union City San Francisco -- 25,986
Colorado.......................... Denver Denver 104,244 --
Denver Denver -- 134,893
Florida........................... Dania Miami -- 22,564
Jacksonville(1) Jacksonville 95,500 --
Tampa Tampa 128,000 --
Tampa Tampa -- 30,000
Ft. Lauderdale Miami -- 151,500
Georgia........................... Atlanta Atlanta -- 30,800
Norcross Atlanta 372,000 --
Illinois.......................... Carol Stream Chicago -- 139,444
Forest Park Chicago 222,280 81,000
Forest Park Chicago -- 24,000
Glendale Heights Chicago -- 50,533
Greenville St. Louis 210,000 --
Indiana........................... Indianapolis Indianapolis 128,000 --
Indianapolis Indianapolis -- 34,039
Louisiana......................... Harahan New Orleans -- 104,885
Harahan(1) New Orleans -- 82,650
Baltimore/Wash.,
Maryland.......................... Harmans D.C. 323,980 45,000
Massachusetts..................... Woburn Boston 309,000 --
Michigan.......................... Livonia Detroit 229,700 33,500
Minnesota......................... Brooklyn Park Minneapolis/St. Paul 127,480 --
Eagan Minneapolis/St. Paul 210,468 --
Missouri.......................... Kansas City Kansas City -- 95,205
New Jersey........................ Edison New York 257,579 133,177
Edison New York -- 44,855
Pennsauken Philadelphia 231,000 25,316
New York.......................... Coxsackie Albany 256,000 --
North Carolina.................... Charlotte Charlotte -- 24,800
Charlotte Charlotte 104,000 55,663
Ohio.............................. Cincinnati Cincinnati 108,778 --
Columbus Columbus -- 171,665
Twinsburg Cleveland 206,136 --
Valley View Cleveland -- 28,000
Oklahoma.......................... Tulsa Tulsa 52,600 22,500
Oregon............................ Portland Portland -- 91,603
Pennsylvania...................... Pittsburgh Pittsburgh -- 84,176
Tennessee......................... Memphis Memphis -- 78,286
Nashville Nashville -- 66,000
Nashville Nashville -- 59,250
Texas............................. Dallas(1) Dallas/Fort Worth 223,230 159,864
Dallas Dallas -- 72,000
Houston Houston -- 143,859
Houston Houston -- 24,600
Houston Houston -- 23,600
Lubbock Lubbock -- 58,725
San Antonio San Antonio -- 63,098
San Antonio San Antonio -- 31,750
Utah.............................. Salt Lake City Salt Lake City -- 89,324
Washington........................ Kent Seattle -- 24,000
Tukwila Seattle -- 144,031
Wisconsin......................... Milwaukee Milwaukee 67,300 --
</TABLE>
- ------------------------------
(1) A portion of such property is subleased to a third party.
All property rights of the Company are pledged to secure its obligations
under the Credit Agreement. See "Description of Indebtedness--Credit
Facilities."
44
<PAGE>
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>
Frederick B. Hegi, Jr........ 53 Chairman of the Board
Randall W. Larrimore......... 50 Director, President and Chief Executive Officer
Daniel H. Bushell............ 45 Executive Vice President, Chief Financial Officer and
Assistant Secretary
Michael D. Rowsey............ 44 Director and Executive Vice President
Steven R. Schwarz............ 43 Executive Vice President
Kathleen S. Dvorak........... 40 Vice President, Investor Relations
Otis H. Halleen.............. 62 Vice President, Secretary and General Counsel
Mark J. Hampton.............. 44 Vice President, Marketing
James A. Pribel.............. 44 Treasurer
Albert H. Shaw............... 47 Vice President, Operations
Ergin Uskup.................. 60 Vice President, Management Information Systems and
Chief Information Officer
Gary G. Miller............... 47 Director and Assistant Secretary
Daniel J. Good............... 57 Director
James A. Johnson............. 43 Director
Joel D. Spungin.............. 59 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
director or executive officer 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.
FREDERICK B. HEGI, JR. was elected to the Board of Directors upon
consummation of the Merger and served as Chairman, interim President and Chief
Executive Officer upon the resignation of Thomas W. Sturgess in November 1996
and until Randall Larrimore became President and Chief Executive Officer in May
1997. 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 Executive
Committee of the Board of Loomis, Fargo & Co., an armored car service company;
Chairman of Tahoka First Bancorp, Inc., a bank holding company; and Chairman of
Cedar Creek Bancshares, Inc., a bank holding company. Additionally, he is a
director of Lone Star Technologies, Inc., a diversified company engaged in the
manufacture of tubular products; ITCO Tire Company, the largest independent
wholesaler of replacement tires in the U.S.; and Cattle Resources, Inc., a
manufacturer of animal feeds and operator of commercial cattle feedlots.
RANDALL W. LARRIMORE was elected to the Board of Directors and became
President and Chief Executive Officer of the Company on May 23, 1997. From
February 1988 to May 1997, Mr. Larrimore had been President and Chief Executive
Officer of MasterBrand Industries, Inc., a manufacturer of leading brands
including Master Lock padlocks and Moen faucets, and a subsidiary of Fortune
Brands (formerly American Brands). Prior to that time, Mr. Larrimore was
President and Chief Executive Officer of Twentieth Century Companies, a
manufacturer of plumbing repair parts and a division of Beatrice Foods. Prior
thereto he was Vice President of Marketing for Beatrice Home Specialties, the
operating parent of Twentieth Century. Fortune Brands acquired Twentieth Century
Companies and other Beatrice divisions
45
<PAGE>
and subsidiaries in 1988. Before joining Beatrice in 1983, Mr. Larrimore was
with Richardson-Vicks, McKinsey & Company and then with PepsiCo International.
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 Boise Cascade Office
Products, most recently as the North Regional Manager.
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,
Micro United since 1990 and Vice President, General Manager, Micro United since
September 1989. He had held a staff position in the same capacity since February
1987.
KATHLEEN S. DVORAK became Vice President, Investor Relations in July 1997.
Ms. Dvorak began her career at United in 1982 and has held various positions
with increasing responsibility within the investor relations function. Most
recently, she was Director of Investor Relations of the Company.
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.
MARK J. HAMPTON has served as Vice President of Marketing since September
1994. Mr. Hampton began his United career in 1980 and held various positions in
the sales and marketing area. In 1991, Mr. Hampton left United to pursue an
opportunity to work in the dealer community and was the primary architect in
developing a successful national buying and marketing group. After rejoining the
Company in September 1992, he was made a Regional Vice President in charge of
the Midwest Region and then Vice President and General Manager of Micro United.
JAMES A. PRIBEL became Treasurer of the Company upon consummation of the
Merger. Prior thereto he was Treasurer of United since 1992. Mr. Pribel
previously had been Assistant Treasurer of USSC since 1984 and had served in
various positions since joining USSC in 1978.
ALBERT H. 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.
46
<PAGE>
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.
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.
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., an aviation and aerospace company, and Home Products
International, Inc., a manufacturer of home improvement products.
COMPOSITION OF THE BOARD OF DIRECTORS
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 1999)--Messrs. Good and Johnson; Class II
(having terms expiring in 2000)--Messrs. Hegi, Miller and Rowsey; and Class III
(having terms expiring in 1998)-- Messrs. Larrimore and Spungin. See
"Description of Capital Stock--Special Provisions of the Charter and
Bylaws--Classified Board of Directors."
Effective in August 1997, James T. Callier, Jr. and Jeffrey K. Hewson
resigned as directors of the Company. In an effort to add to the collective
experience and knowledge of the Company's Board of Directors, the Nominating
Committee of the Board of Directors of the Company is currently in the process
of identifying two new candidates to replace Messrs. Callier and Hewson on the
Board of Directors following completion of the Offering. Although members of the
current Board have had preliminary discussions with certain individuals that
they believe could add valuable insight and experience to the Board, no formal
invitations or nominations have been made and the Company is unable to predict
when any new members would be selected.
Following the termination of certain capital Management Agreements, the
Compensation Committee of the Board of Directors expects to pay annual
directors' fees to the non-employee directors of the Company, including Messrs.
Hegi, Johnson, Miller and Good.
47
<PAGE>
CERTAIN TRANSACTIONS
VOTING TRUST
As of September 3, 1997, approximately 73.0% 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. Messrs. Rowsey, Miller,
Good, Hegi and Johnson were elected to the Board of Directors pursuant to the
Voting Trust. The Voting Trust will terminate upon consummation of the Offering.
WARRANTS
In connection with the Merger, the Company assumed certain Lender Warrants
and Preferred B Warrants that had been issued by Associated in connection with
the Associated Transaction in 1992. The Lender Warrants currently allow the
holders thereof to acquire an aggregate of 1,053,988 shares of Common Stock (or,
at such holder's option, shares of Nonvoting Common Stock) at an exercise price
of $0.10 per share. The Preferred B Warrants currently allow the holders thereof
to acquire an aggregate of 182,189 shares of Common Stock at an exercise price
of approximately $0.15 per share. Pursuant to a registration rights agreement
(as amended, the "Lender Registration Rights Agreement"), the holders of the
Lender Warrants have certain rights with respect to registration under the
Securities Act of the shares of Common Stock (or Nonvoting Common Stock)
issuable upon the exercise of such Lender Warrants. In October 1995, the Company
effected a shelf registration under the Securities Act of all shares of Common
Stock issuable upon exercise of the Lender Warrants. See "Description of Capital
Stock--Lender Warrants" and "--Preferred B Warrants." Certain Selling
Stockholders are holders of the Warrants. See "Principal and Selling
Stockholders."
REGISTRATION RIGHTS AGREEMENT
In connection with the Associated Transaction, Associated 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 Mr. Rowsey),
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
Stockholders' Registration Rights Agreement in connection with the Merger, and
such agreement has been amended accordingly. Under the amended agreement, a
holder of 20% 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 short-form and two long-form 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 less than 300
days following the effective date of any previous registration statement filed
in connection with any such request.
MANAGEMENT AGREEMENTS
Pursuant to certain Investment Banking Fee and Management Agreements
(collectively, the "Management Agreements") assumed by the Company in the
Merger, the Company paid to each of Wingate Partners, Cumberland and Good
Capital aggregate fees of $2.3 million, $100,000, and $100,000, respectively,
upon the consummation of the Merger. In addition, the Company has paid annual
fees for monitoring and oversight services provided by such parties pursuant to
the Management Agreements as follows: (i) Wingate Partners received annual fees
in the amount of $725,000, $603,000 and $350,000 pursuant to its agreement in
each of the fiscal years ended 1996, 1995 and 1994, respectively; (ii)
Cumberland received annual fees in the amount of $137,500, $129,000 and $75,000
pursuant to its agreement in each of the fiscal years ended 1996, 1995 and 1994,
respectively; and (iii) Good Capital received annual fees in the amount of
$137,500, $129,000 and $75,000 pursuant to its Agreement in each of the fiscal
years ended 1996, 1995 and 1994, respectively. In addition, pursuant to the
Management
48
<PAGE>
Agreements, each of Wingate Partners, Cumberland and Good Capital is entitled to
reimbursement for its reasonable out-of-pocket expenses and the Company has
agreed to indemnify each of them and their respective affiliates for any losses
in connection with the provision of their services under the Management
Agreements.
It is currently anticipated that the Management Agreements will be
terminated in exchange for one-time payments of approximately $2.4 million,
$400,000 and $400,000 to Wingate Partners, Cumberland and Good Capital,
respectively. The Company expects to recognize a one-time nonrecurring charge
during the fourth quarter of 1997 of approximately $3.3 million ($2.0 million
net of tax benefit of $1.3 million) or approximately $0.12 per share in
connection with the termination and buy-out of such Management Agreements. See
"Prospectus Summary--Anticipated Nonrecurring Charges."
CERTAIN INTERESTS OF CHASE
Chase Securities Inc. ("Chase Securities"), served as the initial purchaser
of the Notes and received a discount in the amount of $4.5 million in connection
with that transaction. As a result of the sale of the Notes, CMIH, an affiliate
of Chase Securities, beneficially owns (as of September 3, 1997) approximately
9.6% 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 CMIH to purchase 476,067 shares of Common Stock for $0.10 per
share, and (ii) 758,994 shares of Nonvoting Common Stock purchased and received
in connection with the Merger and sale of the Notes. CMIH intends to sell
certain of its Lender Warrants in connection with the Offering. See "Principal
and Selling Stockholders" and "Underwriting."
Chase Securities served as financial advisor to Associated in connection
with the Merger. The Chase Manhattan Bank ("Chase Bank") is the agent and a
lender under the Credit Agreement. In addition, in connection with the Tender
Offer, Chase Securities served as dealer manager and Chase Bank served as
depository for tendered shares of Common Stock. A substantial portion of the net
proceeds from the sale of the Notes was used to repay a subordinated bridge
facility arranged by an affiliate of Chase Bank in connection with the Merger
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. Chase Securities is also serving as one of the Underwriters
of this Offering and will receive compensation in that capacity. See
"Underwriting."
INTERESTS OF CERTAIN PERSONS IN THE OFFERING
Wingate will receive an aggregate of $39.1 million ($45.8 million if the
Underwriters' over-allotment option is exercised in full) of the $65.1 million
($84.6 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. Hegi, the Company's Chairman, serves as a general partner
of various Wingate entities, including the indirect general partner of each of
Wingate Partners and Wingate II and a general partner of Wingate Affiliates and
Wingate Affiliates II. 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 and Warrants to be sold by
the Selling Stockholders).
REDEMPTION OF SERIES A PREFERRED STOCK
As a result of the Company's redemption of all of its outstanding Series A
Preferred Stock effected on September 2, 1997, Wingate and ASI Partners, L.P.
received approximately $5.4 million and $2.1 million, respectively, in aggregate
proceeds. In addition, Mr. Rowsey, Executive Vice President and a director of
49
<PAGE>
the Company, and Mr. Johnson, a director of the Company, received $92,166 and
$25,854, respectively, in aggregate proceeds from such redemption.
OPTION AND RESTRICTED STOCK AWARDS
Effective May 23, 1997, the Company granted to Mr. Larrimore, the Company's
President and Chief Executive Officer, options to purchase an aggregate of
250,000 shares of Common Stock at an exercise price of $21.625 per share, the
fair market value of the Common Stock on the date of such grant. The grant of
certain of such options is subject to the approval of an amendment to the
Company's Management Equity Plan, for which the Company is currently seeking the
consent of the holders of the requisite number of shares of Common Stock as
described below. Options to purchase 150,000 of such shares vest in five equal
annual installments, beginning on the first anniversary of the date of grant,
and terminate on May 23, 2007 or earlier in the event of the termination of Mr.
Larrimore's employment. The options to purchase the remaining 100,000 of such
shares vest in five equal annual installments, beginning on the first
anniversary of the date of the grant, but only after the price of the Common
Stock has been equal to or greater than $40.00 per share for at least 80 of 100
consecutive trading days since the date of the grant (otherwise such options
become exercisable on December 31, 2006), and also terminate on May 23, 2007 or
earlier in the event of the termination of Mr. Larrimore's employment.
In connection with the Associated Transaction in 1992 and the Merger in
1995, the Company has granted Merger Incentive Options to acquire approximately
2.6 million shares of Common Stock to certain members of management at exercise
prices currently ranging from $1.45 to $16.25 per share. Of such Merger
Incentive Options, the Company has granted to Messrs. Rowsey and Bushell Merger
Incentive Options exercisable for an aggregate of (i) 94,506 and 89,199 shares,
respectively, at an exercise price of $1.45 per share; (ii) 15,000 and 15,000
shares, respectively, at an exercise price of $5.12 per share; and (iii) 105,000
and 105,000 shares, respectively, at an exercise price of $12.50 per share
(subject to quarterly increases until the occurrence of a Vesting Event). The
Company has also granted Merger Incentive Options to Messrs. Schwarz and Uskup
exercisable for an aggregate of (i) 15,000 and 7,500 shares, respectively, at an
exercise price of $5.12 per share and (ii) 105,000 and 52,500 shares,
respectively, at an exercise price of $12.50 per share (subject to quarterly
increases until the occurrence of a Vesting Event). The Merger Incentive Options
do not vest until the occurrence of a Vesting Event that causes Wingate and its
affiliates 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 of the Company in good faith. All of such Merger
Incentive Options will become exercisable upon the consummation of this
Offering. See "Prospectus Summary--Anticipated Nonrecurring Charges."
On November 29, 1995, the Company granted a restricted stock award of 9,678
shares of Common Stock to Joel D. Spungin, a director of the Company, in
consideration for his service on the Board of Directors in lieu of directors'
compensation for a three-year period. Additionally, the Company granted to
Jeffrey K. Hewson, a former director of the Company, options exercisable for an
aggregate of 14,648 shares of Common Stock at an exercise price of $5.12 per
share in consideration for his service on the Board of Directors in lieu of
directors' compensation.
Effective January 1, 1996, the Company granted to Mr. Sturgess, the
Company's former Chairman, President and Chief Executive Officer, in
consideration for services rendered in such capacity (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 until the occurrence of a Vesting
Event) and (ii) options exercisable for an aggregate of 120,000 shares of Common
Stock at a fixed exercise price of $5.12 per share. In November 1996, in
connection with the resignation of Mr. Sturgess as Chairman, President and Chief
Executive Officer of the Company, the Company and Mr. Sturgess entered into a
termination agreement whereby Mr. Sturgess retained 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 until the occurrence of a Vesting Event)
with the terms of such options being amended such that options exercisable for
160,000 of such shares
50
<PAGE>
would be exercisable upon the occurrence of a Vesting Event and options
exercisable for the remaining 80,000 of such shares would become exercisable
upon the occurrence of certain events by March 31, 1997. The contingent events
mentioned above did not occur within the prescribed period and, therefore, such
options to purchase 80,000 shares of Common Stock have terminated.
The Company is currently in the process of amending the Company's Management
Equity Plan, subject to stockholder approval, to increase the number of options
available for issuance thereunder by approximately 1.5 million shares. On August
25, 1997, the Company filed a preliminary proxy statement with the Commission
relating to the solicitation of consents from the stockholders of the Company to
amend the Management Equity Plan. The Company expects that it will receive the
consent of the requisite number of shares of Common Stock required to approve
such amendment.
EMPLOYMENT AGREEMENTS
The Company and Randall W. Larrimore entered into an employment agreement as
of May 23, 1997 to serve as President and Chief Executive Officer. Pursuant to
the agreement, Mr. Larrimore's employment begins on May 23, 1997 and continues
until Mr. Larrimore or the Company notifies the other party of a termination of
such employment. If Mr. Larrimore notifies the Company, the term of employment
is deemed to end 90 days after such notification, and if the Company notifies
Mr. Larrimore, the term of employment is deemed to end two years after such
notification. The term of employment may also be terminated earlier by either
Mr. Larrimore or the Company as described below. The agreement provides for an
annual base salary of at least $495,000, plus participation in all bonus, stock
option and other benefit plans generally available to executive officers of the
Company. The agreement also provides for a supplemental pension benefit that
will provide Mr. Larrimore with an amount equivalent to five additional credited
years of service under the Company's pension plan.
If Mr. Larrimore's employment is terminated by the Company (other than for
Cause, as defined in the agreement) without the specified notice, or by Mr.
Larrimore for Good Reason (as defined in the agreement), he will be entitled to
his salary and bonuses earned to the date of termination plus an amount equal to
two times his base pay plus bonuses, and his stock options will continue to be
or become exercisable during the 24 months following such termination. If his
employment terminates due to his death or disability, he will receive an amount
equal to his annual salary plus bonus, his unexercisable options will be
forfeited, and his exercisable options will remain exercisable for up to one
year following such termination. If there is a Change in Control (as defined in
the agreement), all stock options held by Mr. Larrimore will become exercisable.
If Mr. Larrimore's employment is terminated other than for Cause, Mr. Larrimore,
his spouse, and his eligible dependents may be allowed to participate in the
Company's health plan for a specified period, subject to certain limitations on
nonemployee participation and subject to Mr. Larrimore (or his spouse or
dependents) paying for such coverage.
Effective as of June 1, 1997, the Company entered into new employment
agreements with Messrs. Bushell, Rowsey and Schwarz. Pursuant to such
agreements, the term of employment begins on June 1, 1997 and continues until
the executive or the Company notifies the other party. If the executive notifies
the Company, the term of employment ends 90 days after such notification, and if
the Company notifies the executive, the term of employment ends at the later of
(i) June 1, 2000 or (ii) two years after such notification. The term of
employment may also be terminated earlier by either the executive or the
Company. The agreements provide for an annual base salary of at least $265,000,
plus participation in all bonus, stock option and other benefit plans generally
available to executive officers of the Company.
If the executive's employment is terminated due to death or disability, he
is entitled to an amount equal to the sum of his annual base salary and his
previous year's annual incentive compensation award payable over a 12-month
period. If the executive's employment is terminated by the Company without Cause
(as defined in the agreement) or by him for Good Reason (as defined in the
agreement), he is entitled to a severance amount (subject to mitigation) equal
to the sum of his base salary and bonuses for
51
<PAGE>
the months remaining in the term of employment (or which would have been
remaining in the term of employment if the Company had given notice on the
termination date) payable over the severance period, and continued welfare
benefit coverage over such severance period. If the executive's employment is
terminated for any reason other than for Cause, the Company will allow the
executive, his spouse, and his eligible dependents to participate in the
Company's health plan for a specified period, subject to certain limitations on
nonemployee participation and subject to the executive (or his spouse or
dependents) paying for such coverage.
In addition, 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.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 3, 1997 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. Unless otherwise indicated, each person has sole voting power and
investment power with respect to the shares attributed to him/her.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING
---------------------- SHARES ----------------------
PERCENT TO BE SOLD PERCENT
OF IN THE OF
NAME OF BENEFICIAL OWNER SHARES CLASS(2) OFFERING SHARES CLASS(2)
- ------------------------------------------------------------ --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Wingate Partners, L.P. ..................................... 6,045,823(3) 49.6% 1,202,166 4,843,657 33.4%
750 N. St. Paul Street
Suite 1200
Dallas, TX 75201
ASI Partners, L.P. ......................................... 1,799,588(4) 15.5 357,834 1,441,754 10.0
9441 LBJ Freeway
Suite 300
Dallas, TX 75243
Cumberland Capital Corporation ............................. 1,799,588(4) 15.5 357,834 1,441,754 10.0
9441 LBJ Freeway
Suite 300
Dallas, TX 75243
Chase Manhattan Investment Holdings, L.P. .................. 1,235,061(5) 9.6 245,582 989,479 6.7
380 Madison Avenue
New York, NY 10017
Farallon Partners, LLC ..................................... 868,508(6) 7.5 -- 868,508 6.0
One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Daniel H. Bushell........................................... 228,737(7) 1.9 3,885 224,852 1.5
Kathleen S. Dvorak.......................................... 15,040(8) * -- 15,040 *
Daniel J. Good.............................................. 257,943(9) 2.2 123,649 134,294 *
Otis H. Halleen............................................. 30,240 10) * -- 30,240 *
Mark J. Hampton............................................. 37,500 11) * -- 37,500 *
Frederick B. Hegi, Jr.(12).................................. -- -- -- -- --
James A. Johnson(13)........................................ 19,171 * 3,812 15,359 *
Randall W. Larrimore(14).................................... -- -- -- -- --
Gary G. Miller(15).......................................... -- -- -- -- --
James A. Pribel............................................. 20,240 16) * -- 20,240 *
Michael D. Rowsey(13)....................................... 299,063 17) 2.5 10,000 289,063 2.0
Steven R. Schwarz........................................... 120,628 18) 1.0 -- 120,628 *
Albert H. Shaw.............................................. 60,078 19) * -- 60,078 *
Joel D. Spungin............................................. 19,320 * -- 19,320 *
Ergin Uskup................................................. 60,126 20) * -- 60,126 *
All current directors and executive officers as a group (15 1,168,086 21) 9.4 141,346 1,026,740 6.7
persons)..................................................
</TABLE>
- ------------------------------
* Represents less than 1.0%.
53
<PAGE>
(1) All references herein to Employee Stock Options assume that the
consummation of the Offering will constitute a Vesting Event.
(2) 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 September 3, 1997, to acquire shares of
such class of stock.
(3) 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 includes Lender
Warrants exercisable for an aggregate of 419,482 shares (or shares of
Nonvoting Common Stock, at the holder's option) and Preferred B Warrants
exercisable for an aggregate of 146,662 shares.
(4) 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. Also
includes Preferred B Warrants exercisable for an aggregate of 18,674
shares. Cumberland serves as the general partner of ASI Partners, L.P., ASI
Partners II, L.P. and ASI Partners III, L.P.
(5) 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. 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."
(6) Includes 180,413 shares owned indirectly by Farallon Capital Management,
LLC as investment advisor to certain discretionary accounts and 688,095
shares owned indirectly by Farallon Partners, LLC as general partner of the
following partnerships: (i) 307,228 shares owned by Farallon Capital
Partners, L.P., (ii) 240,466 shares owned by Farallon Capital Institutional
Partners, L.P., (iii) 71,632 shares owned by Farallon Capital Institutional
Partners II, L.P., (iv) 27,402 shares owned by Farallon Capital
Institutional Partners III, L.P., and (v) 41,367 shares owned by Tinicum
Partners, L.P.
(7) Includes (i) 19,538 shares owned by or for the benefit of Mr. Bushell and
(ii) 209,199 shares issuable upon exercise of Employee Stock Options.
(8) Includes (i) 40 shares owned by Ms. Dvorak and (ii) 15,000 shares issuable
upon exercise of Employee Stock Options.
(9) Includes (i) Lender Warrants exercisable for an aggregate of 42,804 shares
(or shares of Nonvoting Common Stock, at the holder's option), (ii)
Preferred B Warrants exercisable for an aggregate of 16,852 shares
purchased by trusts for which Mr. Good serves as trustee and (iii) 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.
(10) Includes (i) 240 shares owned by Mr. Halleen and (ii) 30,000 shares
issuable upon exercise of Employee Stock Options.
(11) Represents 37,500 shares issuable upon exercise of Employee Stock Options.
(12) Does not include shares or Warrants owned by Wingate Partners, Wingate II,
Wingate Affiliates, and Wingate Affiliates II. Mr. Hegi is a General
Partner of these entities including the indirect General Partner of each
of Wingate Partners and Wingate II and, accordingly, may be deemed to
beneficially own the shares owned of record by these entities. See Note
(1) above and "Management."
(13) Includes shares owned directly and by an individual retirement account for
the sole benefit of such individual.
(14) Mr. Larrimore holds options for 250,000 shares, none of which is
exercisable within 60 days of the date hereof.
(15) 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 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. See Note (4) above.
(16) Includes (i) 240 shares owned by Mr. Pribel and (ii) 20,000 shares
issuable upon exercise of Employee Stock Options.
(17) Includes (i) 84,557 shares owned by or for the benefit of Mr. Rowsey and
(ii) 214,506 shares issuable upon exercise of Employee Stock Options.
(18) Includes (i) 628 shares owned by Mr. Schwarz and (ii) 120,000 shares
issuable upon exercise of Employee Stock Options.
(19) Includes (i) 78 shares owned by Mr. Shaw and (ii) 60,000 shares issuable
upon exercise of Employee Stock Options.
(20) Includes (i) 126 shares owned by Mr. Uskup and (ii) 60,000 shares issuable
upon exercise of Employee Stock Options.
(21) Includes all securities beneficially owned by the current directors and
executive officers of the Company, including an aggregate of (i) 342,224
shares of Common Stock, (ii) 766,205 shares issuable upon exercise of
Employee Stock Options and (iii) 59,657 shares issuable upon exercise of
Warrants.
54
<PAGE>
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. Shares beneficially owned include Common Stock issuable upon the
exercise of Warrants and Merger Incentive Options (assuming that this Offering
constitutes a Vesting Event) exercisable within 60 days of the date of this
Prospectus.
<TABLE>
<CAPTION>
SHARES SHARES SHARES
BENEFICIALLY TO BE BENEFICIALLY
OWNED SOLD OWNED PERCENT
BEFORE IN THE AFTER THE OF
SELLING STOCKHOLDER OFFERING OFFERING(1) OFFERING CLASS
- --------------------------------------------------------- -------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Wingate Partners, L.P.................................... 4,491,164 893,034 3,598,130 25.0%
Wingate Partners II, L.P................................. 1,451,153 288,551 1,162,602 8.0
Wingate Affiliates, L.P.................................. 77,957 15,501 62,456 *
Wingate Affiliates II, L.P............................... 25,549 5,080 20,469 *
PAT Investments.......................................... 2,385 474 1,911 *
James A. Johnson(2)...................................... 19,171 3,812 15,359 *
Jay I. Applebaum......................................... 6,291 1,251 5,040 *
ASI Partners, L.P........................................ 1,430,401 284,424 1,145,977 8.0
ASI Partners II, L.P..................................... 156,304 31,080 125,224 *
ASI Partners III, L.P.................................... 58,757 11,683 47,074 *
Cumberland Capital Corporation........................... 154,125 30,647 123,478 *
Daniel J. Good........................................... 204,918 70,625 134,293 *
Julie Good Mora Grantor Trust............................ 26,512 26,512 -- *
Laura Good Stathos Grantor Trust......................... 26,512 26,512 -- *
Chase Manhattan Investment Holdings, L.P................. 1,235,061 245,582 989,479 6.4
Daniel H. Bushell(3)..................................... 228,737 3,885 224,852 1.5
John D. Kennedy(3)....................................... 70,845 777 70,068 *
Lawrence E. Miller(2)(3)................................. 151,633 12,306 139,327 *
Duane J. Ratay(2)........................................ 43,468 8,643 34,825 *
Michael D. Rowsey(2)(3).................................. 299,063 10,000 289,063 2.0
William R. Bazant........................................ 12,461 2,478 9,983 *
Theresa K. Blake(2)...................................... 7,930 1,577 6,353 *
Robert Deiters(2)........................................ 16,426 3,266 13,160 *
William Figurelli........................................ 12,461 2,478 9,983 *
Jeff Frantz.............................................. 12,461 2,478 9,983 *
Thomas M. Hupp(2)........................................ 12,461 2,478 9,983 *
James Lyon............................................... 1,133 225 908 *
Rudy Mayo(2)(3).......................................... 36,426 3,266 33,160 *
Paul Pisarski(2)(3)...................................... 36,426 3,266 33,160 *
Thomas Trost(2).......................................... 16,426 3,266 13,160 *
Cheryl Zupke(2)(3)....................................... 7,930 1,577 6,353 *
Craig Zupke(3)........................................... 36,426 3,266 33,160 *
</TABLE>
- ------------------------------
* Represents less than 1.0%.
(1) Includes shares to be issued pursuant to Warrants sold in connection with
the Offering.
(2) Includes shares owned directly and/or by an individual retirement account
for the sole benefit of such individual.
(3) Such person was employed by the Company as of September 3, 1997.
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. For a description of
affiliations between certain Selling Stockholders, see "-- Security Ownership of
Certain Beneficial Owners and Management." The Company will pay all expenses of
the Offering attributable to the Selling Stockholders (excluding underwriting
discounts and commissions).
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
approximately 14,456,755 shares of Common Stock. In addition, 399,175 shares of
Common Stock will be issuable upon exercise of outstanding Warrants and
2,631,768 shares will be issuable upon exercise of Employee Stock Options. Of
the shares of Common Stock that will be outstanding after this Offering,
approximately 7,140,828 shares (not including 392,183 shares of Common Stock
issuable upon exercise of Lender Warrants or 758,994 shares of Common Stock
issuable upon conversion of the Nonvoting Common Stock) will be freely tradable
without restriction or further registration under the Securities Act. All of the
remaining 7,315,927 shares of Common Stock held by existing stockholders, 6,993
shares issuable upon the exercise of Preferred B Warrants, and 14,648 shares
issuable upon exercise of certain 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 one
year (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 (144,568 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 two 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 limitations described above.
After completion of the Offering and expiration of the 90-day lockup
agreement described below, 7,315,927 shares (7,064,010 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.
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 1,151,177 shares
of Common Stock issuable upon exercise of the Lender Warrants and Nonvoting
Common Stock that will remain outstanding after completion of the Offering. See
"Certain Transactions--Warrants." The Company also intends to register under the
Securities Act the shares of Common Stock issuable upon exercise of certain
Merger Incentive Options.
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 90 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"), 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"
56
<PAGE>
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 up to 90 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 exercise of 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."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 46,500,000 shares,
consisting of (i) 1,500,000 shares of a class designated as preferred stock,
$0.01 par value ("preferred stock"), (ii) 40,000,000 shares of Common Stock, and
(iii) 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, 11,619,755 shares of Common Stock and 758,994 shares of Nonvoting Common
Stock were outstanding as of September 3, 1997. No shares of preferred stock
were outstanding as of September 3, 1997. Employee Stock Options exercisable for
an aggregate of 2,631,768 shares of Common Stock and Warrants exercisable for an
aggregate of 1,236,175 shares of Common Stock were outstanding as of such date.
COMMON STOCK AND NONVOTING COMMON STOCK
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, except in certain limited circumstances. 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
On July 28, 1995, the Company consummated the repurchase of all of its
outstanding Series B Preferred Stock, $0.01 par value, together with accrued and
unpaid dividends thereon, for an aggregate
57
<PAGE>
purchase price of $7.0 million. On September 2, 1997, the Company completed the
redemption of all outstanding shares of Preferred Stock for an aggregate
redemption price of $21.3 million (the "Redemption Price"). The Redemption Price
was paid from borrowings under the Revolving Credit Facilities. As a result of
the redemption of the Preferred Stock, the Company does not have any preferred
stock outstanding as of the date hereof.
The Company is authorized to issue 1,500,000 shares of preferred stock. The
Board of Directors of the Company, in its sole discretion, may designate and
issue one or more series of preferred stock from the authorized and unissued
shares of preferred stock. Subject to limitations imposed by law or the
Company's Charter, the Board of Directors is empowered to determine the
designation of and the number of shares constituting a series of preferred
stock, the dividend rate thereon, the terms and conditions of any voting and
conversion rights for the series, the amounts payable on the series upon
redemption or upon the liquidation, dissolution or winding-up of the Company,
the provisions of any sinking fund for the redemption or purchase of shares of
any series, and the preferences and relative rights among the series of
preferred stock. Such rights, preferences, privileges and limitations could
adversely affect the rights of holders of Common Stock. In addition, the Board
of Directors of the Company, subject to its fiduciary duties, may issue shares
of preferred stock in order to deter a takeover attempt. See "Risk Factors--
Possible Anti-Takeover Effects."
LENDER WARRANTS
The Company expects that Lender Warrants exercisable for an aggregate of
392,183 shares of Common Stock will remain outstanding after the Offering. The
Lender Warrants were originally issued pursuant to a Warrant Agreement (the
"Lender Warrant Agreement") in connection with the Associated Transaction and
contain customary anti-dilution provisions and are exercisable through January
31, 2002. In addition, the Company is entitled to repurchase the Lender Warrants
at any time after January 31, 1999 at the greater of the then Fair Market Value
(as defined in the Lender Warrant Agreement) 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, 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
Warrant Agreement and, within 12 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 Credit Agreement.
The Lender Warrant Agreement also contains certain put rights which
currently require the Company to repurchase such Lender Warrants upon demand by
the holder thereof. The purchase price payable by the Company or USSC upon the
exercise of the put rights is generally equal to the greater of the then Fair
Market Value (as defined in the Lender Warrant Agreement) of the shares of
Common Stock (less the applicable exercise price of the Lender Warrants) or the
Equity Value. 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.
58
<PAGE>
The Lender Warrant Agreement provides 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
Warrant Agreement, 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 Warrant Stock
(as defined in the Lender Warrant Agreement) held by such holders in the
applicable transaction and to vote all shares of Common Stock in favor of such
transaction.
The Lender Warrant Agreement contains 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 Lender
Warrants (the "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%. In July 1997,
the Company and holders of Lender Warrants amended the Lender Warrant Agreement
to eliminate the requirement of holders to pay the Refunded Amount in exchange
for a waiver of certain dilution adjustments in connection with the grant of
certain Employee Stock Options.
Pursuant to the terms of the Lender Warrant Agreement, if at any time the
Company does not have securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is not
required to file reports under Section 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 Preferred B Warrants exercisable for an aggregate
of 6,993 shares of Common Stock will remain outstanding after 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
59
<PAGE>
certain of their affiliates. 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. 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
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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.
DESCRIPTION OF INDEBTEDNESS
CREDIT FACILITIES
The Company is currently a party to the Credit Agreement with Chase Bank, as
agent, and a group of banks and financial institutions (including Chase Bank,
the "Senior Lenders"). 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 as further amended from time to time, a copy of which is
available upon request to the Company. See "Available Information."
As of the date hereof, the credit facilities under the Credit Agreement
consisted of $174.7 million of borrowings under the Term Loan Facilities and up
to $325.0 million of revolving loan borrowings under the Revolving Credit
Facility. This agreement was amended on October 31, 1996 to provide funding for
the acquisition of Lagasse to extend the maturities, to adjust the pricing and
to revise certain covenants. A portion of the Term Loan Facilities will be
repaid out of the proceeds of this Offering. See "Use of Proceeds."
The loans outstanding under the Term Loan Facilities and the Revolving
Credit Facility generally bear interest as determined within a set range with
the rate based on the ratio of total debt to earnings before interest, taxes,
depreciation and amortization (EBITDA). The Tranche A Facility and the Revolving
Credit Facility bear interest at prime plus 0.25% to 1.25% or, at the Company's
option, LIBOR plus 1.50% to
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<PAGE>
2.50%. The Tranche B Facility bears interest at prime plus 1.25% to 1.75% or, at
the Company's option, LIBOR plus 2.50% to 3.00%.
The current outstanding principal balance of Term Loan Facilities consist of
a $117.8 million Tranche A Term Loan Facility and a $56.9 million Tranche B term
loan Facility. Quarterly payments under the Tranche A facility range from $4.98
million at June 30, 1997 to $8.30 million at September 30, 2001. Quarterly
payments under the Tranche B Facility range from $0.22 million at June 30, 1977
to $6.64 million at September 30, 2003. On March 31, 1997, principal payments of
$15.9 million and $7.4 million were required to be paid from Excess Cash Flow
(as defined in the Credit Agreement) at December 31, 1996 for the Tranche A and
Tranche B Facilities, 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 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 be attributable to Eligible Inventory); plus the aggregate amount of
cover for Letter of Credit Liabilities (as defined in the Credit Agreement). In
addition, for each fiscal year, the Company must repay revolving loans so that
for a period of 30 consecutive days in each fiscal year the aggregate revolving
loans do not exceed $250.0 million. The Revolving Credit Facility matures on
October 31, 2001.
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 received from the issuance of equity by USSC or any of its
subsidiaries subject to certain exceptions provided within the Credit Agreement,
(ii) net proceeds from certain asset sales in excess of $15.0 million and (iii)
50% of USSC's Excess Cash Flow (as defined in the Credit Agreement) if the Debt
to Cash Flow Ratio (as defined in the Credit Agreement) as of the last day of
the fiscal year is less than 3 to 1 and, otherwise, 75% of USSC's Excess Cash
Flow. 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 by all of the direct and
indirect domestic subsidiaries of USSC.
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 Company has negotiated the release of the lien on accounts
receivable in the event the Company enters into an asset-backed securitization.
The Company is currently pursuing such an asset-backed securitization, although
no definitive agreement has been reached as of the date of this Prospectus.
The Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of its
type.
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 Credit Agreement contains certain restrictive covenants, including
covenants that restrict or prohibit USSC's ability to pay dividends and make
other distributions to the Company.
NOTES
The Notes were issued on May 3, 1995 pursuant to the Indenture. As of the
date hereof, the aggregate outstanding principal amount of Notes was $150.0
million. The Notes are unsecured senior subordinated
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<PAGE>
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 Indenture provides that, 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 (i) that the Equity
Clawback Option must be exercised within 180 days following the Public Equity
Offering, and (ii) that Notes having an aggregate principal amount of $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. See "Use of
Proceeds."
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 BEGINNING MAY 1 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 of either United or USSC or certain significant changes
in the composition of the Board of Directors of either United or USSC), USSC
shall be obligated to offer to redeem all or a portion of each 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 Imposed by Terms of Indebtedness."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Bear, Stearns & Co. Inc., Morgan Stanley & Co. Incorporated, Robertson, Stephens
& Company LLC and Chase Securities Inc. (the "Representatives"), have severally
agreed to purchase from the Company and the Selling Stockholders the number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Bear, Stearns & Co. Inc....................................................
Morgan Stanley & Co. Incorporated..........................................
Robertson, Stephens & Company LLC..........................................
Chase Securities Inc.......................................................
-----------------
Total.................................................................. 4,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that, if any of the foregoing
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares must be so purchased. The Company and,
to a limited extent, the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company and the Selling Stockholders have been advised that the
Underwriters propose initially to offer the shares of Common Stock to the public
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 to the public, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
In order to facilitate this Offering, certain persons participating in this
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after this Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company and the Selling Stockholders. The Underwriters
may elect to cover any such short position by purchasing shares of Common Stock
in the open market or by exercising the over-allotment option granted to the
Underwriters. In addition, such persons may stabilize or maintain the price of
the Common Stock by bidding for or purchasing shares of Common Stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this Offering are
reclaimed if shares of Common Stock previously distributed in this Offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the Common
Stock to the extent that it discourages resales thereof. No representation is
made as to the magnitude or effect of any such stabilization or other
transactions. Such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
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<PAGE>
Certain persons participating in this Offering may also engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103
permits, upon the satisfaction of certain conditions, underwriting and selling
group members participating in a distribution that are also registered Nasdaq
market makers in the security being distributed (or a related security) to
engage in limited passive market making transactions during the period when
Regulation M would otherwise prohibit such activity. In general, a passive
market maker may not bid for or purchase a security at a price that exceeds the
highest independent bid for those securities by a person that is not
participating in the distribution and must identify its passive market making
bids on Nasdaq electronic inter-dealer reporting system. In addition, the net
daily purchases made by a passive market maker generally may not exceed 30% of
such market maker's average daily trading volume in the security for the two
full consecutive calendar months (or any 60 consecutive days ending within 10
days) immediately preceding the date of filing of the Registration Statement of
which this Prospectus forms a part.
Of the shares being sold by the Selling Stockholders, 837,000 shares
(1,115,568 shares if the Underwriters' over-allotment option is exercised in
full) are issuable pursuant to currently exercisable and fully transferable
Warrants. Concurrent with the closing of this Offering, certain Selling
Stockholders will sell such Warrants to the Underwriters in consideration of the
payment of a per share amount equal to the difference between the Proceeds to
Selling Stockholders set forth on the cover page of this Prospectus and the
Warrant exercise price. The Underwriters will then exercise the Warrants by
paying the Company the exercise price ranging from $0.10 to $0.15 per Warrant
and sell the shares issuable upon exercise of the Warrants to the public at the
Price to Public set forth on the cover page of this Prospectus.
The Selling Stockholders have granted the Underwriters an option to purchase
up to 600,000 additional shares of Common Stock at the public offering price
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of this Prospectus. If the
Underwriters exercise such 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.
Each of the Company, its directors and executive officers, the Selling
Stockholders and certain other significant stockholders of the Company has
agreed that for a period of 90 days from the date of this Prospectus, it will
not, without the prior written consent of Bear, Stearns & Co. Inc., issue, sell,
offer or agree to sell, grant any option for the sale, or otherwise dispose of,
directly or indirectly, any Common Stock or any securities substantially similar
to the Common Stock or any securities convertible into, exercisable for or
exchangeable for Common Stock or securities substantially similar to the Common
Stock, otherwise than in this Offering or upon the exercise of presently
outstanding stock options.
Chase Securities is an affiliate of Chase Bank which is the agent and a
lender under the Credit Agreement. A portion of the proceeds of this Offering
will be used to repay certain indebtedness outstanding under the Credit
Agreement. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Chase Securities is also an affiliate of CMIH which is a material stockholder of
the Company and one of the Selling Stockholders in this Offering. As a result of
the repayment of certain indebtedness with the proceeds of the Offering and the
sale by CMIH of shares of Common Stock in the Offering, affiliates of Chase
Securities will receive more than 10% of the net proceeds of the Offering.
Accordingly, this Offering is being conducted in compliance with Rule 2710(c)(8)
of the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD") and the public offering price of the Common Stock can be no higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. Bear, Stearns & Co. Inc. has agreed to serve in such capacity and
will recommend a price in compliance with the requirements of such rule. Bear,
Stearns & Co. Inc. has performed due diligence investigations and participated
in the preparation of this Prospectus and the Registration Statement of which
this Prospectus
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<PAGE>
forms a part. In accordance with the provisions of NASD rules, the Underwriters
will not confirm sales to any account over which they exercise discretionary
authority without the specific prior written approval of the customer. Chase
Securities and its affiliates have provided investment banking and general
financing and banking services to the Company and its predecessors for which
Chase Securities and its affiliates have received customary compensation. Chase
Securities and its affiliates may provide similar or other services in the
future to the Company. See "Certain Transactions--Certain Interests of Chase"
and "Principal and Selling Stockholders."
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company and the Selling Stockholders by Weil, Gotshal & Manges LLP,
Dallas, Texas and New York, New York, and for the Underwriters by Haynes and
Boone, LLP, Dallas, Texas.
EXPERTS
The consolidated financial statements and related schedule of the Company as
of and for each of the years ended December 31, 1995 and 1996 and the
consolidated financial statements and schedule of United for the seven months
ended March 30, 1995 appearing in the Company's Annual Report (Form 10-K) for
the year ended December 31, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
related schedules and reports of independent auditors thereon have also been
included herein. Such consolidated financial statements and related schedules
are included herein and incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three months ended March 31, 1996 and 1997 and June 30, 1996
and 1997 and for the six months ended June 30, 1996 and 1997, incorporated by
reference in this Prospectus, Ernst & Young LLP have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports, included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997, and incorporated herein by reference, state that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted considering the limited nature of the review procedures applied.
The independent auditors are not subject to the liability provisions of Section
11 of the Securities Act for their reports on the unaudited interim financial
information because these reports are not a "report" or a "part" of the
Registration Statement prepared or certified by the auditors within the meaning
of Sections 7 and 11 of the Securities Act.
The consolidated financial statements of Associated for the year ended
December 31, 1994 included in this Prospectus and the consolidated financial
statements of United for the year ended August 31, 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 experts 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,
reference is made to the Registration Statement, including the exhibits
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<PAGE>
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 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. Such material may also be accessed electronically by means
of the Commission's web site on the Internet at http://www.sec.gov.
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:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the first and second
quarters ended March 31, 1997 and June 30, 1997, respectively;
3. The Company's Current Report on Form 8-K dated May 27, 1997; and
4. All other 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.
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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
UNITED STATIONERS INC. (THE COMPANY, PREVIOUSLY ASSOCIATED HOLDINGS, INC.) AND SUBSIDIARIES
Report of Independent Auditors.......................................................................... F- 2
Report of Independent Public Accountants................................................................ F- 3
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................ F- 4
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and
1996.................................................................................................. F- 5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1994, 1995
and 1996.............................................................................................. F- 6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.............. F- 7
Notes to Consolidated Financial Statements.............................................................. F- 8
Condensed Consolidated Balance Sheets as of December 31, 1996 (audited) and June 30, 1997 (unaudited)... F-25
Condensed Consolidated Statements of Income for the Six Months Ended June 30, 1996 and 1997
(unaudited)........................................................................................... F-26
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1997
(unaudited)........................................................................................... F-27
Notes to Condensed Consolidated Financial Statements.................................................... F-28
Consolidated Quarterly Financial Data (unaudited)....................................................... F-31
UNITED STATIONERS INC. AND SUBSIDIARY
Report of Independent Auditors.......................................................................... F-32
Report of Independent Public Accountants................................................................ F-33
Consolidated Statements of Operations for the year ended August 31, 1994, and for the seven months ended
March 31, 1994 (unaudited) and March 30, 1995......................................................... F-34
Consolidated Statements of Changes in Stockholders' Investment for the year ended August 31, 1994 and
for the seven months ended March 30, 1995............................................................. F-35
Consolidated Statements of Cash Flows for the year ended August 31, 1994 and for the seven months ended
March 31, 1994 (unaudited) and March 30, 1995......................................................... F-36
Notes to Consolidated Financial Statements.............................................................. F-37
</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 sheets of United
Stationers Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years 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 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 United
Stationers Inc. and Subsidiaries at December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
years 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.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
January 28, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Associated Holdings, Inc.:
We have audited the accompanying consolidated statements of income, changes
in stockholders' equity and cash flows of ASSOCIATED HOLDINGS, INC. (a Delaware
corporation) AND SUBSIDIARY for the year ended December 31, 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Associated Holdings, Inc. and subsidiary for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
January 23, 1995
F-3
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 11,660 $ 10,619
Accounts receivable, less allowance for doubtful accounts of $7,315 in 1995 and $6,318
in 1996............................................................................. 265,827 291,401
Inventories........................................................................... 381,618 463.239
Other................................................................................. 30,903 25,221
------------ ------------
Total current assets................................................................ 690,008 790,480
Property, plant and equipment, at cost
Land.................................................................................. 24,856 21,878
Buildings............................................................................. 105,136 97,029
Fixtures and equipment................................................................ 96,467 102,092
Leasehold improvements................................................................ 1,634 1,040
Assets under capital lease............................................................ 3,002 3,002
------------ ------------
Total property, plant and equipment................................................. 231,095 225,041
Less--accumulated depreciation and amortization....................................... 31,114 51,266
------------ ------------
Net Property, Plant and Equipment................................................... 199,981 173,775
Goodwill.............................................................................. 77,786 115,449
Other................................................................................. 33,608 30,163
------------ ------------
Total assets.......................................................................... $ 1,001,383 $ 1,109,867
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease................................ $ 23,886 $ 46,923
Accounts payable...................................................................... 194,567 238,124
Accrued expenses...................................................................... 107,622 93,789
Accrued income taxes.................................................................. 8,468 6,671
------------ ------------
Total current liabilities........................................................... 334,543 385,507
Deferred income taxes................................................................. 34,380 36,828
Long-term debt........................................................................ 526,198 552,613
Other long-term liabilities........................................................... 18,505 15,502
Redeemable preferred stock
Preferred stock Series A, $0.01 par value; 15,000 authorized; 5,000 issued and
outstanding; 2,437 and 3,086, respectively, accrued................................. 7,437 8,086
Preferred stock Series C, $0.01 par value; 15,000 authorized; 10,604, and 11,699,
respectively, issued and outstanding................................................ 10,604 11,699
------------ ------------
Total redeemable preferred stock.................................................... 18,041 19,785
Redeemable warrants................................................................... 39,692 23,812
Stockholders' equity
Common stock (voting), $0.10 par value; 40,000,000 authorized; 11,446,306 issued and
outstanding......................................................................... 1,145 1,145
Common stock (nonvoting), $0.01 par value; 5,000,000 authorized; 758,994 issued and
outstanding......................................................................... 8 8
Capital in excess of par value........................................................ 28,871 44,418
Retained earnings..................................................................... -- 30,249
------------ ------------
Total stockholders' equity.......................................................... 30,024 75,820
------------ ------------
Total liabilities and stockholders' equity............................................ $ 1,001,383 $ 1,109,867
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net sales............................................................ $ 470,185 $ 1,751,462 $ 2,298,170
Cost of goods sold................................................... 382,299 1,446,949 1,907,209
------------ ------------- -------------
Gross profit..................................................... 87,886 304,513 390,961
Operating expenses
Warehousing, marketing and administrative expenses................. 69,765 237,197 277,957
Restructuring charge............................................... -- 9,759 --
------------ ------------- -------------
Total operating expenses......................................... 69,765 246,956 277,957
------------ ------------- -------------
Income from operations............................................... 18,121 57,557 113,004
Interest expense..................................................... 7,725 46,186 57,456
------------ ------------- -------------
Income before income taxes and extraordinary item.................... 10,396 11,371 55,548
Income taxes......................................................... 3,993 5,128 23,555
------------ ------------- -------------
Income before extraordinary item..................................... 6,403 6,243 31,993
Extraordinary item--loss on early retirement of debt, net of tax
benefit of $967.................................................... -- (1,449) --
------------ ------------- -------------
Net income........................................................... 6,403 4,794 31,993
Preferred stock dividends issued and accrued......................... 2,193 1,998 1,744
------------ ------------- -------------
Net income attributable to common stockholders....................... $ 4,210 $ 2,796 $ 30,249
------------ ------------- -------------
------------ ------------- -------------
Net income per common and common equivalent share:
Income before extraordinary item................................... $ 0.51 $ 0.33 $ 2.03
Extraordinary item................................................. -- (0.11) --
------------ ------------- -------------
Net income........................................................... $ 0.51 $ 0.22 $ 2.03
------------ ------------- -------------
------------ ------------- -------------
Average number of common shares...................................... 8,308,780 12,913,229 14,923,477
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF
REDEEMABLE PREFERRED STOCK COMMON
------------------------------------------ REDEEMABLE SHARES
A B C TOTAL WARRANTS (VOTING)
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993 $ 6,138 $ 5,943 $ 8,915 $ 20,996 $ 1,435 896,258
Net income.......................................... -- -- -- -- -- --
Preferred stock dividends........................... 650 617 926 2,193 -- --
Other............................................... -- -- -- -- -- --
Issuance of common shares........................... -- -- -- -- -- 58,653
Common shares accrued............................... -- -- -- -- -- 5,435
Warrants accrued.................................... -- -- -- -- 215 --
--------- --------- --------- --------- ----------- -----------
DECEMBER 31, 1994 6,788 6,560 9,841 23,189 1,650 960,346
Net income.......................................... -- -- -- -- -- --
Preferred stock dividends........................... 649 332 763 1,744 -- --
Repurchase of Series B preferred stock.............. -- (6,892) -- (6,892) -- --
Cash dividends...................................... -- -- -- -- -- --
Accretion of warrants to fair market value.......... -- -- -- -- 37,275 --
Issuance of warrants 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............ -- -- -- -- (460) (109,159)
Increase in value of stock option grants............ -- -- -- -- -- --
Common stock issued:
Acquisition....................................... -- -- -- -- -- 4,831,873
Exercise of warrants.............................. -- -- -- -- (1,673) 58,977
100% stock dividend............................... -- -- -- -- -- 5,683,463
Stock option exercises............................ -- -- -- -- -- 20,806
Other............................................. -- -- -- -- -- --
--------- --------- --------- --------- ----------- -----------
DECEMBER 31, 1995 7,437 -- 10,604 18,041 39,692 11,446,306
Net income.......................................... -- -- -- -- -- --
Preferred stock dividends........................... 649 -- 1,095 1,744 -- --
Reduction of warrants to fair market value.......... -- -- -- -- (15,880) --
Decrease in value of stock option grants............ -- -- -- -- -- --
Other............................................... -- -- -- -- -- --
--------- --------- --------- --------- ----------- -----------
DECEMBER 31, 1996 $ 8,086 $ -- $ 11,699 $ 19,785 $ 23,812 11,446,306
--------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- ----------- -----------
<CAPTION>
NUMBER OF TOTAL
COMMON COMMON COMMON CAPITAL IN STOCK-
STOCK SHARES STOCK EXCESS RETAINED HOLDERS'
(VOTING) (NONVOTING) (VOTING) OF PAR EARNINGS EQUITY
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993 $ 9 -- $ -- $ 8,997 $ 2,416 $ 11,422
Net income.......................................... -- -- -- -- 6,403 6,403
Preferred stock dividends........................... -- -- -- -- (2,193) (2,193)
Other............................................... -- -- -- 51 -- 51
Issuance of common shares........................... 1 -- -- 8,999 -- 9,000
Common shares accrued............................... -- -- -- 63 -- 63
Warrants accrued.................................... -- -- -- 29 -- 29
----------- ----------- ----- ----------- ----------- ---------
DECEMBER 31, 1994 10 -- -- 18,139 6,626 24,775
Net income.......................................... -- -- -- -- 4,794 4,794
Preferred stock dividends........................... -- -- -- -- (1,744) (1,744)
Repurchase of Series B preferred stock.............. -- -- -- -- -- --
Cash dividends...................................... -- -- -- -- (254) (254)
Accretion of warrants to fair market value.......... -- -- -- (28,538) (8,737) (37,275)
Issuance of warrants 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............ (11) 139,474 1 2,749 -- 2,739
Increase in value of stock option grants............ -- -- -- 2,407 -- 2,407
Common stock issued:
Acquisition....................................... 563 215,614 3 35,223 -- 35,789
Exercise of warrants.............................. 6 -- -- 1,673 -- 1,679
100% stock dividend............................... 575 403,906 4 -- (579) --
Stock option exercises............................ 2 -- -- 28 -- 30
Other............................................. -- -- -- 90 (106) (16)
----------- ----------- ----- ----------- ----------- ---------
DECEMBER 31, 1995 1,145 758,994 8 28,871 -- 30,024
Net income.......................................... -- -- -- -- 31,993 31,993
Preferred stock dividends........................... -- -- -- -- (1,744) (1,744)
Reduction of warrants to fair market value.......... -- -- -- 15,880 -- 15,880
Decrease in value of stock option grants............ -- -- -- (339) -- (339)
Other............................................... -- -- -- 6 -- 6
----------- ----------- ----- ----------- ----------- ---------
DECEMBER 31, 1996 $ 1,145 758,994 $ 8 $ 44,418 $ 30,249 $ 75,820
----------- ----------- ----- ----------- ----------- ---------
----------- ----------- ----- ----------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................. $ 6,403 $ 4,794 $ 31,993
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation............................................................. 4,869 19,708 22,766
Amortization............................................................. 1,487 10,564 8,609
Deferred income taxes.................................................... -- (163) 5,299
Compensation expense on stock option grants.............................. -- 2,407 (339)
Other.................................................................... 307 301 1,584
Changes in operating assets and liabilities, net of acquisitions
Increase in Accounts Receivable.......................................... (128) (32,330) (15,379)
(Increase) decrease in inventory......................................... (5,579) 31,656 (71,282)
(Increase) decrease in other assets...................................... (598) 2,765 1,814
Increase (decrease) in accounts payable.................................. 3,806 (5,104) 36,352
Increase (decrease) in accrued liabilities............................... 2,260 (3,474) (17,185)
Increase (decrease) in other liabilities................................. 1,261 (4,795) (2,623)
---------- ----------- ----------
Net cash provided by operating activities............................ 14,088 26,329 1,609
Cash flows from investing activities:
Acquisitions:
United Stationers Inc., net of cash acquired of $14,500.................. -- (258,438) --
Lagasse Bros., Inc....................................................... -- -- (51,896)
Capital expenditures....................................................... (625) (8,086) (8,190)
Proceeds from disposition of property, plant & equipment................... 71 69 11,076
Other...................................................................... -- 164 (861)
---------- ----------- ----------
Net cash used in investing activities................................ (554) (266,291) (49,871)
Cash flows from financing activities:
Net (repayments) borrowings under revolver................................. (7,900) (3,608) 22,000
Retirements and principal payments of debt................................. (4,827) (412,342) (30,861)
Borrowings under financing agreements...................................... -- 686,854 57,933
Financing costs............................................................ -- (25,290) (1,851)
Issuance of common stock................................................... -- 12,006 --
Retirement of Series B preferred stock..................................... -- (6,892) --
Cash dividend.............................................................. -- (254) --
Other...................................................................... 51 (701) --
---------- ----------- ----------
Net cash (used in) provided by financing activities.................. (12,676) 249,773 47,221
---------- ----------- ----------
Net change in cash and cash equivalents...................................... 858 9,811 (1,041)
Cash and cash equivalents, beginning of year................................. 991 1,849 11,660
---------- ----------- ----------
Cash and cash equivalents, end of year....................................... $ 1,849 $ 11,660 $ 10,619
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
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 "Offer"). Immediately thereafter,
Associated merged with and into United (the "Merger" and, collectively with the
Offer, the "Acquisition"), and Associated Stationers, Inc. ("ASI"), a wholly
owned subsidiary of Associated merged with and into United Stationers Supply Co.
("USSC"), a wholly owned subsidiary of United, 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 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.
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 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 the 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>
F-8
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING (CONTINUED)
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 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
Voting Common Stock.
On October 31, 1996, the Company acquired all of the capital stock of
Lagasse Bros., Inc. ("Lagasse") for approximately $51.9 million. The acquisition
was financed primarily through senior debt . The Lagasse 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 estimated fair values at the date of acquisition with the
excess of cost over fair value of approximately $39.0 million allocated to
goodwill. The financial information for the year ended December 31, 1996
includes the results of Lagasse for two months ended December 31, 1996. The
actual and pro forma effects of this acquisition are not material.
2. OPERATIONS
The Company is a national wholesale distributor of business products. The
Company offers approximately 30,000 items from more than 500 manufacturers. This
includes a broad spectrum of office products, computer supplies, office
furniture and facilities management supplies. The Company primarily serves
commercial and contract office products dealers. Its customers include more than
15,000 resellers--such as computer products resellers, office furniture dealers,
mass merchandisers, sanitary supply distributors, warehouse clubs, mail order
houses and office products superstores. The Company has a distribution network
of 41 Regional Distribution Centers. Through its integrated computer system, the
Company provides a high level of customer service and overnight delivery. In
addition, the Company has 14 Lagasse Distribution Centers, specifically serving
janitorial and sanitary supply distributors.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when a product is shipped and title is transferred to
the customer in the period the sale is reported.
F-9
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and 1996 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 believed that the LIFO method provided a better matching of current
costs and current revenues and that earnings reported under the LIFO method were
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 and $4.8 million higher than reported at December 31,
1995 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. 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, 1995 and 1996 is $1,953,000 and $4,047,000, 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.
F-10
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for using the liability method under which
deferred income taxes are recognized for the estimated tax consequences for
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities. Provision has not been made for deferred
U.S. income taxes on the undistributed earnings of the Company's foreign
subsidiaries since these earnings are intended to be permanently invested.
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. Primary and fully diluted earnings
per share are based on the weighted average number of common and common
equivalent shares outstanding during the period. Stock options and warrants are
considered to be common equivalent shares.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local
currency.
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the
1996 basis of presentation. During the fourth quarter of 1996, the Company
reclassified certain delivery and occupancy costs from operating expenses to
cost of goods sold to conform the Company's presentation to the presentation
used by others in the business products industry. The following table sets forth
the impact of the reclassification for the years presented in the Consolidated
Statements of Income:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1994(1) 1995(2) 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification...................... 24.0% 21.8% 21.0%
Gross margin as reported herein............................. 18.7% 17.4% 17.0%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification........... 20.1% 17.9%(3) 16.1%
Operating expense ratio as reported herein.................. 14.8% 13.5%(3) 12.1%
</TABLE>
- ------------------------
(1) Reflects the results of Associated only.
(2) 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.
(3) Excludes a restructuring charge of $9.8 million.
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
F-11
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consolidated Financial Statements and accompanying notes. Actual results could
differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
During 1996, the Company adopted the supplemental disclosure requirement of
Financial Accounting Standards Board Statement No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages but does not
require adoption of a fair value method of accounting for stock options. For
those entities which do not elect to adopt the fair value method, the new
standard requires supplemental disclosure regarding the pro forma effects of
that method. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value based method of accounting prescribed by
the Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for
Stocks Issued to Employees," and related Interpretations. Adoption of SFAS No.
123 will have no impact on the financial position or results of operations of
the Company.
During 1996, the Company adopted Financial Accounting Standards Board
Statement No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that an
impairment loss be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed. The effect of adoption was not material.
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.
F-12
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATION AND RESTRUCTURING CHARGE (CONTINUED)
The historical results for the twelve months ended December 31, 1995 include
a restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9
million). The restructuring charge included severance costs totaling $1.8
million. The Company's consolidation plan specified that 330 distribution, sales
and corporate positions, 180 of which related to pre-Merger Associated, were to
be eliminated substantially within one year following the Merger. The Company
has achieved its target, with the related termination costs of approximately
$1.8 million charged against the reserve. The restructuring charge also included
distribution center closing costs totaling $6.7 million and stockkeeping unit
reduction costs totaling $1.3 million. The consolidation plan called for the
closing of eight redundant distribution centers, six of which related to
pre-Merger Associated, and the elimination of overlapping inventory items from
the Company's catalogs substantially within the one-year period following the
Merger. Estimated distribution center closing costs included (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. Estimated stockkeeping unit reduction costs
included losses on the sale of inventory items which have been discontinued
solely as a result of the Acquisition. As of December 31, 1996, five of the six
redundant pre-Merger Associated distribution centers have been closed with $5.5
million charged against the reserve and $2.0 million related to stockkeeping
unit reduction costs have also been charged against the reserve. As of December
31, 1996, the Company's consolidation plan has been substantially completed.
Seven of the eight redundant distribution centers have been closed. The
restructuring reserve balance at December 31, 1996 of $0.5 million is expected
to be adequate to cover the remaining estimated expenditures related to
integration and transition costs.
The historical results for 1995 also included 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 included 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 write-off.
F-13
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revolver.............................................................. $ 185,000 $ 207,000
Term Loans
Tranche A, due in installments until September 30, 2001............. -- 144,374
Tranche B, due in installments until September 30, 2003............. -- 64,750
Tranche A, due in installments until March 31, 2000................. 110,053 --
Tranche B, due in installments until March 31, 2002................. 71,837 --
Senior Subordinated Notes............................................. 150,000 150,000
Mortgage at 9.4%, due in installments until 1999...................... 2,174 2,071
Industrial development bonds, at market interest rates, maturing at
various dates through 2011.......................................... 14,300 14,300
Industrial development bonds, at 66% to 79% of prime, maturing at
various dates through 2004.......................................... 15,500 15,500
Other long-term debt.................................................. 313 175
---------- ----------
549,177 598,170
Less--current maturities............................................ (22,979) (45,557)
---------- ----------
$ 526,198 $ 552,613
---------- ----------
---------- ----------
</TABLE>
The prevailing prime interest rate at the end of 1995 and 1996 was 8.5% and
8.25%, respectively.
As of December 31, 1996, the credit facilities under the Amended and
Restated Credit Agreement (the "Credit Agreement") consisted of $209.1 million
of term loan borrowings (the "Term Loan Facilities"), and up to $325.0 million
of revolving loan borrowings (the "Revolving Credit Facility"). This agreement
was amended to provide funding for the acquisition of Lagasse Bros., Inc., to
extend the maturities, to adjust the pricing and to revise certain covenants. In
addition, the Company has $150.0 million of 12 3/4% Senior Subordinated Notes
due 2005 (the "Notes").
The Term Loan Facilities consist of a $144.4 million Tranche A term loan
facility (the "Tranche A Facility") and a $64.7 million Tranche B term loan
facility (the "Tranche B Facility"). Quarterly payments under the Tranche A
facility range from $5.63 million at December 31, 1996 to $8.30 million at
September 30, 2001. Quarterly payments under the Tranche B Facility range from
$0.25 million at December 31, 1996 to $6.64 million at September 30, 2003. On
March 31, 1997, principal payments of $15.9 million and $7.4 million are
required to be paid from Excess Cash Flow (as defined in the Credit Agreement)
at December 31, 1996 for the Tranche A and Tranche B Facilities, 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 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 be attributable to Eligible Inventory); plus the aggregate amount of
cover for Letter of Credit Liabilities (as defined in the Credit Agreement). In
addition, for each fiscal year, the Company must repay revolving loans so that
for a period of 30 consecutive days in each fiscal year the aggregate revolving
loans do not exceed $250.0 million. The Revolving Credit Facility matures on
October 31, 2001.
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
F-14
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
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 loans outstanding under the Term Loan Facilities and the Revolving
Credit Facility bear interest as determined within a set range with the rate
based on the ratio of total debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Tranche A Facility and the
Revolving Credit Facility bear interest, at prime plus 0.25% to 1.25% or, at the
Company's option, LIBOR plus 1.50% to 2.50%. The Tranche B Facility bears
interest at prime plus 1.25% to 1.75% or, at the Company's option, LIBOR plus
2.50% to 3.00%.
The Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of this
type. As of December 31, 1996, the Company was in compliance with all covenants
contained in the Credit Agreement.
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including 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 to
interest expense. At December 31, 1996, the Company had agreements which collar
$200.0 million of the Company's borrowings under the Credit Facilities at
interest rates between 8.0% and 6.0%, which expire in April 1998. For the years
ended December 31, 1995 and 1996, the Company recorded $0.1 million and $0.9
million, respectively, to interest expense resulting from interest rate
fluctuations beyond the rates specified in the collar agreements.
The right of United 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 Credit Agreement contains certain restrictive covenants, including covenants
that restrict or prohibit USSC's ability to pay dividends and make other
distributions to United.
Debt maturities for the years subsequent to December 31, 1996 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1997.............................................................................. $ 45,557
1998.............................................................................. 26,609
1999.............................................................................. 32,724
2000.............................................................................. 34,717
2001.............................................................................. 242,996
Later years....................................................................... 215,567
----------
$ 598,170
----------
----------
</TABLE>
At December 31, 1995 and 1996, the Company had available letters of credit
of $56.0 million and $55.3 million, respectively, of which $56.0 million and
$52.8 million, respectively, were outstanding.
F-15
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
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, 1996 having initial remaining terms of more than one
year are as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASE LEASES(1)
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1997..................................................................... $ 1,479 $ 18,191
1998..................................................................... 487 15,452
1999..................................................................... -- 13,000
2000..................................................................... -- 10,285
2001..................................................................... -- 8,185
Later years.............................................................. -- 21,660
--------- -----------
Total minimum lease payments............................................. 1,966 $ 86,773
-----------
-----------
Less amount representing interest........................................ 134
---------
Present value of net minimum Lease payments (including current Portion of
$1,366)................................................................ $ 1,832
---------
---------
</TABLE>
- ------------------------
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $3.0 million,
$14.2 million and $18.8 million in 1994, 1995 and 1996, respectively.
7. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
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 entered the pension plans on July 1, 1996. As of this date,
the Company has 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.
F-16
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION PLANS AND DEFINED CONTRIBUTION PLAN (CONTINUED)
The following table sets forth the plans' funded status at December 31, 1995
and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation
Vested benefits....................................................... $ 18,776 $ 19,015
Non-vested benefits................................................... 1,996 1,431
--------- ---------
Accumulated benefit obligation.......................................... 20,772 20,446
Effect of projected future compensation levels.......................... 2,861 3,110
--------- ---------
Projected benefit obligation............................................ 23,633 23,556
Plan assets at fair value............................................... 26,713 28,373
--------- ---------
Plan assets in excess of projected benefit obligation................... 3,080 4,817
Unrecognized prior service cost......................................... -- 720
Unrecognized net gain due to past
Experience different from assumptions................................. (507) (4,348)
--------- ---------
Prepaid pension asset recognized
In the Consolidated Balance Sheets.................................... $ 2,573 $ 1,189
--------- ---------
--------- ---------
</TABLE>
The plans' assets consist of corporate and government debt securities and
equity securities. Net periodic pension cost for 1995 and 1996 for pension and
supplemental benefit plans includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Service cost-benefit earned during the period........................... $ 1,142 $ 1,884
Interest cost on projected benefit obligation........................... 1,157 1,652
Actual return on assets................................................. (2,711) (3,468)
Net amortization and deferral........................................... 1,382 1,495
--------- ---------
Net periodic pension cost............................................... $ 970 $ 1,563
--------- ---------
--------- ---------
</TABLE>
The assumptions used in accounting for the Company's defined benefit plans
for the two years presented are set forth below:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Assumed discount rate......................................... 7.25% 7.5%
Rates of compensation increase................................ 0.0%-5.5% 0.0%-5.5%
Expected long-term rate of return on plan assets.............. 7.5% 7.5%
</TABLE>
DEFINED CONTRIBUTION
The Company has a defined contribution plan in which all salaried employees
and certain hourly paid employees of the Company are eligible to participate
following completion of six consecutive months of employment. The plan permits
employees to have contributions made as 401(k) salary deferrals on their behalf,
or as voluntary after-tax contributions, and provides for Company contributions,
or contributions
F-17
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION PLANS AND DEFINED CONTRIBUTION PLAN (CONTINUED)
matching employee salary deferral contributions, at the discretion of the Board
of Directors. The Company has no present intention to make Company contributions
other than matching contributions. Company contributions for matching of
employee contributions were approximately $0.3 million, $0.6 million and $0.9
million in 1994, 1995 and 1996, 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. Retirees pay one-half of the projected plan
costs.
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheets as of December 31, 1995 and 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Retirees................................................................ $ (762) $ (877)
Other fully eligible plan participants.................................. (697) (632)
Other active plan participants.......................................... (1,362) (1,588)
--------- ---------
Total APBO.............................................................. (2,821) (3,097)
Unrecognized net loss/(gain)............................................ 76 (1)
--------- ---------
Accrued postretirement benefit obligation............................... $ (2,745) $ (3,098)
--------- ---------
--------- ---------
</TABLE>
The cost of postretirement health care benefits for the year ended December
31, 1995 and 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Service cost............................................................ $ 161 $ 239
Interest on accumulated benefit obligation.............................. 109 204
--------- ---------
Net postretirement benefit cost......................................... $ 270 $ 443
--------- ---------
--------- ---------
</TABLE>
The assumptions used in accounting for the Company's postretirement plan for
the two years presented are set forth below (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Assumed average health care cost trend rate............................. 3.0% 3.0%
Assumed discount rate................................................... 7.5% 7.5%
Impact of 1% increase in health care costs on:
Accumulated benefit obligation........................................ $ 396 $ 450
Annual service and interest cost...................................... $ 46 $ 79
</TABLE>
F-18
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN
The Management Equity 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.
In September 1995, the Company's Board of Directors approved an amendment to
the Plan 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 during 1995
and 1996 to management employees. Some of the options were granted at an option
price below market value and the option price of certain options increases by
$0.625 on a quarterly basis effective April 1, 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 prices of the stock options. If a Vesting Event were to
occur, based upon a stock price of $19.50, the Company would recognize a
nonrecurring noncash charge of $18.4 million in compensation expense ($10.6
million net of tax benefit of $7.8 million). Each $1.00 change in the fair
market value of Common Stock could result in a maximum adjustment to such
compensation expense of approximately $2.5 million ($1.4 million net of tax
effect of $1.1 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
pay in cash or (iii) reducing the number of shares of Common Stock to be issued
(except in the case of incentive options).
The following table summarizes the transactions of the Plan for the last
three years:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
MANAGEMENT EQUITY PLAN EXERCISE EXERCISE
(EXCLUDING RESTRICTED STOCK) 1994 PRICES 1995 PRICES 1996
- -------------------------------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Options outstanding at beginning of the period.... 367,160 $ 1.45 217,309 $ 1.45 2,030,996
Granted........................................... 28,694 $ 1.45 1,854,649 $ 11.65 650,772
Exercised......................................... -- -- (20,804) $ 1.45 --
Canceled.......................................... (178,545) $ 1.45 (20,158) $ 1.45 (184,000)
-------------- ----- -------------- ------ --------------
Options outstanding at end of the period.......... 217,309 $ 1.45 2,030,996 $ 10.73 2,497,768
-------------- ----- -------------- ------ --------------
-------------- ----- -------------- ------ --------------
<CAPTION>
WEIGHTED
AVERAGE
MANAGEMENT EQUITY PLAN EXERCISE
(EXCLUDING RESTRICTED STOCK) PRICES
- -------------------------------------------------- --------------
<S> <C>
Options outstanding at beginning of the period.... $ 10.73
Granted........................................... $ 7.95
Exercised......................................... --
Canceled.......................................... $ 7.64
------
Options outstanding at end of the period.......... $ 11.61
------
------
</TABLE>
F-19
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information concerning outstanding options of
the Plan at December 31, 1996:
<TABLE>
<CAPTION>
REMAINING
NUMBER CONTRACTUAL
EXERCISE PRICES OUTSTANDING LIFE (YEAR)
- -------------------------------------------------- -------------- --------------
<S> <C> <C>
$ 1.45............................................ 385,120 5.09
$ 5.12............................................ 207,148 5.74
$14.38............................................ 1,905,500 5.74
--------------
2,497,768
--------------
--------------
</TABLE>
All share and per share data have been restated to reflect the 100% stock
dividend effective November 9, 1995 and the conversion of Associated common
stock as a result of the Merger.
During 1996, the Company adopted the supplemental disclosure requirements of
SFAS No. 123. Accordingly, the Company is required to disclose pro forma net
income and earnings per share as if the fair value-based accounting method in
SFAS No. 123 had been used to account for stock-based compensation cost. The
Company's stock options granted under the Plan are considered "all or nothing"
awards since the options do not vest to the employee until the occurrence of a
Vesting Event. The fair value of "all or nothing" awards are measured at the
grant date; however, amortization of compensation expense only begins when it is
probable that the awards will vest and be earned. Presently, the Company
believes that it is less than likely that a Vesting Event will occur. Therefore,
there is no compensation expense for pro forma purposes and pro forma net income
and earnings per share are the same as that recorded on the face of the income
statement.
The Company uses a binomial option pricing model to estimate the fair value
of options at the date of grant. The weighted average assumptions used to value
options and the weighted average fair value of options granted during 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Fair value of options granted............................................ $ 9.33 $ 17.67
Exercise price........................................................... $ 11.65 $ 8.59
Expected stock price volatility.......................................... 102.2% 80.7%
Expected dividend yield.................................................. 0.0% 0.0%
Risk-free interest rate.................................................. 5.9% 5.2%
Expected life of options................................................. 3 years 2 years
</TABLE>
10. REDEEMABLE PREFERRED STOCK
At December 31, 1995 and 1996, the Company had 1,500,000 authorized shares
of $0.01 par value preferred stock, of which 15,000 shares 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 1,455,000
shares remained undesignated. Series B and C preferred stock are junior in
relation to the Series A preferred stock. 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
F-20
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. REDEEMABLE PREFERRED STOCK (CONTINUED)
unpaid dividends thereon. All outstanding shares of preferred stock are senior
in preference to the Common Stock of United.
Series A preferred stock must be redeemed by the Company on or before July
31, 2006. Dividends are cumulative at a rate of 10% per annum, payable
quarterly. 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. During each of
the years ended December 31, 1994, 1995, and 1996, 649 shares of Series A
preferred stock were accrued but not issued. As of December 31, 1995 and 1996,
2,437 and 3,086 shares of Series A preferred stock have been accrued as
dividends but not issued.
Series C preferred stock is redeemable in four consecutive quarterly
installments commencing on April 30, 2001. Dividends are cumulative at a rate of
9% per annum, payable quarterly. 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, 1994, non-cash dividends were
declared and issued for both Series B and C preferred stock in the amount of 617
and 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 amount 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. During the year
ended December 31, 1996, noncash dividends were declared and issued for Series C
preferred stock in the amount of 1,095 shares.
All series of preferred stock may be redeemed at the option of the Company
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 pre-ferred stock for the five years
following the year ended December 31, 1996 is $14.0 million in 2001 for the
Series C preferred stock.
11. REDEEMABLE WARRANTS
The Company had 1,430,468 and 1,227,438 warrants ("Lender Warrants")
outstanding as of December 31, 1995 and 1996, 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 and 1996 were valued at
$27.75 and $19.50 per warrant, respectively. During 1995, 117,954 warrants were
exercised, 284,484 warrants were issued or accrued resulting from anti-dilution
agreements 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.
During 1996, 203,030 warrants were contributed back to the Company and
terminated in connection with anti-dilution agreements. The exercise period for
Lender Warrants expires January 31, 2002.
The Lender Warrants contain certain put rights which allow the holders
thereof to put the warrants to the Company. 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.
F-21
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. TRANSACTIONS WITH RELATED PARTIES
The Company has management advisory service 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") had
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 Credit Agreement related to certain Company
performance criteria. At the Merger, 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 $350,000, $603,000 and
$725,000 with respect to each of the fiscal years ended 1994, 1995 and 1996,
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 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 Merger, the Company paid
aggregate fees to Cumberland of $100,000 for services rendered in connection
with the Acquisition. Pursuant to the agreement, Cumberland earned an aggregate
of $75,000, $129,000 and $137,500 with respect to the fiscal years ended 1994,
1995 and 1996, 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.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") has an
agreement 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 Merger, 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 of $75,000, $129,000 and $137,500 in each of the fiscal years ended
1994, 1995 and 1996, 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.
F-22
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
The provision for (benefit from) income taxes consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Currently payable--
Federal.................................................... $ 3,090 $ 4,172 $ 14,724
State...................................................... 903 1,119 3,532
--------- --------- ---------
Total currently payable.................................. 3,993 5,291 18,256
Deferred, net--
Federal.................................................... (24) (142) 4,614
State...................................................... 24 (21) 685
--------- --------- ---------
Total deferred, net...................................... -- (163) 5,299
--------- --------- ---------
Provision for income taxes................................... $ 3,993 $ 5,128 $ 23,555
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's effective income tax rates for the years ended December 31,
1994, 1995 and 1996 varied from the statutory Federal income tax rate as set
forth in the following table (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1994 1995 1996
-------------------------- ---------------------------- -------------
% OF % OF
PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Tax provision based on the federal statutory
rate............................................ $ 3,535 34.0% $ 3,980 35.0% $ 19,442
State and local income taxes-- net of federal
income tax benefit.............................. 607 5.8 705 6.2 3,000
Non-deductible and other.......................... (149) (1.4) 443 3.9 1,113
------ ------ ------ ------ -------------
Provision for income taxes........................ $ 3,993 38.4% $ 5,128 45.1% $ 23,555
------ ------ ------ ------ -------------
------ ------ ------ ------ -------------
<CAPTION>
% OF
PRE-TAX
INCOME
-------------
<S> <C>
Tax provision based on the federal statutory
rate............................................ 35.0%
State and local income taxes-- net of federal
income tax benefit.............................. 5.4
Non-deductible and other.......................... 2.0
------
Provision for income taxes........................ 42.4%
------
------
</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,
--------------------------------------------------------
1995 1996
-------------------------- ----------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Accrued expenses.................................. $ 20,351 $ -- $ 17,882 $ --
Allowance for doubtful accounts................... 10,645 -- 11,036 --
Inventory reserves and adjustments................ -- 14,756 -- 13,795
Depreciation and amortization..................... -- 42,300 -- 43,798
Reserve for restructuring charges and other....... 13,970 331 6,915 --
------------ ------------ ------------- -------------
Total............................................. $ 44,966 $ 57,387 $ 35,833 $ 57,593
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
F-23
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
In the Consolidated Balance Sheets, these deferred assets and liabilities
are classified on a net basis as current and non-current based on the
classification of the related asset or liability or the expected reversal date
of the temporary difference.
14. SUPPLEMENTAL CASH FLOW INFORMATION
In addition to the information provided in the Consolidated Statements of
Cash Flows, the following are supplemental disclosures of cash flow information
for the years ended December 31, 1994, 1995 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest........................................ $ 6,588 $ 36,120 $ 52,871
Income taxes.................................... 2,118 8,171 17,482
</TABLE>
The following are supplemental disclosures of noncash investing and
financing activities for the years ended December 31, 1994, 1995 and 1996
(dollars in thousands):
- In 1994, the Company issued $9,000 of common stock to retire a $9,000
deferred obligation related to a transition services agreement.
- In 1994, the Company accrued $244 for warrants which had an exercise price
less than the fair market value of the common stock.
- In 1994, the Company accrued $63 for common stock shares to be issued at
less than fair market value.
- On March 30, 1995, the Company issued stock valued at $2,162 in exchange
for services related to financing the Acquisition.
- 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, 1995 DECEMBER 31, 1996
-------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 11,660 $ 11,660 $ 10,619 $ 10,619
Current maturities of long-term obligations and
capital lease................................... 23,886 23,886 46,923 46,923
Long-term debt and capital lease:
Notes........................................... 150,000 163,875 150,000 168,000
All other....................................... 376,198 376,198 403,079 403,079
Interest rate collar.............................. -- 3,900 -- 1,200
</TABLE>
The fair value of the Notes and interest rate collar are based on quoted
market prices and quotes from counterparties, respectively.
F-24
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------
1997
DECEMBER 31, ------------
------------
1996 (UNAUDITED)
------------
(AUDITED)
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents............................................................ $ 10,619 $ 18,313
Accounts receivable, net............................................................. 291,401 262,887
Inventories.......................................................................... 463,239 425,801
Other................................................................................ 25,221 23,659
------------ ------------
Total current assets............................................................... 790,480 730,660
Property, plant and equipment, at cost............................................... 225,041 229,268
Less--accumulated depreciation and amortization...................................... (51,266) (62,385)
------------ ------------
Net property, plant and equipment.................................................... 173,775 166,883
Goodwill............................................................................. 115,449 113,337
Other................................................................................ 30,163 28,245
------------ ------------
Total assets......................................................................... $1,109,867 $ 1,039,125
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and capital lease............................... $ 46,923 $ 23,714
Accounts payable..................................................................... 238,124 219,199
Accrued liabilities.................................................................. 100,460 110,747
------------ ------------
Total Current Liabilities.......................................................... 385,507 353,660
Deferred income taxes................................................................ 36,828 37,318
Long-term obligations
Senior revolver loan................................................................. 207,000 161,000
Senior subordinated notes............................................................ 150,000 150,000
Senior term loan--Tranche A.......................................................... 107,318 96,255
Senior term loan--Tranche B.......................................................... 56,425 55,983
Other long-term debt................................................................. 31,870 31,776
Other long-term liabilities.......................................................... 15,502 13,761
------------ ------------
Total long-term obligations........................................................ 568,115 508,775
Redeemable preferred stock........................................................... 19,785 20,702
Redeemable warrants.................................................................. 23,812 30,966
Stockholders' equity................................................................. 75,820 87,704
------------ ------------
Total liabilities and stockholders' equity........................................... $1,109,867 $ 1,039,125
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 1,122,571 $ 1,245,062
Cost of goods sold.................................................................... 932,833 1,031,586
------------ ------------
Gross profit........................................................................ 189,738 213,476
Operating expenses
Warehousing, marketing and administrative expenses.................................. 136,697 150,434
------------ ------------
Income from operations................................................................ 53,041 63,042
Interest expense...................................................................... 29,641 28,528
------------ ------------
Income before income taxes............................................................ 23,400 34,514
Income taxes.......................................................................... 9,918 14,635
------------ ------------
Net income............................................................................ 13,482 19,879
Preferred stock dividends issued and accrued.......................................... 862 917
------------ ------------
Net income attributable to common stockholders........................................ $ 12,620 $ 18,962
------------ ------------
------------ ------------
Net income per common and common equivalent share--primary............................ $ 0.84 $ 1.30
------------ ------------
------------ ------------
Average number of common shares....................................................... 15,045,505 14,623,996
------------ ------------
------------ ------------
Net income per common and common equivalent share--fully diluted...................... $ 0.83 $ 1.28
------------ ------------
------------ ------------
Average number of common shares....................................................... 15,116,942 14,864,900
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
F-26
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
----------------------
JUNE 30, JUNE 30,
1996 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 13,482 $ 19,879
Depreciation and amortization........................................................... 13,190 13,581
Transaction costs and other amortization................................................ 2,746 2,269
Changes in Operating Assets and Liabilities............................................. 21,188 57,175
---------- ----------
Net Cash Provided by Operating Activities............................................. 50,606 92,904
Cash flows from investing activities:
Capital expenditures.................................................................... (2,533) (4,482)
Proceeds from disposition of property, plant and equipment.............................. 5,034 31
Other................................................................................... (861) --
---------- ----------
Net cash provided by (used in) investing activities................................... 1,640 (4,451)
Cash flows from financing activities:
Principal payments of debt.............................................................. (18,897) (34,808)
Net repayments under revolver........................................................... (34,000) (46,000)
Other................................................................................... 72 49
---------- ----------
Net cash used in financing activities................................................. (52,825) (80,759)
---------- ----------
Net Change in Cash and Cash Equivalents................................................... (579) 7,694
Cash and Cash Equivalents, Beginning of Year.............................................. 11,660 10,619
---------- ----------
Cash and Cash Equivalents, End of Year.................................................... $ 11,081 $ 18,313
---------- ----------
---------- ----------
Other cash flow information:
Cash payments during the six-month period for:
Income taxes paid..................................................................... $ 10,222 $ 8,936
Interest paid......................................................................... 28,079 24,007
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited,
except for the Consolidated Balance Sheet as of December 31, 1996. These
financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the Company's
management, the condensed consolidated financial statements for the unaudited
interim periods presented include all adjustments necessary to fairly present
the results of such interim periods and the financial position as of the end of
said periods. These adjustments were of a normal recurring nature and did not
have a material impact on the financial statements presented. Certain interim
expense and inventory estimates are recognized throughout the fiscal year
relating to marginal income tax rates, shrinkage, price changes and product mix.
Any refinements to these estimates based on actual experience are recorded when
known.
On October 31, 1996, the Company acquired all of the capital stock of
Lagasse Bros., Inc. ("Lagasse") for approximately $51.9 million. The acquisition
was financed primarily through senior debt. The Lagasse 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 estimated fair values at the date of acquisition with the
excess of cost over fair value of approximately $39.0 million allocated to
goodwill. The financial information for the six-month period ended June 30, 1997
includes the results of Lagasse. The actual and pro forma effects of this
acquisition are not material.
2. OPERATIONS
The Company is a national wholesale distributor of business products. The
Company offers approximately 30,000 items from more than 500 manufacturers. This
includes a broad spectrum of office products, computer supplies, office
furniture and facilities management supplies. The Company primarily serves
commercial and contract office products dealers. Its customers include more than
15,000 resellers-- such as computer products resellers, office furniture
dealers, mass merchandisers, sanitary supply distributors, warehouse clubs, mail
order houses and office products superstores. The Company has a distribution
network of 41 Regional Distribution Centers. Through its integrated computer
system, the Company provides a high level of customer service and overnight
delivery. In addition, the Company has 14 Lagasse Distribution Centers,
specifically serving janitorial and sanitary supply distributors.
3. RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the
1997 basis of presentation. During the fourth quarter of 1996, the Company
reclassified certain delivery and occupancy costs from operating expenses to
cost of goods sold to conform the Company's presentation to the presentation
F-28
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RECLASSIFICATION (CONTINUED)
used by others in the business products industry. The following table sets forth
the impact of the reclassification:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, 1996
---------------------
<S> <C>
Gross Margin as a Percent of Net Sales:
Gross margin prior to the reclassification............................. 21.0%
Gross margin as reported herein........................................ 16.9%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification...................... 16.3%
Operating expense ratio as reported herein............................. 12.2%
</TABLE>
4. REDEEMABLE WARRANTS
The Redeemable Warrants reflected on the Consolidated Balance Sheets are
adjusted on an ongoing basis for any exercises to Common Stock, revaluation
based on the current market value of the Company's Common Stock and any issuance
of Warrants to counter the dilutive impact resulting from the issuance of other
common stock equivalents such as the issuance of stock options by the Company.
5. STOCK OPTION PLAN
Employee stock options granted under the Company's employee stock option
plan do not vest to the employee until the occurrence of an event (a "Vesting
Event") that causes certain 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 Company's common stock and the exercise price of the
employee stock options. Based upon a stock price of $25.25 and options
outstanding as of June 30, 1997, the Company would recognize a nonrecurring
noncash pre-tax charge of $28.8 million in compensation expense if a Vesting
Event were to occur. Each $1.00 change in the fair market value of common stock
could result in a maximum pre-tax adjustment to such compensation expense of
approximately $2.4 million.
6. 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 for the six months ended June 30, 1997 and 1996 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.
7. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods presented to
conform to the new method. Under the new requirements for calculating primary
earnings
F-29
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
per share, the dilutive effect of common stock equivalents will be excluded. The
impact is expected to result in an increase in primary earnings per share of
$0.19 and $0.25 for the six-month periods ended June 30, 1996 and 1997,
respectively. The impact of Statement No. 128 on the calculation of fully
diluted earnings per share for these periods is not expected to be material.
F-30
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
INCOME (LOSS)
INCOME (LOSS) PER SHARE
BEFORE NET BEFORE NET INCOME
GROSS EXTRAORDINARY INCOME EXTRAORDINARY (LOSS) PER
NET SALES PROFIT(1) ITEM (LOSS) ITEM(2)(3) SHARE(2)(3)
--------- ----------- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter (4)...................... $ 134,997 $ 24,978 $ (4,233) $ (5,682) $ (0.72) $ (0.94)
Second Quarter......................... 529,429 90,563 1,524 1,524 0.07 0.07
Third Quarter.......................... 537,624 93,818 4,173 4,173 0.27 0.27
Fourth Quarter......................... 549,412 95,154 4,779 4,779 0.29 0.29
- -----------------------------------------------------------------------------------------
Totals............................... $1,751,462 $ 304,513 $ 6,243 $ 4,794 0.33 0.22
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
First Quarter.......................... $ 586,881 $ 102,526 $ 8,209 $ 8,209 $ 0.51 $ 0.51
Second Quarter......................... 535,690 87,212 5,273 5,273 0.32 0.32
Third Quarter.......................... 576,254 98,207 8,781 8,781 0.56 0.56
Fourth Quarter......................... 599,345 103,016 9,730 9,730 0.63 0.63
- -----------------------------------------------------------------------------------------
Totals............................... $2,298,170 $ 390,961 $ 31,993 $ 31,993 2.03 2.03
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1997
First Quarter........................ $ 635,021 $ 108,742 $ 10,009 $ 10,009 $ 0.65 $ 0.65
Second Quarter....................... 610,041 104,734 9,870 9,870 0.63 0.63
- -----------------------------------------------------------------------------------------
Six Months Ended June 30, 1997....... $1,245,062 $ 213,476 $ 19,879 $ 19,879 $ 1.28 $ 1.28
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
(1) Gross profit is net of delivery and occupancy costs. See Note 3
(Reclassification) to the Consolidated Financial Statements of the Company
elsewhere herein.
(2) Historical earnings per share amounts have been restated to reflect the
share conversion resulting from the Merger and the 100% stock dividend,
effective November 9, 1995. Earnings per share are net of preferred stock
dividends.
(3) As a result of changes in the number of common and common equivalent shares
during the year, the sum of four quarters' earnings per share will not equal
earnings per share for the total year.
(4) Reflects the results of Associated only.
(5) The extraordinary item reflects the write-off of financing costs and
original issue discount relating to the retired debt which was being
amortized over the life of the original debt.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of
Directors of United Stationers Inc.:
We have audited the accompanying consolidated statements of operations,
changes in stockholders' investment and cash flows of United Stationers Inc. and
Subsidiary for the seven months ended March 30, 1995. 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 results of operations and cash flows
of United Stationers Inc. and Subsidiary for the seven months ended March 30,
1995 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
June 27, 1995
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors of United Stationers Inc.:
We have audited the accompanying consolidated statement of operations,
changes in stockholders' investment and cash flows of UNITED STATIONERS INC. (a
Delaware Corporation) AND SUBSIDIARIES for the fiscal year ended August 31,
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 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 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 audit provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of United Stationers Inc. and Subsidiaries for the fiscal year ended
August 31, 1994, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
October 6, 1994
F-33
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
FOR THE YEAR ENDED ----------------------------
AUGUST 31, MARCH 30,
1994 1995
------------------ MARCH 31, -------------
1994
-------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales...................................................... $ 1,473,024 $ 871,585 $ 980,575
Cost of goods sold............................................. 1,220,245 717,546 814,780
------------------ ------------- -------------
Gross profit................................................. 252,779 154,039 165,795
------------------ ------------- -------------
Operating expenses:
Warehousing, marketing and administrative expenses........... 216,485 128,594 133,098
Merger-related costs......................................... -- -- 27,780
------------------ ------------- -------------
Total operating expenses....................................... 216,485 128,594 160,878
------------------ ------------- -------------
Income from operations......................................... 36,294 25,445 4,917
------------------ ------------- -------------
Other income (expense):
Interest Expense............................................. (10,722) (6,095) (7,640)
Interest Income.............................................. 261 258 140
Other, Net................................................... 225 117 41
------------------ ------------- -------------
Total other expense............................................ (10,236) (5,720) (7,459)
------------------ ------------- -------------
Income (loss) before income taxes.............................. 26,058 19,725 (2,542)
Income taxes................................................... 10,309 8,185 4,692
------------------ ------------- -------------
Net income (loss).............................................. $ 15,749 $ 11,540 $ (7,234)
------------------ ------------- -------------
------------------ ------------- -------------
Weighted average number of common shares outstanding........... 18,587,282 18,585,451 18,593,614
------------------ ------------- -------------
------------------ ------------- -------------
Net income (loss) per common share............................. $ 0.85 $ 0.62 $ (0.39)
------------------ ------------- -------------
------------------ ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-34
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL
NUMBER OF IN 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, 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-35
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS ENDED
YEAR ENDED ------------------------
AUGUST 31, MARCH 31, MARCH 30,
1994 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 15,749 $ 11,540 $ (7,234)
Loss on sale of fixed assets................................................ 579 494 200
Depreciation and amortization............................................... 21,236 12,103 12,595
Increase/(decrease) in deferred taxes....................................... 2,943 1,298 (3,933)
(Decrease)/increase in accounts payable..................................... (28,581) (64,918) 24,429
(Decrease)/increase in accrued liabilities.................................. (7,522) (14,407) 17,260
Decrease/(increase) in accounts receivable.................................. 831 8,062 (1,107)
Decrease/(increase) in inventories.......................................... 3,966 (7,818) (80,947)
Decrease/(increase) in prepaid expenses..................................... 914 (752) (7,475)
Increase in other assets.................................................... (2,007) (1,359) (1,341)
----------- ----------- -----------
Net cash provided by (used in) operating activities....................... 8,108 (55,757) (47,553)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment................................ (10,719) (4,487) (7,799)
Proceeds from disposition of property, plant and equipment.................. 220 200 35
----------- ----------- -----------
Net cash used in investing activities..................................... (10,499) (4,287) (7,764)
----------- ----------- -----------
Cash flows from financing activities:
(Decrease)/increase in short-term debt...................................... (2,855) 33 5,660
Payments on long-term obligations........................................... (1,533) (1,269) (4,541)
Additions to long-term obligations.......................................... 13,246 69,348 67,444
Issuance of common shares................................................... 42 25 185
Payment of dividends........................................................ (7,593) (5,738) (5,719)
Disposition/(acquisition) of treasury stock................................. 115 115 (117)
----------- ----------- -----------
Net cash provided by financing activities................................. 1,422 62,514 62,912
----------- ----------- -----------
Net change in cash and cash equivalents....................................... (969) 2,470 7,595
Cash and cash equivalents, beginning of year.................................. 7,889 7,889 6,920
----------- ----------- -----------
Cash and cash equivalents, end of year........................................ $ 6,920 $ 10,359 $ 14,515
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)...................................... $ 10,199 $ 5,943 $ 6,851
Income taxes.............................................................. 6,229 6,054 9,257
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-36
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUBSEQUENT EVENT
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) holder 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.
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-37
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUBSEQUENT EVENT (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.
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.
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.
F-38
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. Amortization expense was $2,376,000 and $1,795,000 in 1994
and 1995, respectively.
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.
RECLASSIFICATION
The Consolidated Statements of Operations reflect a reclassification of
certain delivery and occupancy costs from operating expense to cost of goods
sold to conform the Company's presentation used by others in the business
products industry. The following table sets forth the impact of the
reclassification for the years presented in the Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
FOR THE SEVEN MONTHS
FOR THE ENDED
YEAR ENDED ------------------------
AUGUST 31, MARCH 31, MARCH 30,
1994 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification.................. 21.9% 22.5% 21.1%
Gross margin as reported herein......................... 17.2% 17.7% 16.9%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification....... 19.4% 19.6% 20.6%(1)
Operating expense ratio as reported herein.............. 14.7% 14.8% 16.4%(1)
</TABLE>
- ------------------------
(1) Includes $27.8 million nonrecurring Merger-related costs.
3. 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
F-39
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PENSION PLANS AND POSTRETIREMENT BENEFITS (CONTINUED)
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 Company also has a non-contributory, non-qualified plan ("Supplemental
Benefits Plan") in effect for certain executives. The Company has not funded
this plan.
Net periodic pension cost for 1994 and 1995 for pension and supplemental
benefits plans includes the following components (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Service cost--benefits earned during the period............................ $ 1,863 $ 1,084
Interest cost on projected benefits obligation............................. 1,436 909
Actual return on assets.................................................... 263 (780)
Net amortization and deferral.............................................. (1,807) 494
--------- ---------
Net periodic pension cost................................................ $ 1,755 $ 1,707
--------- ---------
--------- ---------
</TABLE>
The projected benefit obligations for 1994 and 1995 were determined using an
assumed discount rate of 7.5%. The assumed rate of compensation increase ranged
from 0% to 5.5% and the expected long-term rate of return on assets used in
determining net periodic pension cost was 7.5%.
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>
F-40
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PENSION PLANS AND POSTRETIREMENT BENEFITS (CONTINUED)
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 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 $0.5 million in 1994 and $0.8 million in 1995.
4. 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 $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 1994 and 1995, 41,000 and 0 options were outstanding,
respectively.
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-41
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK INCENTIVE PLANS (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 OPTION PRICE OPTION PRICE
(EXCLUDING RESTRICTED STOCK) 1994 RANGE 1995 RANGE
- --------------------------------------------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of the period..... 891,350 $ 8.64-$19.39 1,135,060 $ 8.64-$19.39
Granted............................................ 401,050 $ 10.00-$16.25 100,000 $ 10.50
Exercised.......................................... (3,520) $ 8.64-$13.75 (22,860) $ 8.64-$9.29
Cancelled.......................................... (153,820) $ 8.64-$19.39 (1,212,200) $ 8.64-$19.39
----------- -----------
Options outstanding at end of the period........... 1,135,060 --
----------- -----------
----------- -----------
<CAPTION>
OPTION PRICE OPTION PRICE
1985 NON-QUALIFIED STOCK OPTION PLAN 1994 RANGE 1995 RANGE
- --------------------------------------------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of the period..... 109,500 $ 14.78-$18.09 109,500 $ 14.78-$18.09
Granted............................................ -- -- -- --
Exercised.......................................... -- -- -- --
Cancelled(1)....................................... -- -- (109,500) $ 14.78-$18.09
----------- -----------
Options outstanding at end of the period........... 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.
5. LEASES
The Company has entered into several non-cancelable long-term leases on
property and equipment rental expense for all operating leases was approximately
$13,549,000 and $7,731,000 in 1994 and 1995, respectively.
6. INCOME TAXES
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>
1994 1995
--------- ---------
<S> <C> <C>
Taxes currently payable
Federal............................................................... $ 7,059 $ 14,122
Other tax credits..................................................... (5) --
State................................................................. 1,591 2,584
Prepaid and deferred taxes.............................................. 1,664 (12,014)
--------- ---------
$ 10,309 $ 4,692
--------- ---------
--------- ---------
</TABLE>
F-42
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The table below records the differences between the statutory income tax
rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Statutory Federal income tax............................................. 35.0% 35.0%
State income taxes, net of the Federal income tax benefit................ 4.8 (4.9)
Losses from foreign subsidiaries......................................... 1.9 --
Liquidation of a foreign subsidiary...................................... (3.9) --
Non-deductible goodwill amortization..................................... 1.5 (9.0)
Non-deductible merger-related expenses................................... -- (208.3)
Other, net............................................................... 0.3 2.6
--------- ---------
Effective income tax rate................................................ 39.6% (184.6)%
--------- ---------
--------- ---------
</TABLE>
F-43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 15
Use of Proceeds........................................................... 15
Common Stock Price Range and Dividend Policy.............................. 16
Capitalization............................................................ 17
Unaudited Consolidated Pro Forma Financial Statements..................... 18
Selected Consolidated Financial Data...................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 26
Business.................................................................. 35
Management................................................................ 45
Certain Transactions...................................................... 48
Principal and Selling Stockholders........................................ 53
Shares Eligible for Future Sale........................................... 56
Description of Capital Stock.............................................. 57
Description of Indebtedness............................................... 61
Underwriting.............................................................. 64
Legal Matters............................................................. 66
Experts................................................................... 66
Available Information..................................................... 66
Incorporation of Certain Documents by Reference........................... 67
Index to Financial Statements............................................. F-1
</TABLE>
4,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
MORGAN STANLEY DEAN WITTER
ROBERTSON, STEPHENS & COMPANY
CHASE SECURITIES INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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..................... $ 47,742
Filing and Listing Fee--National Association of Securities Dealers,
Inc............................................................... *
Fees and Expenses of Accountants................................... *
Fees and Expenses of Legal Counsel................................. *
Printing and Engraving Expenses.................................... *
Blue Sky Fees and Expenses......................................... *
Fees of Transfer Agent and Registrar............................... *
Miscellaneous Expenses............................................. *
---------
Total.......................................................... *
---------
---------
</TABLE>
- ------------------------
* To be added by amendment
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
II-1
<PAGE>
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, 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.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.*
4.1 -- Restated Certificate of Incorporation, as amended. **
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.**
10.1 -- Registration Rights Agreement, dated as of January 31, 1992, between the
Company and CMIH (included in Exhibit 10.4, Annex 2).
10.2 -- 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).
10.3 -- 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).
10.4 -- Warrant Agreement, dated as of January 31, 1992, among the Company, USSC
and CMIH(1).
10.5 -- Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992, among
the Company, USSC, CMIH and the other parties thereto(1).
10.6 -- Letter Agreement dated as of February 10, 1995, amending certain
provisions of the Warrant Agreement, among the Company, USSC, CMIH and the
other parties thereto(4).
10.7 -- Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995, among
the Company, USSC, CMIH and the other parties thereto(1).
10.8 -- Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995, among the
Company, USSC, CMIH and the other parties thereto(4).
10.9 -- Amendment No. 4 to Warrant Agreement, effective as of July 7, 1997, among
the Company, USSC, CMIH and the other parties thereto. **
10.10 -- Warrant Agreement, dated as of January 31, 1992, between the Company and
Boise Cascade Corporation(1).
10.11 -- Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995, between
the Company and Boise Cascade Corporation(1).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
10.12 -- Indenture, dated as of May 3, 1995, among USSC, the Company and The Bank
of New York(1).
10.13 -- First Supplemental Indenture, dated as of July 28, 1995, among USSC, the
Company, and the Bank of New York(1).
10.14 -- 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).
10.15 -- 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).
10.16 -- Amendment No. 4 to Management Equity Plan, dated as of August 19, 1997.*
10.17 -- United Stationers Inc. Management Equity Plan, as amended through August
19, 1997.*
10.18 -- 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).
10.19 -- 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).
10.20 -- Forms of Stock Option Agreements dated October 2, 1995 granting options to
certain management employees(4).
10.21 -- 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(4).
10.22 -- Stock Option Agreements dated as of January 1, 1996 between the Company
and Thomas W. Sturgess, granting options(4).
10.23 -- 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).
10.24 -- 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).
10.25 -- Management Incentive Plan for period 4/1/95 through 12/31/95(4).
10.26 -- Management Incentive Plan for 1996(4).
10.27 -- Management Incentive Plan for 1997 (Exhibit 10.39 to Company's Report on
Form 10-K dated March 26, 1997)(3).
10.28 -- 1997 Special Bonus Plan (Exhibit 10.40 to the Company's Report on Form
10-K dated March 26, 1997)(3).
10.29 -- 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).
10.30 -- United Stationers 401(k) Savings Plan, restated as of March 1, 1996
(Exhibit 10.45.1 to be the Company's Report on Form 10-K dated March 26,
1997)(3).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
10.31 -- 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).
10.32 -- Amendment to Pension Plan adopted February 10, 1995(2).
10.33 -- One Time Merger Integration Bonus Plan(4).
10.34 -- 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).
10.35 -- Amendment dated February 13, 1995 to the Amended and Restated Employment
and Consulting Agreement among the Company, USSC and Joel D. Spungin(2).
10.36 -- 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).
10.37 -- 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).
10.38 -- 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).
10.39 -- Amendment to Employment and Consulting Agreement dated February 13, 1995
between the Company, USSC and Jeffrey K. Hewson(2).
10.40 -- Amendment dated May 25, 1995 to Employment and Consulting Agreement
between the Company, USSC and Jeffrey K. Hewson(4).
10.41 -- Severance Agreement between the Company, USSC and James A. Pribel dated
February 13, 1995(2).
10.42 -- Letter Agreement dated February 13, 1995 between the Company and Ergin
Uskup(2).
10.43 -- 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(4).
10.44 -- Employment Agreement dated November 1, 1995 between USSC and Otis H.
Halleen(4).
10.45 -- Employment Agreement dated as of January 1, 1996 between the Company, USSC
and Thomas W. Sturgess(4).
10.46 -- Deferred Compensation Plan. (Exhibit 10(f) to the Company's Annual Report
on Form 10-K dated October 6, 1994)(3).
10.47 -- Consulting Agreement dated October 1, 1995 between the Company and Jeffrey
K. Hewson(4).
10.48 -- Letter Agreement dated November 29, 1995 granting shares of restricted
stock to Joel D. Spungin(4).
10.49 -- Option Agreement dated November 29, 1995 between the Company and Jeffrey
K. Hewson(4).
10.50 -- Lease Agreement, dated as of March 4, 1988, between Crow-Alameda Limited
Partnership and Stationers Distributing Company, Inc., as amended(1).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
10.51 -- 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).
10.52 -- Standard Industrial Lease, dated as of March 15, 1991, between Shelley B.
& Barbara Detrik and Lynn Edwards Corp.(1)
10.53 -- 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).
10.54 -- Lease, dated as of February 1, 1993, between CMD Florida Four Limited
Partnership and United Stationers Supply Co., as amended(1).
10.55 -- Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
10.56 -- First Amendment to Industrial Lease dated January 23, 1997 between ERI-CP,
Inc. (successor to Carol Point Builders I) and United Stationers Supply
Co. (successor to Associated Stationers, Inc.).*
10.57 -- 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 USSC, as amended(1).
10.58 -- 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).
10.59 -- Lease Agreement, dated as of December 20, 1988, between Corporate Property
Associates 8, L.P., and Stationers Distributing Company, Inc., as
amended(1).
10.60 -- Industrial Lease, dated as of February 22, 1988, between Northtown Devco
and Stationers Distributing Company, as amended(1).
10.61 -- Lease, dated as of April 17, 1989, between Isaac Heller and USSC, as
amended(1).
10.62 -- Lease Agreement, dated as of May 10, 1984, between Westbelt Business Park
Joint Venture and Boise Cascade Corporation, as amended(1).
10.63 -- Fourth Amendment to Lease between Keystone-Ohio Property Holding Corp. (as
successor to Westbelt Business Park) and USSC (as successor to Associated
Stationers, Inc.) dated December 3, 1996.*
10.64 -- Lease, dated as of January 19, 1981, between Propco, Inc. and Crown
Zellerbach Corporation, as amended(1).
10.65 -- Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.66 -- 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).
10.67 -- Lease Agreement, dated November 7, 1988, between Dalware II Associates and
Stationers Distributing Company, Inc., as amended(1).
10.68 -- Lease Agreement, dated November 7, 1988, between Central East Dallas
Development Limited Partnership and Stationers Distributing Company, Inc.,
as amended(1).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
10.69 -- Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing Company,
Inc., as amended(1).
10.70 -- Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1).
10.71 -- Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
10.72 -- Lease Agreement, dated as of July 1994, between Bettilyon Mortgage Loan
Company and USSC(1).
10.73 -- Agreement of Lease, dated as of January 5, 1994, between the Estate of
James Campbell, deceased, and USSC(1).
10.74 -- Amendment No. 2 to Agreement of Lease dated February 1, 1997 between The
Estate of James Campbell, deceased and USSC.*
10.75 -- Lease Agreement dated January 5, 1996 between Robinson Properties, L.P.
and USSC(4).
10.76 -- Real Estate Agreement dated January 9, 1996 between USSC as seller and
Seid Street, Ltd. as purchaser(4).
10.77 -- Real Estate Agreement dated October 19, 1995 between USSC as seller and
Boise Cascade Office Products Corporation as purchaser(4).
10.78 -- Agreement for Data Processing Services, dated January 31, 1992, between
USSC (as successor-in-interest to ASI) and Affiliated Computer Services,
Inc.(1).
10.79 -- 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).
10.80 -- Stock Purchase Agreement between United Stationers Supply Co. and Lagasse
Bros., Inc. ("Lagasse") and Kevin C. Lagasse, Cynthia Lagasse, David C.
Lagasse, Linette Lagasse Abadie, Clinton G. Lagasse, Raymond J. Lagasse
and Rickey Lagasse being all of the shareholders of Lagasse (Exhibit 99.1
to Registrant's Report on Form 8-K filed November 5, 1996)(3).
10.81 -- Amended and Restated Credit Agreement dated October 31, 1996 (amending and
restating the Credit Agreement dated as of March 30, 1995)(Exhibit 99.2 to
Registrant's Report on Form 8-K filed November 5, 1996)(3)
10.82 -- USI Employee Benefits Trust Agreement dated March 21, 1995 between the
Company and American National Bank and Trust Company of Chicago as
Trustee(2).
10.83 -- USI Bonus Benefits Trust Agreement dated March 21, 1995 between the
Company and American National Bank and Trust Company of Chicago as
Trustee(2).
10.84 -- 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).
10.85 -- 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).
10.86 -- Certificate of Insurance covering directors' and officers' liability
insurance effective March 30, 1996 through April 1, 1997.*
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
10.87 -- Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 1997 through April 1, 1998.*
10.88 -- Amendment to Medical Plan Document for the Company(2).
10.89 -- The Company Severance Plan, adopted February 10, 1995(2).
10.90 -- 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).
10.91 -- Amendment dated February 23, 1996 to Option Agreements between the Company
and Thomas W. Sturgess (Exhibit 10.110 to the Company's Report on Form
10-K dated March 28, 1996)(3).
10.92 -- Amendment No. 3 to United Stationers Inc. Management Equity Plan, dated as
of September 27, 1995 (Exhibit 10.111 to the Company's Report on Form 10-K
dated March 28, 1996(3).
10.93 -- Amendment No. 2 dated March 5, 1996 to Stock Option Agreements between the
Company and Thomas W. Sturgess (Exhibit 10.112 to the Company's Report on
Form 10-K dated March 28, 1996)(3).
10.95 -- Amendment to Employment Agreement dated March 5, 1996 between the Company,
USSC and Thomas W. Sturgess (Exhibit 10.113 to the Company's Form 10-K
dated March 28, 1996)(3).
10.96 -- Employment Agreement dated as of May 23, 1997 between the Company, USSC
and Randall W. Larrimore.*
10.97 -- Employment Agreements dated as of June 1, 1997 between USSC and each of
Daniel H. Bushell, Michael D. Rowsey and Steven R. Schwarz.**
15.1 -- Letter regarding unaudited interim financial information.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as
Exhibit 5.1 to the Registration Statement).
23.2 -- Consent of Ernst & Young LLP, independent auditors.*
23.3 -- 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-10 of this Registration Statement).
</TABLE>
- ------------------------
* 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.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-01089) as filed
with the Commission on February 20, 1996.
II-7
<PAGE>
(b) Financial Statement Schedules.
REPORTS OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of United Stationers
Inc. and Subsidiaries as of December 31, 1995 and 1996, and for each of the
years then ended, and have issued our report thereon dated January 28, 1997
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule for each of the years ended December 31, 1995
and 1996 included in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
January 28, 1997
We have audited the consolidated financial statements of Associated
Holdings, Inc. for the year ended December 31, 1994 and have issued our report
thereon dated January 23, 1995 (included elsewhere in this Registration
Statement). Our audit also included the financial statement schedules listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Arthur Andersen LLP
Chicago, Illinois
January 23, 1995
UNITED STATIONERS INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END
OF PERIOD EXPENSES OTHER(3) DEDUCTIONS OF PERIOD
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
Year Ended:
December 31, 1996................................... $ 7,315 $ 7,791 $ -- $ 8,788(A) $ 6,318
December 31, 1995 (1)............................... 3,496 5,169 4,776 6,126(A) 7,315
December 31, 1994 (2)............................... 3,544 1,528 1,576(A) 3,496
Sales Returns:
Year Ended:
December 31, 1996................................... $ 8,973 $ 49,183 $ -- $ 49,993(B) $ 8,163
December 31, 1995 (1)............................... 540 60,598 12,051 64,216(B) 8,973
December 31, 1994 (2)............................... 514 42,792 42,766(B) 540
</TABLE>
- --------------------------
(1) Reflects the results of Associated only for the three months ended March 30,
1995 and the Company for the nine months ended December 31, 1995.
(2) Reflects the results of Associated only.
(3) Reflects the liability assumed as a result of the Merger.
(A) Accounts determined to be uncollectible and charged against reserves, net of
collections on accounts previously written off.
(B) Credit memos issued for sales returns.
II-8
<PAGE>
REPORTS OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of United Stationers
Inc. and Subsidiaries for the seven months ended March 30, 1995, and have issued
our report thereon dated June 27, 1995 (included elsewhere in this Registration
Statement). Our audit also included the financial statement schedule for the
seven months ended March 30, 1995 included in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
June 27, 1995
We have audited the consolidated financial statements of United Stationers
Inc. for the fiscal year ended August 31, 1994 and have issued our report
thereon dated October 6, 1994 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 6, 1994
UNITED STATIONERS INC. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
Period ended:
March 30, 1995*............................................... $ 4,010 $ 2,510 $ 1,745(A) $ 4,775
August 31, 1994............................................... 3,964 5,750 5,704(A) 4,010
Sales Returns, Rebates and Allowances
Period ended:
March 30, 1995*............................................... $ 31,293 $ 43,523 $ 48,371(B) $ 26,445
August 31, 1994............................................... 25,552 67,970 62,229(B) 31,293
</TABLE>
*Reflects the transition period of September 1, 1994 through March 30, 1995
(A) Accounts determined to be uncollectible and charged against reserves, net of
collections on accounts previously written off.
(B) Credit memos issued for sales returns, rebates and allowances.
II-9
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each of the
registrant's annual report pursuant to Section 13(c) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) See Item 15.1
(i) 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 of 1933 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-10
<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 September 3, 1997.
<TABLE>
<S> <C> <C>
UNITED STATIONERS INC.
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
AND ASSISTANT SECRETARY
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Frederick B. Hegi, Jr., Randall W. Larrimore and Daniel H.
Bushell, 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ FREDERICK B. HEGI, JR.
- ------------------------------ Chairman of the Board September 3, 1997
Frederick B. Hegi, Jr.
President and Chief
/s/ RANDALL W. LARRIMORE Executive Officer of the
- ------------------------------ Company (principal September 3, 1997
Randall W. Larrimore executive officer of the
Company)
Executive Vice President
/s/ DANIEL H. BUSHELL Chief Financial Officer
- ------------------------------ and Assistant Secretary September 3, 1997
Daniel H. Bushell (principal financial and
accounting officer)
/s/ DANIEL J. GOOD
- ------------------------------ Director September 3, 1997
Daniel J. Good
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JAMES A. JOHNSON
- ------------------------------ Director September 3, 1997
James A. Johnson
/s/ GARY G. MILLER
- ------------------------------ Director September 3, 1997
Gary G. Miller
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director September 3, 1997
Michael D. Rowsey
/s/ JOEL D. SPUNGIN
- ------------------------------ Director September 3, 1997
Joel D. Spungin
</TABLE>
II-12
<PAGE>
PRELIMINARY DRAFT
4,000,000 Shares of Common Stock
UNITED STATIONERS INC.
UNDERWRITING AGREEMENT
________________, 1997
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC
CHASE SECURITIES INC.
As Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
United Stationers Inc., a Delaware corporation (the "COMPANY"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the several underwriters named on Schedule I attached hereto (the
"UNDERWRITERS"), an aggregate of 2,000,000 shares of common stock, par value
$.01 per share, of the Company (the "COMMON STOCK") and the persons named on
Schedule II attached hereto (the "SELLING STOCKHOLDERS") propose to sell,
severally and not jointly, to the Underwriters an aggregate of ____________
shares of Common Stock and warrants to purchase an aggregate of _____________
shares of Common Stock (the "FIRM WARRANTS"), all subject to the terms and
conditions stated herein. The 2,000,000 authorized but unissued shares of
Common Stock to be issued and sold by the Company, the ________________
outstanding shares of Common Stock to be sold by the Selling Stockholders and
the _____________ shares of Common Stock to be issued by the Company upon
exercise of the Firm Warrants, representing an aggregate of 4,000,000 shares
of Common Stock, are herein referred to collectively as the "FIRM SHARES." In
addition, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, the Selling Stockholders propose to sell to the
Underwriters, at the option of the Underwriters, up to an additional
___________ shares of Common Stock and additional warrants to purchase up to
____________ shares of Common Stock (the "ADDITIONAL WARRANTS"). The
__________ shares of Common Stock that may be sold to the Underwriters
pursuant to such election and the ____________ shares of Common Stock that
may be issued to the Underwriters upon exercise of the Additional Warrants,
representing an aggregate of 600,000 shares of Common Stock, are herein
referred to collectively as the "ADDITIONAL SHARES." The Firm Shares and any
<PAGE>
Additional Shares purchased by the Underwriters are herein referred to
collectively as the "SHARES," and the Firm Warrants and the Additional
Warrants are herein referred to collectively as the "WARRANTS." The Shares
and the Warrants are more fully described in the Registration Statement
referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-2 (No. 333-_________________), for
the registration of the Shares and the Warrants under the Securities Act of
1933, as amended (the "ACT"). The Company will not, without the prior
consent of the Representatives, file any amendment thereto or make any change
in the form of final prospectus included therein. Such registration
statement, including the prospectus, financial statements and schedules,
exhibits and all other documents filed as a part thereof, at the time of
effectiveness of the registration statement, including any information to be
a part thereof as of the time of effectiveness pursuant to paragraph (b) of
Rule 430A or Rule 434 of the rules and regulations of the Commission under
the Act (the "REGULATIONS"), is herein called the "REGISTRATION STATEMENT"
and the prospectus, in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations or filed as part of the Registration Statement
at the time of effectiveness if no Rule 424(b) or Rule 434 filing is
required, is herein called the "PROSPECTUS." The term "PRELIMINARY
PROSPECTUS" as used herein means a preliminary prospectus as described in
Rule 430 of the Regulations. If the Company has filed an abbreviated
registration statement to register additional shares of Common Stock pursuant
to Rule 462 of the Regulations (the "RULE 462 REGISTRATION STATEMENT"), then
any reference herein to the term "REGISTRATION STATEMENT" shall be deemed to
include such Rule 462 Registration Statement. Any reference herein to the
Registration Statement, any preliminary prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-2 which were filed under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), on or before the
effective date of the Registration Statement, the date of such preliminary
prospectus or the date of the Prospectus, as the case may be, and any
reference herein to the terms "AMEND," "AMENDMENT" or "SUPPLEMENT" with
respect to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include (i) the filing of any
document under the Exchange Act after the effective date of the Registration
Statement, the date of such preliminary prospectus or the date of the
Prospectus, as the case may be, which is incorporated therein by reference
and (ii) any such document so filed.
(b) At the time of the effectiveness of the Registration Statement
or the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission pursuant to
Rule 424(b) or Rule 434 of the Regulations, when any supplement to or
amendment of the Prospectus is filed with the Commission and at the Closing
Date and the Additional Closing Date, if any (as hereinafter respectively
defined), the Registration Statement and the Prospectus and any amendments
thereof and supplement thereto complied or will comply in all material
respects with the applicable provisions of the Act and the Exchange Act and
the respective rules and
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regulations thereunder and does not or will not contain an untrue statement
of a material fact and does not or will not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein (i) in the case of the Registration Statement, not misleading and
(ii) in the case of the Prospectus, in light of the circumstances under which
they were made, not misleading. When any related preliminary prospectus was
first filed with the Commission (whether filed as part of the registration
statement for the registration of the Shares and the Warrants or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements
thereto complied in all material respects with the applicable provisions of
the Act and the Exchange Act and the respective rules and regulations
thereunder and did not contain an untrue statement of a material fact and did
not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the
circumstance under which they were made not misleading. No representation
and warranty is made in this subsection (b), however, with respect to any
information contained in or omitted from the Registration Statement or the
Prospectus or any related preliminary prospectus or any amendment thereof or
supplement thereto in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter
through the Representatives as herein stated expressly for use in connection
with the preparation thereof. If Rule 434 is used, the Company will comply
with the requirements of Rule 434.
(c) Neither the Commission nor the "Blue Sky" or securities
authority of any jurisdiction has issued an order (a "STOP ORDER") suspending
the effectiveness of the Registration Statement, preventing or suspending the
use of any preliminary prospectus, the Prospectus, the Registration Statement
or any amendment or supplement thereto, refusing to permit the effectiveness
of the Registration Statement, or suspending the registration or
qualification of the Firm Shares or the Additional Shares, nor, to the best
knowledge of the Company, has any of such authorities instituted or
threatened to institute any proceedings with respect to a Stop Order.
(d) Each of Ernst & Young LLP and Arthur Andersen LLP, whose
reports are filed with the Commission as a part of the Registration
Statement, are independent public accountants with regard to the Company and
Associated Holdings, Inc. ("ASSOCIATED") and each of their respective
subsidiaries as required by the Act and the Regulations.
(e) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth
in the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition
(financial or other) or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in
the ordinary course of business, and since the date of the latest balance
sheet presented in the Registration Statement and the Prospectus, neither the
Company nor any of its subsidiaries has incurred or undertaken any
liabilities or obligations, direct or contingent, which are material to the
Company and its subsidiaries taken as a whole, except for liabilities or
obligations which are reflected in the Registration Statement and the
Prospectus.
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(f) The Company and United Stationers Supply Co., an Illinois
corporation and the principal operating subsidiary of the Company ("USSC"),
have the corporate power and the authority to enter into this Agreement,
perform each of their respective obligations hereunder and, with respect to
the Company, to issue, sell and deliver the Shares to be sold by it
hereunder. This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company and USSC and this Agreement has
been duly and validly executed and delivered by the Company and USSC and is a
valid and binding obligation of the Company and USSC, enforceable against
each in accordance with its terms, except (i) as the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles and (ii) to
the extent that rights to indemnity hereunder may be limited by federal or
state securities laws or the public policy underlying such laws.
(g) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions
of, or constitute a default (or an event which with notice or lapse of time,
or both, would constitute a default) or require consent under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries, pursuant to the
terms of any agreement, instrument, franchise, license or permit to which the
Company or any of its subsidiaries is a party or by which any of such
corporations or their respective properties or assets may be bound or (ii)
violate or conflict with any provision of the certificate of incorporation or
bylaws of the Company or any of its subsidiaries or any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental
or regulatory agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets is required for
the execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby, including the issuance, sale and
delivery of the Shares to be issued, sold and delivered by the Company
hereunder, except the registration under the Act of the Shares and the
Warrants and such consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses and permits as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution
of the Shares by the Underwriters, all of which have been obtained as of the
date hereof.
(h) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, are fully paid and nonassessable and were not
issued and are not now in violation of or subject to any preemptive or
similar rights. The Company had, at September ___, 1997, an authorized and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus. The Shares, when issued, delivered and sold in accordance with
this Agreement, will be duly and validly issued and outstanding, fully paid
and nonassessable, and will not have been issued in violation of or be
subject to any preemptive or similar rights. The Common Stock conforms to
the description thereof contained in the Registration Statement and the
Prospectus.
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(i) The Warrants have been duly and validly authorized and issued
and were not issued in violation of or subject to any preemptive or similar
rights. The Warrants represent the valid and binding obligation of the
Company, enforceable in accordance with their terms. The Shares to be issued
upon the exercise of the Warrants (i) will be duly and validly authorized and
issued and fully paid and nonassessable, (ii) will not be issued in violation
of or subject to any preemptive or similar rights, and (iii) will be free of
any further restrictions under the terms of any warrant agreement, warrant or
other instrument relating thereto. The Warrants are freely transferable by
the Selling Stockholders to the Underwriters in accordance with the
transactions contemplated by this Agreement.
(j) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign corporation
in each jurisdiction in which the character or location of its properties
(owned, leased or licensed) or the nature or conduct of its business makes
such qualification necessary, except for those failures to be so qualified or
in good standing which will not in the aggregate have a material adverse
effect on the Company and its subsidiaries taken as a whole. Each of the
Company and its subsidiaries has all requisite power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties
and conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license or permit contains
a materially burdensome restriction not adequately disclosed in the
Registration Statement and the Prospectus.
(k) As of September ____, 1997 and as of the date hereof, USSC was
the Company's only significant subsidiary (as defined in the Regulations).
All of the outstanding shares of capital stock of USSC have been duly and
validly issued, are fully paid and nonassessable and were not issued in
violation of preemptive rights, repurchase rights or rights of first refusal
and are owned directly by the Company free and clear of any lien, pledge,
encumbrance, claim, security interest, restriction on transfer, stockholders'
agreement, voting trust or other defect of title whatsoever other than the
pledge of such shares to The Chase Manhattan Bank, as collateral agent under
the Company's senior secured credit agreement.
(l) Except as described in the Registration Statement and as shall
be described in the Prospectus, there is no litigation, action, suit,
investigation or proceeding, governmental or otherwise, to which the Company
or any of its subsidiaries is a party or to which any property of the Company
or any of its subsidiaries is subject or which is pending or, to the best
knowledge of the Company, comtemplated against the Company or any of its
subsidiaries which (i) might result in any material adverse change or any
development involving a material adverse change in the business, prospects,
properties, assets, earnings, operations, condition (financial or other) or
results of operations of the Company and its subsidiaries taken as a whole,
(ii) is required to be disclosed in the Registration Statement and the
Prospectus, or (iii) seeks to restrain, enjoin, prevent the consummation of,
or otherwise challenge the issuance of, the Shares or the execution and
delivery of this Agreement or any of the other transactions contemplated
hereby, or questions the legality
5
<PAGE>
or validity of any such transactions or that seeks to recover damages or
obtain other relief in connection with any of such transactions.
(m) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of the Shares.
(n) The consolidated financial statements, including the notes
thereto, and supporting schedules included in the Registration Statement and
as will be set forth in the Prospectus present fairly the financial
condition, results of operations, stockholders' equity and cash flows and
other information purported to be shown therein of the Company and its
subsidiaries and Associated and its subsidiary, respectively, at the dates
and for the periods indicated; and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. Such consolidated financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company and its subsidiaries and Associated and its
subsidiary, respectively, in all material respects. No other financial
statements are required by Form S-2 or otherwise to be included in the
Registration Statement or the Prospectus. The historical financial data set
forth in the Registration Statement and as will be set forth in the
Prospectus under the captions "Summary Consolidated Financial and Operating
Data," "Capitalization," "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" fairly present, on the basis stated in the Registration Statement
and as will be stated in the Prospectus, the information set forth therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement and as will be
set forth in the Prospectus. All other financial information and statistical
data set forth in the Registration Statement and as will be set forth in the
Prospectus have been prepared on an accounting basis consistent with the
financial statements included in the Registration Statement and as will be
included in the Prospectus. The pro forma and "as adjusted" financial
information included in the Registration Statement and as will be included in
the Prospectus that gives effect to the issuance of the Shares, the
application of the net proceeds therefrom and the other transactions and
events specified therein has been properly compiled on the basis of the
assumptions set forth with respect thereto. The pro forma adjustments to the
historical figures have been properly applied to such figures and such pro
forma financial information complies in all material respects with the
applicable accounting requirements of the Commission.
(o) Each of the Company and each of its subsidiaries has good and
marketable title to all the properties and assets reflected as owned in the
financial statements (or elsewhere) in the Registration Statement and as will
be set forth in the Prospectus, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except (i) those, if any, reflected in the
financial statements, or (ii) those which are not material in amount and do
not adversely affect the use made and proposed to be made of such property by
the Company and its subsidiaries. Each of the Company and its subsidiaries
holds its leased properties under valid, subsisting and enforceable leases,
with such exceptions as are not, individually or in the aggregate, material
and do not individually or in the aggregate,
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<PAGE>
interfere with the use made or proposed to be made of such properties by the
Company or any of its subsidiaries. Except as disclosed in the Registration
Statement and as will be disclosed in the Prospectus, the Company and each of
its subsidiaries own or lease all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(p) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" or an entity "controlled by" an "investment company" within the
meaning of Investment Company Act of 1940 and the rules and regulations
promulgated thereunder.
(q) The Company and each of its subsidiaries have (i) filed all
federal, state and local and foreign tax returns which are required to be
filed through the date hereof, and all such tax returns are true, complete
and accurate in all material respects, or (ii) received valid extensions
thereof and have paid all taxes shown on such returns and all assessments
received by them except where, in the case of state and local and foreign tax
returns, the failure to file, extend the due date of or pay the same, in the
aggregate, could not reasonably be expected to have a material adverse effect
on the business, prospects, properties, assets, earnings, operations,
condition (financial or other) or results of operations of the Company; the
Company has no knowledge of any tax deficiency which has been or might be
asserted against the Company or any of its subsidiaries which could
materially and adversely affect the business or properties of the Company and
its subsidiaries taken as a whole. To the Company's best knowledge, all tax
liabilities are adequately provided for on the consolidated books of the
Company.
(r) The Company and each of its subsidiaries own or possess
adequate licenses or other rights to use all patents, trademarks, service
marks, trade names, copyrights, technology and know-how necessary to conduct
the business now or proposed to be conducted by the Company and each of its
subsidiaries as described in the Registration Statement and as will be
described in the Prospectus, and, except as disclosed in the Registration
Statement and as will be disclosed in the Prospectus, neither the Company nor
any of its subsidiaries has received any notice of infringement of or
conflict with (or knows of such infringement or conflict with) rights of
others with respect to any patents, trademarks, service marks, trade names,
copyrights or know-how. To the best knowledge of the Company, the Company
and each of its subsidiaries do not in the conduct of their business as now
conducted or proposed to be conducted, infringe or conflict with any such
rights of any third party.
(s) There are no contracts, indentures, mortgages, loan
agreements, notes, leases or other agreements or instruments or other
documents (collectively, "DOCUMENTS") required to be described or referred to
in, or filed with, the Registration Statement and, in respect of the
representation made at the Closing Date and the Additional Closing Date, the
Prospectus, other than those described or referred to therein or filed as
exhibits thereto. All such descriptions are accurate in all material respect
and present fairly the information described therein. All such Documents to
which the Company or any of its subsidiaries is a party have been duly
authorized, executed and delivered by the Company or its subsidiaries, as the
case may be, constitute valid and binding agreements of the Company or its
subsidiaries, as the case may be, and are enforceable against the Company or
its subsidiaries, as the case may be, in accordance with the terms thereof,
except as the enforceability thereof
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may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
(t) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company or any of its subsidiaries to or
for the benefit of any of the officers or directors of the Company or any of
its subsidiaries or any of the members of the families of any of them, except
as adequately disclosed in the Registration Statement and as will be
disclosed in the Prospectus. All such descriptions are accurate in all
material respects and present fairly the information required to be described
in the Registration Statement and as will be described in the Prospectus.
(u) There are no rights of return or other agreements between the
Company and any customer of the Company which would cause any sales reflected
in the Company's consolidated financial statements for the year ended
December 31, 1996 included in the Registration Statement and to be included
in the Prospectus to fail to qualify as sales in accordance with generally
accepted accounting principles or the Company's revenue recognition policy as
reflected in the audited financial statements included in the Registration
Statement and to be included in the Prospectus.
(v) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) Neither the Company nor any of its subsidiaries is in
violation or breach of, or in default (nor has any event occurred which with
notice, or lapse of time, or both, would constitute a default) of any
contract, agreement, indenture, loan or other agreement, instrument,
mortgage, note, permit, lease, license, arrangement or understanding to which
the Company or any of its subsidiaries is a party or by which the Company,
any of its subsidiaries or any of their respective properties may be bound
where such default, either individually or together with all such other
defaults, could reasonably be expected to have a material adverse effect on
the business, prospects, properties, assets, earnings, operations, condition
(financial or other) or results of operations of the Company or on the
ability of the Company to perform its obligations hereunder. Each such
contract, agreement, indenture, loan or other agreement, instrument,
mortgage, note, permit, lease, license, arrangement and understanding is in
full force and effect and is the legal, valid and binding obligation of the
Company or its subsidiaries, as the case may be, and, to the Company's
knowledge, the other parties thereto and is enforceable against the Company
or its subsidiaries, as the case may be, and, to the Company's knowledge,
against the other parties thereto in accordance with its terms. Neither the
Company nor or any of its subsidiaries is a party to or bound by any
contract, agreement, indenture, loan or other agreement, instrument,
mortgage, note, permit, lease, license, arrangement or understanding, or
subject to any charter or other restriction,
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which has had or is reasonably expected in the future to have a material
adverse effect on the business, prospects, properties, assets, earnings,
operations, condition (financial or other) or results of operations of the
Company. Neither the Company nor any of its subsidiaries is in violation or
breach of, or in default with respect to, any term of its respective
certificate of incorporation or bylaws and neither the Company nor any of its
subsidiaries is in default (nor has an event occurred which with notice,
lapse of time or both would constitute a default) in the performance of any
obligation, agreement or condition contained in any loan agreement of the
Company or any such subsidiary where such default could have a material
adverse effect on the Company and its subsidiaries taken as a whole. Neither
the Company nor any of its subsidiaries is in violation of, or in default
with respect to, any law, rule, regulation, order, judgment or decree, except
such as are described in the Registration Statement and as will be described
in the Prospectus or such as, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect upon the business,
prospectus, properties, assets, earnings, operations, condition (financial or
other) or results of operations of the Company.
(x) The Company has obtained from each of the Company's officers
and directors, the Selling Stockholders and the holders of capital stock of
the Company named on Schedule IV attached hereto a written agreement (a
"LOCK-UP AGREEMENT"), in a form or forms approved by the Representatives and
their counsel, that for a period of 90 days from the date of the Prospectus
such person 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"), 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,
"SECURITIES"), now owned or hereafter acquired by such person or with respect
to which such person has or hereafter acquires the power of disposition,
otherwise than (A) 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,
(B) as a distribution to limited partners or stockholders of such person
provided that the distributees thereof agree in writing to be bound by the
terms of the Lock-Up Agreement, or (C) with the prior written consent of the
Representatives, or (ii) make any demand for or exercise any right with
respect to the registration of any Common Stock or other securities of the
Company.
(y) Except as described in the Registration Statement and as will
be described in the Prospectus, no labor dispute with the employees of the
Company and any of its subsidiaries exists or, to the best knowledge of the
Company, is threatened and the Company is not aware of any labor disturbance
by the employees of any of its significant manufacturers, suppliers,
customers or contractors that could reasonably be expected to have a material
adverse effect on the business, prospects, properties, assets, earnings,
operations, condition (financial or other) or results of operations of the
Company.
(z) Except as described in the Registration Statement and as will
be described in the Prospectus, (i) the Company is not a party to or bound by
any stockholders' agreements or voting trusts with respect to any securities
of the Company and (ii) there are no contracts, agreements or understandings
between the Company or any of its subsidiaries and any person or entity
granting such person or entity the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company
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<PAGE>
owned or to be owned by such person or entity or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement.
(aa) To the best knowledge of the Company, except as disclosed in
the Registration Statement and as will be described in the Prospectus,
neither it nor any of its subsidiaries is in violation of any federal or
state law or regulation relating to occupational safety and health or to the
storage, handling or transportation of hazardous or toxic materials, and the
Company and each of its subsidiaries have received all permits, licenses or
other approvals required under applicable federal and state occupational
safety and health and environmental laws and regulations to conduct their
respective businesses. The Company and each of its subsidiaries is in
compliance with all terms and conditions of any such permits, licenses or
approvals, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which could not,
individually or together with all such other violations or failures, have a
material adverse effect on the Company or its business, prospects,
properties, assets, earnings, operations, condition (financial or other) or
results of operations.
(bb) The Company has not incurred any liability for any finder's
fees or similar payments in connection with the transactions herein
contemplated.
(cc) The Company, either directly or through one or more of its
subsidiaries, has in effect with financially sound insurers, insurance with
respect to its business and properties and the business and properties of its
subsidiaries against loss or damage of the kind customarily insured against
by corporations engaged in the same or similar businesses and similarly
situated, of such type and in such amounts as are customarily carried under
similar circumstances by such other corporations.
(dd) The Company has complied and will comply with all provisions
of Florida Statutes Section 517.075 (Chapter 92-198, Laws of Florida).
Neither the Company, nor any affiliate thereof, does business with the
government of Cuba or with any person or affiliate located in Cuba.
(ee) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the Exchange Act and the rules and regulations of the
Commission under the Exchange Act, and, when read together with the other
information in the Prospectus, at the time the Registration Statement and any
amendments thereto become effective and at the Closing Date, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder (except with respect to paragraph (h) hereof, which shall
only be made by the Control Stockholders (as hereinafter defined)) represents
and warrants to, and agrees with, the several Underwriters that:
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(a) Such Selling Stockholder (i) has caused a certificate(s) for
the number of Shares and/or Warrants to be sold by such Selling Stockholder
hereunder to be delivered to _____________________________________, as
custodian (the "CUSTODIAN"), endorsed in blank or with blank stock powers
duly executed, with signatures appropriately guaranteed, if applicable; such
certificate(s) to be held in custody by the Custodian, in accordance with the
terms of a custody agreement (the "CUSTODY AGREEMENT"), for delivery pursuant
to the provisions hereof on the Closing Date or the Additional Closing Date,
as the case may be, and (ii) has granted an irrevocable power of attorney
(the "POWER OF ATTORNEY") to [_____________ and ______________], or any of
them, as such Selling Stockholder's attorney-in-fact (each, an
"ATTORNEY-IN-FACT"), in the form heretofore delivered to the Representatives
(the Custody Agreement, together with the Powers of Attorney executed by all
Selling Stockholders being hereinafter collectively referred to as the
"SELLING AGREEMENTS"), with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to be
paid by the Underwriters to such Selling Stockholder as provided in Section
3(a) hereof, to authorize the delivery of the Shares and/or Warrants to be
sold by such Selling Stockholder hereunder and to otherwise act on behalf of
such Selling Stockholder in connection with the transactions contemplated by
this Agreement.
(b) The execution, delivery and performance of this Agreement and
the Selling Agreements by for on behalf of such Selling Stockholder and the
consummation of the transactions contemplated hereby and thereby will not (i)
conflict with or result in the breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) or require consent under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of such Selling Stockholder pursuant to the terms of any agreement,
instrument, franchise, license or permit to which such Selling Stockholder is
a party or by which such Selling Stockholder or any of such Selling
Stockholder's property or assets may be bound, or (ii) violate or conflict
with any judgment, decree, order, statute, rule or regulation of any court or
any public, governmental or regulatory agency or body having jurisdiction
over such Selling Stockholder or such Selling Stockholder's properties or
assets.
(c) Such Selling Stockholder has, and at the time of delivery of
the Shares and/or Warrants to be sold by such Selling Stockholder, such
Selling Stockholder will have, full legal right, power, authority and
capacity, and, except as required under the Act and state securities and Blue
Sky laws, all necessary consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses and permits of and from all
public, regulatory or governmental agencies and bodies, as are required for
the execution, delivery and performance of this Agreement and the Selling
Agreements and the consummation of the transactions contemplated hereby and
thereby, including the sale, assignment, transfer and delivery of the Shares
and/or Warrants to be sold, assigned, transferred and delivered by such
Selling Stockholder hereunder.
(d) Each of this Agreement and the Selling Agreements has been
duly and validly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding obligation of such Selling
Stockholder, enforceable against such Selling Stockholder in accordance with
its terms except to the extent that rights to indemnity hereunder may be
limited by applicable federal or state securities laws or the public policy
underlying such laws.
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(e) Such Selling Stockholder has good, valid and marketable title
to the Shares and/or Warrants to be sold by such Selling Stockholder pursuant
to this Agreement, free and clear of all liens, encumbrances, claims,
security interests, restrictions on transfer, stockholders' agreements,
warrant agreements, voting trusts and other defects in title whatsoever, with
full power to deliver such Shares and/or Warrants hereunder, and, upon the
delivery of and payment for such Shares and/or Warrants as herein
contemplated, each of the Underwriters will receive good, valid and
marketable title to the Shares and/or Warrants purchased by it from such
Selling Stockholder, free and clear of all liens, encumbrances, claims,
security interests, restrictions on transfer, stockholders' agreements,
warrant agreements, voting trusts and other defects in title whatsoever.
With respect to any Warrants to be sold by a Selling Stockholder pursuant to
this Agreement, such Selling Stockholder has not entered into any agreement
with any third party or taken any other action the effect of which could be
to subject the Shares issuable upon exercise of such Warrants to any lien,
encumbrance, claim, security interest, restriction on transfer, stockholders'
agreement, warrant agreement, voting trust or any other defect in title
whatsoever.
(f) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which has constituted or which was
designed to constitute or which might be reasonably expected to cause or
result in stabilization or manipulation of the price of the shares of Common
Stock.
(g) When the Registration Statement shall become effective, when
any amendment to the Registration Statement becomes effective, when the
Prospectus is first used to confirm sales of the Shares, when any amendment
of or supplement to the Prospectus is filed with the Commission, at the
Closing Date and, if applicable, the Additional Closing Date, such parts of
the Registration Statement and the Prospectus and any amendments thereof and
supplements thereto as relate to such Selling Stockholder and are based upon
information furnished in writing to the Company by or on behalf of such
Selling Stockholder expressly for use therein will not contain an untrue
statement of a material fact and will not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. When any related preliminary prospectus was first
filed with the Commission (whether filed as part of the registration
statement for the registration of the Shares and Warrants or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such parts
of such preliminary prospectus and any amendments thereof and supplements
thereto as relate to such Selling Stockholder and are based upon information
furnished in writing to the Company by or on behalf of such Selling
Stockholder expressly for use therein did not contain an untrue statement of
a material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
(h) When the Registration Statement shall become effective, when
any amendment to the Registration Statement becomes effective, when the
Prospectus is first used to confirm sales of the Shares, when any amendment
of or supplement to the Prospectus is filed with the Commission, at the
Closing Date and, if applicable, the Additional Closing Date, the
Registration Statement and the Prospectus and any amendments thereof 0and
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supplements thereto will not contain an untrue statement of a material
fact and will not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
When any related preliminary prospectus was first filed with the Commission
(whether filed as part of the registration statement for the registration of
the Shares and Warrants or any amendment thereto or pursuant to Rule 424(a)
of the Regulations) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus and any
amendments thereof and supplements thereto did not contain an untrue
statement of a material fact and did not omit to sate any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(i) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, each of the Selling Stockholders agrees to deliver to the
Representatives prior to or at the Closing Date and, if applicable, the
Additional Closing Date, a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified
by Treasury Department regulations in lieu thereof).
(j) Each of the Selling Stockholders specifically agrees that the
Shares represented by the certificates or Warrants held in custody for such
Selling Stockholder under the Selling Agreements are subject to the interests
of the Underwriters hereunder and that the arrangements made by such Selling
Stockholder for such custody and the appointment by such Selling Stockholder
of the Attorney-in-Fact by the Power of Attorney are to that extent
irrevocable. Each of the Selling Stockholders specifically agrees that the
obligations of the Selling Stockholders hereunder shall not be terminated by
operation of law, whether by the death or incapacity of any executor or
trustee or the termination of such estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event. If any individual
Selling Stockholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or if any
such partnership or corporation should be dissolved, or if any other such
event should occur before the delivery of the Shares and/or Warrants
hereunder, certificates representing the Shares and/or Warrants shall be
delivered by or on behalf of such Selling Stockholder in accordance with the
terms and conditions of this Agreement and the Selling Agreements, and
actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney
shall be as valid as if such death, incapacity, termination, dissolution or
other event had not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such death,
incapacity, termination, dissolution or other event.
(k) Such Selling Stockholder confirms that the sale of such
Selling Stockholder's Shares and/or Warrants pursuant to this Agreement is
not prompted by any information concerning the Company which is not set
forth in the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES AND WARRANTS.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the
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Company agrees to sell to the several Underwriters 2,000,000 of the Firm
Shares and each of the Selling Stockholders selling Firm Shares agrees,
severally and not jointly, to sell to the several Underwriters the number of
Firm Shares set forth opposite the names of such Selling Stockholders on
Schedule II attached hereto, and each Underwriter, severally and not jointly,
agrees to purchase from the Company and each of the Selling Stockholders, at
the price per share of $_____________, the number of Firm Shares (to be
adjusted by the Representatives to avoid fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each of such Selling Stockholders, as set forth opposite their respective
names in Schedule II hereto, by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased
by all the Underwriters hereunder, plus any additional number of Shares which
such Underwriter may become obligated to purchase pursuant to the provisions
of Section 10 hereof. Each of the Selling Stockholders selling Firm
Warrants agrees, severally and not jointly, to sell Firm Warrants to purchase
the number of shares set forth opposite the name of such Selling Stockholder
in Schedule II hereto, to the several Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from such Selling Stockholders
that portion of the Firm Warrants (to be adjusted by the Representatives to
avoid fractional shares) which represents the same proportion as the number
of Firm Shares set forth opposite the name of each Underwriter in Schedule I
hereto bears to the total number of Firm Shares, at the purchase price per
Share issuable upon exercise of the portion of the Warrants purchased equal
to (i) $___________, minus (ii) the exercise price of the respective Firm
Warrants so purchased, plus any additional number of Warrants which such
Underwriter may become obligated to purchase pursuant to Section 10 hereof.
Each of the Underwriters, severally and not jointly, agrees to exercise the
portion of the Firm Warrants purchased by such Underwriter by tendering such
Firm Warrant portion to the Company together with the payment of the exercise
price thereof, and the Company agrees, upon such exercise, to issue and sell
to such Underwriter the number of Firm Shares issuable upon exercise of the
portion of the Firm Warrants so exercised.
In the event and to the extent that the Underwriters shall exercise the
election to purchase Additional Shares and Additional Warrants as provided in
paragraph 3(c) below, the Selling Stockholders, severally and not jointly,
agree to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Selling Stockholders,
at the purchase price per share set forth above in this Section 3(a), that
number of Additional Shares and Additional Warrants as determined in
accordance with paragraph 3(c) below, plus any additional number of Shares or
Warrants which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 10 hereof.
(b) Delivery of certificates, and payment of the purchase price,
for the Firm Shares (including Shares issued upon exercise of Warrants) shall
be made at the offices of Haynes and Boone, LLP, 901 Main Street, Suite 3100,
Dallas, Texas, or such other location as may be mutually acceptable to the
Representatives, the Attorneys-in-Fact and the Company. Such delivery and
payment shall be made at 10:00 a.m., New York time, on the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless
postponed in accordance with the provisions of Section 10 hereof) following
the date of the effectiveness of the Registration Statement (or, if the
Company has elected to rely upon
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Rule 430A of the Regulations, the third or fourth business day (as permitted
under Rule 15c6-1 under the Exchange Act) after the determination of the
initial public offering price of the Shares), or such other time not later
than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called the "CLOSING DATE"). Payment shall be made to the
Company by certified or official bank check or checks drawn in federal funds
or similar same day funds payable to the order of the Company, against
delivery to the Representatives for the respective accounts of the
Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares (including Shares issued upon exercise of
Warrants) shall be registered in such name or names and in such authorized
denominations as the Representatives may request in writing at least two full
business days prior to the Closing Date. The Company and the Selling
Stockholders will permit the Representatives to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(c) In addition, the Selling Stockholders, as and to the extent
indicated on Schedule II attached hereto, hereby grant to the several
Underwriters an option to purchase up to 600,000 Additional Shares (including
the purchase and exercise of the Additional Warrants) at the same purchase
price (and, with respect to the Additional Warrants, upon the same terms) to
be paid by the several Underwriters to the Company and the Selling
Stockholders for the Firm Shares and Firm Warrants as set forth in Section
3(a), for the sole purpose of covering over-allotments in the sale of Firm
Shares by the several Underwriters. This option may be exercised, in whole
or in part, at any time on or before the thirtieth (30th) calendar day
following the date of the Prospectus, by written notice by the
Representatives to the Custodian. Such notice shall set forth the aggregate
number of Additional Shares (including the purchase and exercise of the
Additional Warrants) as to which the option is being exercised and the date
and time, as reasonably determined by the Representatives, when the
certificates relating to the Additional Shares (including Shares issued upon
exercise of the Additional Warrants) are to be delivered (such date and time
being herein sometimes referred to as the "ADDITIONAL CLOSING DATE");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second (2nd) full business day after the
date on which the option shall have been exercised nor later than the eighth
(8th) full business day after the date on which the option shall have been
exercised, unless such time and date are postponed in accordance with the
provisions of Section 10 hereof. Certificates for the Additional Shares
(including Shares issued upon exercise of the Additional Warrants) shall be
registered in such name or names and in such authorized denominations as the
Representatives may request in writing at least two full business days prior
to the Additional Closing Date. The Company will permit the Representatives
to examine and package such certificates for delivery at least one full
business day prior to the Additional Closing Date.
If the option is exercised in full, the number of Additional Shares
and/or Additional Warrants to be sold by each of the Selling Stockholders (as
adjusted by the Representatives to eliminate fractions), as the case may be,
shall be as is set forth opposite their respective names on Schedule II
attached hereto. In the event that the option is exercised in part, the
number of Additional Shares and/or Additional Warrants to be sold by each
Selling Stockholder shall be determined by multiplying the number of
Additional Shares and/or Additional Warrants to be purchased from all Selling
Stockholders by the several
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Underwriters by a fraction the numerator of which is the number of Firm
Shares and/or Firm Warrants sold by such Selling Stockholder and the
denominator of which is the maximum number of Firm Shares and Firm Warrants
to be sold by all of the Selling Stockholders hereunder. The number of
Additional Shares and/or Additional Warrants to be purchased from each
Selling Stockholder by each Underwriter (as adjusted by the Representatives
to eliminate fractions) shall be determined by multiplying the number of
Additional Shares and/or Additional Warrants to be sold by such Selling
Stockholder by a fraction, the numerator of which is the number of Firm
Shares and Firm Warrants purchased by such Underwriter and the dominator of
which is the maximum number of Firm Shares and Firm Warrants which all of the
Underwriters are entitled to purchase hereunder. The number of Additional
Shares and/or Additional Warrants to be purchased by each Underwriter if the
option is exercised in full is set forth opposite the name of such
Underwriter on Schedule I attached hereto.
Payment for the Additional Shares and/or Additional Warrants shall
be made by certified or official bank check, in New York Clearing House funds
or similar next day funds, payable to the order of the Custodian at the
offices of Haynes and Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas,
or such other location as may be mutually acceptable, upon delivery of the
certificates for the Additional Shares to the Representatives for the
respective accounts of the Underwriters.
4. OFFERING. It is understood that after the Registration Statement
becomes effective under the Act the several Underwriters propose to offer the
Shares for sale to the public upon the terms set forth in the Prospectus.
5. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is
otherwise required under Rule 424(b) or Rule 434, the Company will file the
Prospectus (properly completed if Rule 430A has been used) pursuant to Rule
424(b) or Rule 434 within the prescribed time period and will provide
evidence satisfactory to the Representatives of such timely filing. If the
Company elects to rely on Rule 434, the Company will prepare and file a
term sheet that complies with the requirements of Rule 434.
The Company will notify the Representatives immediately (and, if
requested by the Representatives, will confirm such notice in writing) (A)
when the Registration Statement and any amendments thereto become
effective, (B) of any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for any
additional information, (C) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus, (D) of the issuance by the
Commission of any Stop Order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of the
initiation, or the threatening, of any
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<PAGE>
proceedings therefor, (E) of the receipt of any comments from the
Commission, and (F) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for
that purpose. If the Commission shall propose or enter a Stop Order at
any time, the Company will make every reasonable effort to prevent the
issuance of any such Stop Order and, if issued, to obtain the lifting of
such Stop Order as soon as possible. The Company will not file any
amendment to the Registration Statement or any amendment of or supplement
to the Prospectus (including the prospectus required to be filed pursuant
to Rule 424(b)or Rule 434) that differs from the prospectus on file at the
time of the effectiveness of the Registration Statement before or after
the effective date of the Registration Statement or file any document under
the Exchange Act if such document would be deemed to be incorporated by
reference into the Prospectus to which the Representatives shall reasonably
object in writing after being timely furnished in advance a copy thereof.
(ii) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would, in
the judgment of the Underwriters or the Company, include an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it shall be necessary at any time to amend or supplement the Prospectus
or Registration Statement to comply with the Act or the Regulations, the
Company will notify the Representatives promptly and prepare and file with
the Commission an appropriate post-effective amendment or supplement (in
form and substance satisfactory to the Representatives) which will correct
such statement or omission and will use its best efforts to have any such
post-effective amendment to the Registration Statement declared effective
as soon as possible.
(iii) The Company will promptly deliver to the
Representatives three signed copies of the Registration Statement,
including exhibits and all documents incorporated by reference therein and
all amendments thereto, and the Company will promptly deliver to each of
the several Underwriters such number of copies of any preliminary
prospectus, the Prospectus, the Registration Statement, and all amendments
of and supplements to such documents, if any, and all documents
incorporated by reference in the Registration Statement and Prospectus or
any amendment thereof or supplement thereto, without exhibits, as the
Representatives may reasonably request.
(iv) The Company will endeavor in good faith, in cooperation with
the Representatives, at or prior to the time of effectiveness of the
Registration Statement, to qualify the Shares for offering and sale under
the securities laws relating to the offering or sale of the Shares of such
jurisdictions as the Representatives may designate and to maintain such
qualification in effect for so long as required for the distribution
thereof.
(v) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its securityholders and to the
Representatives as soon
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as practicable, but not later than 45 days after the end of its fiscal
quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earnings statement (in form complying
with the provisions of Rule 158 of the Regulations) covering a period of
at least twelve consecutive months beginning after the effective date of
the Registration Statement.
(vi) During the period of 90 days from the date of the
Prospectus, the Company will not, without the Representatives' prior
written consent, 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 shares of Common Stock (or any securities convertible into,
exercisable for or exchangeable for Common Stock), other than the
Company's sale of Shares hereunder and the Company's issuance of Common
Stock upon the exercise of presently outstanding stock options.
(vii) The Company has obtained and delivered to the
Representatives, no later than the close of business on the date hereof, a
Lock-Up Agreement from each of its directors and officers and each holder
of capital stock of the Company listed on Schedule III attached hereto.
(viii) During a period of three years from the effective date
of the Registration Statement, the Company will furnish to the
Representatives copies of (A) all reports to its stockholders; and (B) all
reports, financial statements and proxy or information statements filed by
the Company with the Commission or any exchange upon which the Common
Stock is listed or approved for quotation.
(ix) The Company will apply the proceeds from the sale of the
Shares by the Company as will be set forth under "Use of Proceeds" in the
Prospectus.
(b) Each Selling Stockholder hereby covenants and agrees with the
several Underwriters, during the period commencing on the date hereof and
ending 90 days after the date of the Prospectus, not to make a Disposition of
any Securities, now owned or hereafter acquired by such Selling Stockholder
or with respect to which such Selling Stockholder has or hereafter acquires
the power of disposition, otherwise than (i) as a bona fide gift or gifts,
provided the donee or donees thereof agree to be bound in writing by the
terms of this Section 5(b), (ii) as a distribution to limited partners or
stockholders of such Selling Stockholder provided that the distributees
thereof agree in writing to be bound by the terms of this Section 5(b), or
(iii) with the prior written consent of the Representatives. The foregoing
restriction is expressly agreed to preclude such Selling Stockholder from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities
during the 90 days after the date of the Prospectus even if such shares would
be disposed of by someone other than such Selling Stockholder. Such
prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or
grant of any right (including, without limitation, any put or call option)
with respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that relates to or derives any
significant part of its value from the Common Stock. Each Selling
Stockholder further agrees not to make any demand for or exercise any right
with respect to the registration of any Common Stock or other securities of
the Company. Notwithstanding the foregoing, this Section 5(b) does not
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prohibit the sale of the Shares by such Selling Stockholder to the
Underwriters pursuant to this Agreement. Such Selling Stockholder confirms
that this Section 5(b) is irrevocable and shall be binding upon such Selling
Stockholder, and such Selling Stockholder agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Shares of Common Stock held by such Selling Stockholder
except in compliance with this Section 5(b).
6. PAYMENT OF EXPENSES. Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, the
Company agrees to pay all costs and expenses incident to the performance of
the obligations of the Company and the Selling Stockholders hereunder,
including those in connection with (i) preparing, printing, duplicating,
filing and distributing the Registration Statement, as originally filed and
all amendments thereof (including all exhibits thereto), any preliminary
prospectus, the Prospectus and any amendments thereof or supplements thereto
(including, without limitation, fees and expenses of the Company's
accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreements) and
all other documents related to the public offering of the Shares (including
those supplied to the Underwriters in quantities as hereinabove stated), (ii)
the issuance, transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the
qualification of the Shares under state or foreign securities or Blue Sky
laws, including the costs of printing and mailing a preliminary and final
"Blue Sky Survey" and the fees of counsel for the Underwriters and such
counsel's disbursements in relation thereto, (iv) the inclusion of the Shares
to be sold by the Company on the Nasdaq National Market, (v) the review of
the terms of the public offering of the Shares by the National Association of
Securities Dealers, Inc. (the "NASD") (including, without limitation, fees
and expenses to Underwriters' counsel in relation thereto), and (vi) the
reasonable fees and expenses of one counsel acting on behalf of the Selling
Stockholders. Notwithstanding the foregoing, each Selling Stockholder will
pay or cause to be paid all costs and expenses incident to the performance of
such Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section 6, including the Underwriters'
discount and commissions applicable to such Selling Stockholder's Shares.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Shares and, if
applicable, the Additional Shares shall be subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein contained, as of the date hereof and as of the Closing Date (or in the
case of the Additional Shares as of the Additional Closing Date), to the
absence from any certificates, opinions, written statements or letters
furnished to the Representatives or to Haynes and Boone, LLP ("UNDERWRITERS'
COUNSEL") pursuant to this Section 7 of any qualification or limitation not
previously approved in writing by the Representatives, to the performance by
the Company and the Selling Stockholders of their respective obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York time, on the date of this Agreement, or at
such later time and date as shall have been consented to in writing by the
Representatives; if the Company shall have elected to rely upon Rule 430A or
Rule 434 of the Regulations, the Prospectus shall have been filed with the
Commission in a timely fashion in accordance with Section 5(a) hereof; and,
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at or prior to the Closing Date no Stop Order suspending the effectiveness of
the Registration Statement or any post-effective amendment thereof shall have
been issued and no proceedings therefor shall have been initiated or
threatened by the Commission.
(b) At the Closing Date and, if applicable, the Additional Closing
Date, the Representatives shall have received the opinion of Weil, Gotshal &
Manges LLP, counsel for the Company, dated the Closing Date or the Additional
Closing Date, as the case may be, addressed to the Underwriters and in form
and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to
be so qualified or in good standing which will not in the aggregate have
a material adverse effect on the Company and its subsidiaries taken as a
whole. Each of the Company and its subsidiaries has all requisite
corporate authority to own, lease and license its respective properties
and conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus. All of the issued and
outstanding capital stock of USSC has been duly and validly issued and is
fully paid and non-assessable and free of preemptive rights and, except as
disclosed in the Registration Statement and the Prospectus, is owned
directly by the Company, free and clear of any lien, encumbrance, claim,
security interest, restriction on transfer, stockholders' agreement,
voting trust or other defect of title whatsoever.
(ii) The Company has authorized capital stock as set forth in the
Registration Statement and the Prospectus. All of the outstanding shares
of Common Stock are duly and validly authorized and issued, are fully paid
and nonassessable and were not issued in violation of or subject to any
preemptive rights. The Shares to be delivered by the Company on the
Closing Date have been duly and validly authorized and, when delivered in
accordance with this Agreement, will be duly and validly issued, fully
paid and nonassessable and will not have been issued in violation of or
subject to any preemptive rights. Each of the Underwriters will receive
good, valid and marketable title to the Firm Shares being sold by the
Company hereunder, free and clear of all liens, encumbrances, claims,
security interests, restrictions on transfer, stockholders' agreements,
warrant agreements, voting trusts and other defects of title whatsoever.
The Common Stock, the Firm Shares and the Additional Shares conform to
the descriptions thereof contained in the Registration Statement and the
Prospectus.
(iii) The Warrants have been duly and validly authorized and
issued by the Company and, prior to their exercise, constituted validly
issued and outstanding warrants of the Company, enforceable in accordance
with their terms. The Warrants conform in all material respects to the
description thereof contained in the Prospectus and, prior to their
exercise, the Shares issuable upon exercise of the Warrants were validly
reserved for issuance upon exercise thereof.
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(iv) The assignment instruments by which the Warrants have been
transferred by certain Selling Stockholders to the Underwriters, assuming
the due and valid authorization, execution and delivery thereof to the
Underwriters by the Selling Stockholders or their Attorney-in-Fact, are
effective to transfer ownership of the Warrants to the Underwriters, free
and clear of all liens, encumbrances, security interests, claims,
restrictions on transfer, stockholders' agreements, warrant agreements,
voting trusts and other defects of title whatsoever.
(v) The Common Stock currently outstanding is included, and the
Shares to be sold under this Agreement by the Company to the Underwriters
are duly authorized for inclusion, on the Nasdaq National Market.
(vi) This Agreement has been duly and validly authorized,
executed and delivered by the Company and USSC and is a valid and binding
obligation of the Company and USSC, enforceable against each in accordance
with its terms, except (i) as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (ii) to the extent that
rights to indemnity hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(vii) To the best of such counsel's knowledge, there is no
litigation or governmental or other action, suit, proceeding or
investigation before any court or before or by any public, regulatory or
governmental agency or body pending or threatened against, or involving
the properties or business of, the Company or any of its subsidiaries,
which, if resolved against the Company or such subsidiary, individually or,
to the extent involving related claims or issues, in the aggregate, is of
a character required to be disclosed in the Registration Statement and the
Prospectus which has not been properly disclosed therein.
(viii) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby by
the Company and USSC do not and will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or
an event which with notice or lapse of time, or both, would constitute a
default) or require consent under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to the terms of any agreement,
instrument, franchise, license or permit known to such counsel to which
the Company or any of its subsidiaries is a party or by which any of such
corporations or their respective properties or assets may be bound or (B)
violate or conflict with any provision of the certificate of incorporation
or bylaws of the Company or any of its subsidiaries, or, to the best
knowledge of such counsel, any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over the Company or
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any of its subsidiaries or any of their respective properties or assets.
No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties
or assets is required for the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
except for (1) such as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion) and (2)
such as have been made or obtained under the Act.
(ix) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial and statistical data included
or incorporated by reference therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Act and the Regulations. The documents filed under
the Exchange Act and incorporated by reference in the Registration
Statement and the Prospectus and in any amendment thereof or supplement
thereto (other than the financial statements and schedules and other
financial and statistical data included or incorporated by reference
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the Exchange Act and the rules and
regulations of the Commission thereunder.
(x) The Registration Statement is effective under the Act, and,
to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof has been issued and no proceedings therefor have been initiated or
threatened by the Commission or any state securities or "Blue Sky"
authority and all filings required by Rule 424(b) of the Regulations have
been made.
(xi) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, instruments, permits, licenses, loans,
agreements, notes, leases or other agreements or instruments or other
documents (collectively, "DOCUMENTS") which are required under the Act to
be described or referred to in, or filed with, the Registration Statement
and the Prospectus other than those described or referred to therein or
filed as exhibits thereto.
(xii) The statements under the captions "The Company,"
"Certain Transactions," "Shares Eligible For Future Sale," "Description of
Capital Stock," and "Description of Indebtedness" in the Prospectus, in
Items 14 and 15 of Part 11 of the Registration Statement and in Item 3 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, insofar as such statements constitute a summary of
legal matters, documents or proceedings referred to therein, fairly
present, in all material respects, the information called for with respect
to such legal matters, documents and proceedings.
(xiii) In addition, such opinion shall also contain a
statement that such counsel has participated in conferences with officers
and representatives of the Company, representatives of the independent
public accountants for the Company and the Underwriters at which the
contents and the Prospectus and related matters were discussed, and no
facts have come to the attention of such counsel which would lead such
counsel to believe that either the Registration Statement at the time it
became
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effective (including the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b) or Rule
434, if applicable), or any amendment thereof made prior to the Closing
Date as of the date of such amendment, contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus as of the date thereof (or any amendment thereof or
supplement thereto made prior to the Closing Date or the Additional
Closing Date, as the case may be, as of the date of such amendment or
supplement) and as of the Closing Date and, if applicable, as of the
Additional Closing Date, contains or contained an untrue statement of a
material fact or omits or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with
respect to the financial statements and schedules and other financial and
statistical data included or incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, if
at all, upon an opinion or opinions (in form and substance reasonably
satisfactory to Underwriters' Counsel) of other counsel reasonably
acceptable to Underwriters' Counsel, familiar with the applicable laws,
and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and certificates or
other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its subsidiaries, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' Counsel. The opinion of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory
to such counsel and, in their opinion, the Representatives and they are
justified in relying thereon.
(c) At the Closing Date and the Additional Closing Date the
Representatives shall have received the favorable opinion of Weil Gotshal &
Manges LLP, counsel for the Selling Stockholders, dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of this Agreement and the Selling Agreements has been
duly and validly authorized, executed and delivered by or on behalf of each
Selling Stockholder and is a valid and binding obligation of each Selling
Stockholder, enforceable against such Selling Stockholder in accordance
with its terms, except to the extent that rights to indemnity hereunder
may be limited by applicable federal or state securities laws or the
public policy underlying such laws.
(ii) The sale of the Shares or Warrants to be sold by such
Selling Stockholder hereunder, and the compliance by such Selling
Stockholder with all of the provisions of this Agreement and the Selling
Agreements and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any terms or provisions of, or constitute a default under, any
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statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Stockholder is a party to or by which such Selling Stockholder is bound or
to which any of the properties or assets of such Selling Stockholder is
subject nor will such action result in any violation of the provisions of
the certificate of incorporation or bylaws of such Selling Stockholder if
such Selling Stockholder is a corporation, the partnership agreement of
such Selling Stockholder if such Selling Stockholder is a partnership, the
terms of any trust agreement if such Selling Stockholder is a trust or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or other property of such Selling Stockholder.
(iii) To the best knowledge of such counsel, each Selling
Stockholder has all requisite power and authority, and all necessary
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits of and from all courts and all public,
governmental or regulatory agencies and bodies as are required for the
execution, delivery and performance of this Agreement and the Selling
Agreements and the consummation of the transactions contemplated hereby and
thereby except for (1) such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters (as to which such counsel need express no
opinion) and (2) such as have been made or obtained under the Act.
(iv) Each Selling Stockholder has full legal right, power and
authority (other than any approval imposed by the applicable federal or
state securities and Blue Sky laws) to enter into this Agreement, the
Power of Attorney and the Custody Agreement and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder under this
Agreement.
(v) Upon delivery of the Shares and/or Warrants to be sold by
the Selling Stockholders pursuant to this Agreement and upon payment
therefor, good, valid and marketable title to such Shares and/or Warrants,
as the case may be, will pass to the Underwriters or their nominees,
severally, free and clear of all liens, encumbrances, equities or adverse
claims other than those arising as a result of any action taken by the
Underwriters, assuming that the Underwriters purchase such Shares and/or
Warrants in good faith and without notice of any adverse claims within the
meaning of the Uniform Commercial Code.
(vi) The statements in the Prospectus under the caption
"Principal and Selling Stockholders," insofar as such statements
constitute a summary of the matters referred to therein, fairly present
the information called for with respect to such matters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, if
at all, upon an opinion or opinions (in form and substance reasonably
satisfactory to Underwriters' Counsel) of other counsel reasonably
acceptable to Underwriters' Counsel, familiar with the applicable laws; (B)
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<PAGE>
as to matters of fact, to the extent they deem proper, on certificates of,
or certificates of responsible officers of, the Selling Stockholders,
provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel. The opinions of such counsel for the
Selling Stockholders shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and, in their opinion,
the Representatives and they are justified in relying thereon.
(d) At the Closing Date and Additional Closing Date, the
Representatives shall have received a certificate of the Chairman of the
Board and the Chief Financial Officer of the Company, dated the Closing Date
or Additional Closing Date, as the case may be, to the effect that the
condition set forth in subsection (a) of this Section 7 has been satisfied,
that as of the date hereof and as of the Closing Date or Additional Closing
Date, as the case may be, the representations and warranties of the Company
set forth in Section 1 hereof are accurate, and that as of the Closing Date
or the Additional Closing Date, as the case may be, the obligations of the
Company to be performed hereunder on or prior thereto have been duly
performed.
(e) At the Closing Date and, if applicable, the Additional Closing
Date, the Representatives shall have received a certificate executed by the
Attorney-in-Fact on behalf of each Selling Stockholder, dated the Closing
Date, to the effect that the representations and warranties of such Selling
Stockholder set forth in Section 2 hereof are accurate, and that as of the
Closing Date or the Additional Closing Date, as the case may be, the
obligations of such Selling Stockholder to be performed hereunder on or prior
thereto have been duly performed.
(f) At the time this Agreement is executed and at the Closing Date
and Additional Closing Date, the Representatives shall have received a letter
from Ernst & Young LLP, independent public accountants for the Company,
dated, respectively, as of the date of this Agreement and as of the Closing
Date or Additional Closing Date, as the case may be, addressed to the
Underwriters and in form and substance satisfactory to the Representatives,
to the effect that: (i) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the applicable
published rules and regulations of the Commission thereunder and stating that
the answer to Item 10 of the Registration Statement is correct insofar as it
relates to them; (ii) stating that, in their opinion, the financial
statements and schedules of the Company included in the Registration
Statement and the Prospectus and covered by their opinion therein comply as
to form in all material respects with the applicable accounting requirements
of the Act and the applicable published rules and regulations of the
Commission thereunder; (iii) stating that, on the basis of procedures (but
not an examination made in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited interim
consolidated financial statements of the Company and its subsidiaries, a
reading of the minutes of meetings and consents of the stockholders and
boards of directors of the Company and its subsidiaries and the committees of
such boards subsequent to December 31, 1996, inquiries of officers and other
employees of the Company and its subsidiaries who have responsibility for
financial and accounting matters of the Company and its subsidiaries with
respect to transactions and events subsequent to December 31, 1996, and other
specified procedures and inquiries to a date not more than five days prior to
the date of such letter, nothing has come to their attention that would cause
them to believe that: (A) the unaudited consolidated
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financial statements and schedules of the Company included in the
Registration Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and
the applicable published rules and regulations of the Commission thereunder
or that such unaudited consolidated financial statements are not fairly
presented in conformity with generally accepted accounting principles except
to the extent certain footnote disclosures have been omitted in accordance
with applicable rules of the Commission under the Exchange Act applied on a
basis substantially consistent with that of the audited consolidated
financial statements incorporated by reference in the Registration Statement
and the Prospectus; (B) with respect to the period subsequent to December 31,
1996, there were, as of the date of the most recent available monthly
consolidated financial statements of the Company and its subsidiaries, if
any, and as of a specified date not more than five days prior to the date of
such letter, any changes in the capital stock or long-term indebtedness of
the Company or any decrease in the net current assets or stockholders' equity
of the Company, in each case as compared with the amounts shown in the most
recent balance sheet incorporated by reference in the Registration Statement
and the Prospectus, except for changes or decreases which the Registration
Statement and the Prospectus disclose have occurred or may occur or which are
set forth in such letter; or (C) that during the period from December 31,
1996, to the date of the most recent available monthly consolidated financial
statements of the Company and its subsidiaries, if any, and to a specified
date not more than five days prior to the date of such letter, there was any
decrease, as compared with the corresponding period in the prior fiscal year,
in total revenues, or total or per share net income, except for decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur or which are set forth in such letter; and (iv) stating that they
have compared specific dollar amounts, numbers of shares, percentages of
revenues and earnings and other financial information pertaining to the
Company and its subsidiaries set forth in the Registration Statement and the
Prospectus, which have been specified by the Representatives prior to the
date of this Agreement, to the extent that such amounts, numbers, percentages
and information may be derived from the general accounting and financial
records of the Company and its subsidiaries or from schedules furnished by
the Company, and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified
readings, inquiries, and other appropriate procedures specified by the
Representatives (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in such
letter, and found them to be in agreement.
(g) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be satisfactory
in form and substance to the Representatives and to Underwriters' Counsel,
and the Underwriters shall have received from said Underwriters' Counsel a
favorable opinion, dated as of the Closing Date and the Additional Closing
Date, as the case may be, with respect to the sale of the Shares, the
Registration Statement and the Prospectus and such other related matters, as
the Representatives may reasonably require, and the Company and the Selling
Stockholders shall have furnished to Underwriters' Counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(h) Prior to the Closing Date and the Additional Closing Date, the
Company and the Selling Stockholders shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
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(i) The Representatives shall have received from each person who
is a director or officer of the Company or Selling Stockholder and each
holder of capital stock of the Company listed on Schedule III attached
hereto, a Lock-Up Agreement to the effect that such person will not (i) make
a Disposition of any Securities now owned or hereinafter acquired by such
person or with respect to which such person has or hereinafter acquires the
power of disposition, for a period of 90 days after the date of the
Prospectus otherwise than (A) as a bona fide gift or gifts, provided that the
donee or donees thereof agree to be bound in writing by the terms of the
Lock-Up Agreement, (B) as a distribution to limited partners or stockholders
of such person provided that the distributees thereof agree in writing to be
bound by the terms of the Lock-Up Agreement, or (C) without the prior written
consent of the Representatives, or (ii) make any demand for or exercise any
right with respect to the registration of any Common Stock or other
Securities of the Company.
(j) The NASD, upon review of the terms of the public offering of
the Firm Shares and the Additional Shares, shall not have objected to the
Underwriters' participation in such offering.
(k) The Company shall not have sustained, (i) since December 31,
1996, any loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order of decree otherwise than as
set forth or expressly contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus, there
shall not have been any change in the capital stock (other than as disclosed
in the Prospectus) or increase in principal amounts of long-term or
short-term indebtedness of the Company or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations
of the Company, otherwise than as set forth or expressly contemplated in the
Prospectus, the effect of which, in any such case described in clause (i) or
(ii) of this Section 7(k), in the Representatives' judgment, makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered on the Closing Date or the Additional
Closing Date, as the case may be, on the terms and in the manner contemplated
in the Prospectus.
If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Representatives or to Underwriters' Counsel pursuant to this Section 7 shall
not be in all material respects reasonably satisfactory in form and substance
to the Representatives and to Underwriters' Counsel, all obligations of the
Underwriters hereunder may be canceled by the Representatives at, or at any
time prior to, the Closing Date and the obligations of the Underwriters to
purchase the Additional Shares may be canceled by the Representatives at, or
at any time prior to, the Additional Closing Date. Notice of such
cancellation shall be given to the Company and the Selling Stockholders in
writing, or by telephone, telex or telegraph, confirmed in writing.
8. INDEMNIFICATION.
(a) The Company, USSC and each of the Selling Stockholders listed
on Schedule II attached hereto under the caption "Control Selling
Stockholders" (collectively, the
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"CONTROL STOCKHOLDERS"), jointly and severally, agree to indemnify and hold
harmless each Underwriter, its officers, directors, partners, employees,
agents and counsel and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all losses, liabilities, claims, damages and expenses
whatsoever (including, but not limited to, attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or several,
to which they or any of them may become subject under the Act, the Exchange
Act or otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement for the registration of the Shares, as originally
filed or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company, USSC
and the Control Stockholders will not be liable in any such case to the
extent but only to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any Underwriter through the Representatives expressly for use
therein. This indemnity will be in addition to any liability which the
Company, USSC or the Control Stockholders may otherwise have, including under
this Agreement. Notwithstanding the foregoing, in no event shall any Control
Stockholder, as such, be liable for indemnity under this Section 8 in any
amount in excess of the gross proceeds received by such Control Stockholder
in connection with the sale of his shares of Common Stock hereunder. Without
limiting the rights of any Underwriter or controlling person thereof, the
provisions of this Section 8 shall not affect any existing arrangements among
the Company and the Control Stockholders relating to indemnification.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter, its officers, directors,
partners, employees, agents and counsel, the Company, each of the directors
of the Company, each of the officers of the Company who shall have signed the
Registration Statement and each other person, if any, who controls the
Company or any Underwriter, within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Shares, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that
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any such loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information relating to such Selling Stockholder furnished to the Company by
such Selling Stockholder expressly for use therein. This indemnity will be
in addition to any liability which any Selling Stockholder may otherwise
have, including under this Agreement.
(c) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company, each Selling Stockholder, each of
the directors of the Company, each of the officers of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any losses, liabilities, claims, damages
and expenses whatsoever (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for the registration of the Shares,
as originally filed or any amendment thereof, or any related preliminary
prospectus or the Prospectus, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any Underwriter through the Representatives expressly for use
therein; provided, however, that in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter hereunder. This
indemnity will be in addition to any liability which any Underwriter may
otherwise have, including under this Agreement. The Company and each Selling
Stockholder acknowledge that the statements set forth in the last paragraph
of the cover page, in the two paragraphs on the inside front cover page of
the Prospectus and in the table listing the Underwriters under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the
Registration Statement relating to the Shares as originally filed or in any
amendment thereof, any related preliminary prospectus or the Prospectus or in
any amendment thereof or supplement thereto, as the case may be.
(d) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and the
29
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indemnified party notifies an indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein, and to the
extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel satisfactory to such indemnified
party. Notwithstanding the foregoing, the indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by one of the indemnifying parties in connection with
the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything
in this subsection to the contrary notwithstanding, an indemnifying party
shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld.
9. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 8(a), (b)
and (c) hereof is for any reason held to be unavailable from the Company,
USSC or any Selling Stockholder or is insufficient to hold harmless a party
indemnified thereunder, the Company, USSC and the Selling Stockholders on the
one hand and the Underwriters on the other hand shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provisions (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but
after deducting in the case of losses, claims, damages, liabilities and
expenses suffered by the Company, USSC and any Selling Stockholder any
contribution received by the Company, USSC or such Selling Stockholder from
persons, other than the Underwriters, who may also be liable for
contribution, including persons who control the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company),
to which the Company, USSC, one or more of the Selling Stockholders and one
or more of the Underwriters may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company, USSC
and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result
of the indemnifying party not having received notice as provided in Section 8
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company, USSC
and the Selling Stockholders on the one hand and the Underwriters on the
other hand in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, USSC and the Selling Stockholders on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion
as the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the
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Company, USSC and the Selling Stockholders on the one hand and the
underwriting discounts and commissions received by the Underwriters, on the
other hand, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company, USSC and the Selling
Stockholders on the one hand and of the Underwriters on the other hand shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, USSC, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company, USSC, the Selling
Stockholders and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. The Company, USSC and each
Selling Stockholder shall be jointly and severally liable for the amounts to
be contributed by any of them pursuant to the provisions of this Section 9.
Notwithstanding the provisions of this Section 9, (i) in no case shall
any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, and (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(a) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 9, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as such Underwriter, each
person, if any, who controls a Selling Stockholder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Selling Stockholder, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to
clauses (i) and (ii) of this Section 9. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution
may be made against another party or parties under this Section 9, notify
such party or parties from whom contribution may be sought, but the omission
to so notify such party or parties shall not relieve the party or parties
from whom contribution may be sought from any obligation it or they may have
under this Section 9 or otherwise. No party shall be liable for contribution
with respect to any action or claim settled without its consent; provided,
however, that such consent was not unreasonably withheld.
10. DEFAULT BY AN UNDERWRITER.
For purposes of this Section 10, references to the purchase by an Underwriter
of Firm Shares or Additional Shares shall include the purchase of the
Underwriter's proportional share of Firm Warrants or Additional Warrants, as
the case may be, from the Selling Stockholders, and the exercise of such Firm
Warrants or Additional Warrants by such Underwriter pursuant to Section 3
hereof.
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(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and
if the Firm Shares or Additional Shares with respect to which such default
relates do not (after giving effect to arrangements, if any, made by the
Representatives pursuant to subsection (c) below) exceed in the aggregate 10%
of the number of shares of Firm Shares or Additional Shares, as the case may
be, which all Underwriters have agreed to purchase hereunder, then such Firm
Shares or Additional Shares to which the default relates shall be purchased
by the non-defaulting Underwriters in proportion to the respective
proportions which the numbers of Firm Shares set forth opposite their
respective names on Schedule I attached hereto bear to the aggregate number
of Firm Shares set forth opposite the names of the non-defaulting
Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, the Representatives
may, in their sole discretion, arrange for themselves or for another party or
parties (including any non-defaulting Underwriter or Underwriters who so
agree) to purchase such Firm Shares or Additional Shares, as the case may be,
to which such default relates on the terms contained herein. In the event
that within five calendar days after such a default the Representatives do
not arrange for the purchase of the Firm Shares or Additional Shares, as the
case may be, to which such default relates as provided in this Section 10,
this Agreement or, in the case of a default with respect to the Additional
Shares, the obligations of the Underwriters to purchase and of the Selling
Stockholders to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company or the Selling Stockholders with respect
thereto (except in each case as provided in Sections 6, 8(a) and (b) and 9
hereof) or the several Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability,
if any, to the other several Underwriters, the Company and the Selling
Stockholders for damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters or are to be purchased by another party or parties as aforesaid,
the Representatives or the Company shall have the right to postpone the
Closing Date or Additional Closing Date, as the case may be, for a period,
not exceeding five business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or
in any other documents and arrangements and the Company agrees to file
promptly any amendment or supplement to the Registration Statement or the
Prospectus which, in the opinion of Underwriters' Counsel, may thereby be
made necessary or advisable. The term "UNDERWRITER" as used in this
Agreement shall include any party substituted under this Section 10 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares.
11. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations
and warranties, covenants and agreements of the Underwriters, the Selling
Stockholders and the Company contained in this Agreement, including the
agreements contained in Section 6, the indemnity agreements contained in
Section 8 and the contribution agreements contained in Section 9, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or any controlling person thereof or
by or on behalf
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<PAGE>
of the Company, any of its officers and directors or any Selling Stockholder
or any controlling person thereof, and shall survive delivery of and payment
for the Shares to and by the several Underwriters. The representations
contained in Sections 1 and 2 and the agreements contained in Sections 6, 8,
9 and 12(d) hereof shall survive the termination of this Agreement, including
pursuant to Sections 10 or 12 hereof.
12. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective (i) if Rule 430A under
the Act is not used, when the Representatives, the Company and the Selling
Stockholders shall have received notification of the effectiveness of the
Registration Statement, or, if Rule 430A under the Act is used, when the
parties hereto have executed and delivered this Agreement. If either the
initial public offering price or the purchase price per Share has not been
agreed upon prior to 5:00 p.m., New York time, on the fifteenth full business
day after the Registration Statement shall have become effective, this
Agreement shall thereupon terminate without liability to the Company, USSC,
the Selling Stockholders or the Underwriters except as herein expressly
provided. Until this Agreement becomes effective as aforesaid, it may be
terminated by the Company by notifying the Representatives and the Selling
Stockholders or by joint action only of the Selling Stockholders directly or
the Attorney-in-Fact on behalf of all the Selling Stockholders by notifying
the Company and the Representatives or by the Representatives notifying the
Company, USSC and the Selling Stockholders. Notwithstanding the foregoing,
provisions of this Section 12 and of Sections 1, 2, 6, 8 and 9 hereof shall
at all times be in full force and effect.
(b) The Representatives shall have the right to terminate this
Agreement and the obligations of the Underwriters hereunder at any time prior
to the Closing Date (and, with respect to the Additional Shares, the
Additional Closing Date) by notice to the Company from the Representatives,
without liability (other than with respect to Sections 8 and 9 hereof) on the
part of any Underwriter, to the Company and the Selling Stockholders if, on
or prior to such date, (i) the Company or any Selling Stockholder shall have
filed, refused or been unable to perform in any material respect any
agreement on its, his or her part to be performed hereunder, (ii) any other
condition to the Underwriters' obligations hereunder set forth in Section 7
is not fulfilled when and as required in any material respect, (iii) trading
in securities on the New York or American Stock Exchanges or in the
over-the-counter market shall have been suspended or materially limited, or
minimum or maximum prices shall have been established or maximum price ranges
for prices for securities shall have been required, on the New York or
American Stock Exchanges or in the over-the-counter market by the Commission,
or by such exchange or other regulatory body or governmental authority having
jurisdiction, (iv) a general banking moratorium shall have been declared by a
federal or state authority or any new restriction materially and adversely
affecting the Firm Shares or the Additional Shares, as the case may be, shall
have become effective, (v) there shall have occurred an outbreak or
escalation of armed hostilities involving the United States on or after the
date hereof, or if there has been a declaration by the United States of a
national emergency or war, the effect of which shall be, in the
Representatives' judgment, to make it inadvisable or impracticable to proceed
with the sale and delivery of the Shares on the terms and in the manner
contemplated in the Prospectus, (vi) in the Representatives' opinion any
material adverse change shall have occurred since the respective dates as of
which information is given in the Registration Statement or the Prospectus in
the condition
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<PAGE>
(financial or otherwise) of the Company and its subsidiaries taken as a
whole, whether or not arising in the ordinary course of business other than
as set forth in the Prospectus, or (vii) there shall have occurred such a
material adverse change in general economic, political or financial
conditions or if the effect of international conditions on the financial
markets in the United States shall be such as, in the Representatives'
judgment, makes it inadvisable or impracticable to proceed with the sale and
delivery of the Firm Share or the Additional Shares, as the case may be, on
the terms contemplated hereby and by the Prospectus. The rights of the
Representatives to terminate this Agreement will not be waived or otherwise
relinquished by their failure to give notice of termination prior to the time
that the event giving rise to the right to terminate shall have cased to
exist, provided that notice is given prior to the Closing Date (and, with
respect to the Additional Shares, the Additional Closing Date).
(c) Any notice of termination pursuant to this Section 12 shall be
by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by the
Representatives as provided in Section 12(a) hereof or (ii) Sections 10(b) or
12(b) hereof (except clauses (i), (ii) and (vi))), or if the sale of the
Shares provided for herein is not consummated because any condition to the
obligations of the several Underwriters set forth herein is not satisfied or
because of any refusal, inability or failure on the part of the Company or
any Selling Stockholder to perform any agreement herein or comply with any
provision hereof, the Company and the Selling Stockholders jointly and
severally agree, upon demand by the Representatives, to reimburse the
Underwriters for all out-of-pocket expenses (including the fees and expenses
of their counsel), incurred by the several Underwriters in connection
herewith.
13. NOTICE. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, NY 10167, Attention: Corporate Finance Department; if sent
to the Company, USSC or any Selling Stockholder, shall be mailed, delivered,
or telegraphed and confirmed in writing in the case of the Company or USSC,
to the Company, 2200 East Golf Road, Des Plaines, IL 60016, Attention:
Chairman of the Board and, in the case of any Selling Stockholder, to its
address set forth on Schedule II attached hereto.
14. PARTIES. The Representatives represent that they are authorized to
act on behalf of the several Underwriters named on Schedule I attached
hereto, and the Company and the Selling Stockholders shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly
given on behalf of the Underwriters when the same shall have been given by
the Representatives on such behalf. This Agreement shall inure solely to the
benefit of, and shall be binding upon, the several Underwriters, the Selling
Stockholders, the Company and USSC and the controlling persons, directors,
officers, employees and agents referred to in Sections 8 and 9, and their
respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein
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<PAGE>
contained. The term "successors and assigns" shall not include a purchaser,
in its capacity as such, of Shares from any of the Underwriters.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
16. COUNTERPARTS. This Agreement may be executed by any one or more
parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one
and the same instrument.
17. PARTIAL INVALIDITY. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Representatives, the Company, USSC and the Selling Stockholders, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among each of the Underwriters, the
Company, USSC and each of the Selling Stockholders.
Very truly yours,
UNITED STATIONERS INC.
By:___________________________________
Name:_________________________________
Title:________________________________
UNITED STATIONERS SUPPLY CO.
By:___________________________________
Name:_________________________________
Title:________________________________
Selling Stockholders named on
Schedule II attached hereto Agreement
*By:__________________________________
Name:_________________________________
Title:________________________________
Accepted as of the date first above written
on behalf of themselves and the other several
Underwriters named on Schedule I attached hereto.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC
CHASE SECURITIES INC.
By: Bear, Stearns & Co. Inc.
By:____________________________
Name:_______________________
Title:______________________
_________________
*As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named
on Schedule II attached hereto.
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<PAGE>
SCHEDULE I
NUMBER OF ADDITIONAL FIRM
TOTAL NUMBER SHARES TO BE PURCHASED IF
OF FIRM SHARES TO OVER-ALLOTMENT IS EXERCISED
NAME OF UNDERWRITER BE PURCHASED IN FULL
- ----------------------------- ----------------- ---------------------------
Bear, Stearns & Co. Inc. .
Morgan Stanley & Co.
Incorporated . . . . . . .
Robertson, Stephens & Company
LLC . . . . . . . . . . . .
Chase Securities Inc . . . .
----------------- ---------------------------
Total (1) . . . . . . . . . 4,000,000 600,000
----------------- ---------------------------
----------------- ---------------------------
- --------------------------
(1) INCLUDES FIRM SHARES AND ADDITIONAL SHARES TO BE PURCHASED FROM THE COMPANY
UPON EXERCISE OF THE FIRM WARRANTS AND ADDITIONAL WARRANTS, RESPECTIVELY.
37
<PAGE>
SCHEDULE II
NUMBER OF ADDITIONAL
TOTAL NUMBER SHARES OR ADDITIONAL
OF FIRM SHARES OR WARRANTS TO BE SOLD
FIRM WARRANTS TO BE IF OVER-ALLOTMENT IS
SOLD EXERCISED IN FULL
--------------------- ----------------------
The Company . . . . . . . . . 2,000,000 None
CONTROL SELLING STOCKHOLDERS:
[RESERVED]
OTHER SELLING STOCKHOLDERS:
[RESERVED]
- ---------------------------------
(1) INDICATES FIRM SHARES OR ADDITIONAL SHARES TO BE SOLD.
(2) INDICATES FIRM WARRANTS OR ADDITIONAL WARRANTS TO BE SOLD.
38
<PAGE>
SCHEDULE III
Lock-Up Agreements
The following stockholders of the Company, including all affiliates of
such stockholders that beneficially own shares of Common Stock, will execute
Lock-Up Agreements:
[RESERVED]
39
<PAGE>
AMENDMENT NO. 4 TO
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
This Amendment No. 4 to the United Stationers Inc. Management
Equity Plan (the "Plan") is effective as of May 23, 1997. Unless
otherwise defined herein, capitalized terms used herein shall
have the meanings given them in the Plan.
WHEREAS, Associated Holdings, Inc. adopted the Plan as of January
31, 1992;
WHEREAS, the Plan was amended by Amendment No. 1 effective March
30, 1995, and by Amendments No. 2 and 3 effective September 27,
1995;
WHEREAS, the Company desires to further amend the Plan in certain
respects;
THEREFORE, the Plan is amended as follows:
1. INCREASE IN NUMBER OF AUTHORIZED SHARES. The first
sentence of Section 3 of the Plan is amended by increasing the
number of shares authorized to be issued under the Plan by
1,494,075.72 shares, from 2,605,924.28 to 4,100,000 shares.
2. AMENDMENT OF SECTION 4. Section 4 of the Plan is amended by
deleting the following: "(but not to any officer and director who
is not also an employee)", and by adding, at the end of the last
sentence thereof, the words: ",or who are non-employee directors
of the Company on the date of such grant".
3. AMENDMENT OF SECTION 6.
(a) Section 6 of the Plan is amended by deleting the
caption thereof, and substituting therefor the words:
"GRANTS OF STOCK OPTIONS".
(b) Section 6.c of the Plan is amended by inserting therein,
after the words, "in the continuous employ of" the
words, ",or as a director of".
4. AMENDMENT OF SECTION 8. Section 8.a. is amended by
substituting therefor the following:
"a. ASSIGNMENT OR TRANSFER. The Committee may, in its
discretion, authorize all or a portion of the options, other
than Incentive Stock Options, to be granted to an optionee
to be on terms which permit transfer by such optionee to (i)
the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii)
a partnership in which such Immediate Family Members are the
only partners, provided that (x) there may be no
consideration for any such transfer, (y) the stock option
agreement pursuant to which such options are granted must be
approved by the Committee and must expressly provide for
transferability in a manner consistent with this Section,
and (z) subsequent transfers of transferred options shall be
prohibited except by will or the laws of descent and
distribution. Following transfer, any such options shall
continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer."
<PAGE>
UNITED STATIONERS INC.
Management Equity Plan
1. PURPOSE
United Stationers Inc., a Delaware corporation (the "Company"), by means of
this Management Equity Plan (the "Plan") desires to afford certain of its
directors, key employees and the key employees of any parent corporation or
subsidiary corporation thereof now existing or hereafter formed or acquired who
are responsible for the continued growth of the Company an opportunity to
acquire a proprietary interest in the Company, and thus to create in such
persons an increased interest in and a greater concern for the welfare of the
company and any parent corporation or subsidiary corporation thereof. As used
in the Plan, the terms "parent corporation" and "subsidiary corporation" shall
mean, respectively, a corporation within the definition of such terms contained
in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of
1986, as amended (the "Code").
The stock options described in Section 6 (the "Options"), and the shares of
common stock of the Company acquired pursuant to the exercise of such Options
are a matter of separate inducement and are not in lieu of any salary or other
compensation for services.
2. ADMINISTRATION
The Plan shall be administered by the Option Committee, or any successor
thereto, of the Board of Directors of the Company or by such other committee, as
determined by the Board (the "Committee"). The Committee shall consist of not
less than two members of the Board of Directors of the Company, each of whom
shall qualify as a "disinterested person" to administer the Plan within the
meaning of Rule 16b-3, as amended, or other applicable Rules under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Committee shall administer the Plan so as to comply at all times with the
Exchange Act. A majority of the Committee shall constitute a quorum, and subject
to the provisions of Section 5, the acts of a majority of the members present at
any meeting at which a quorum is present, or acts approved in writing by a
majority of the Committee, shall be the acts of the Committee.
3. SHARES AVAILABLE
Subject to the adjustments provided in Section 7, the maximum aggregate
number of shares of common stock of the Company which may be granted for all
purposes under the Plan shall be 4,100,000 shares. If, for any reason, any
shares as to which Options have been granted cease to be subject to purchase
thereunder, including, without limitation, the expiration of such Option, the
termination of such option prior to exercise or the forfeiture of such Option,
such shares shall thereafter be available for grants to such individual or other
individuals under the Plan. Options granted under the Plan may be fulfilled in
accordance with the terms of the Plan with either authorized and unissued shares
of the common stock of the Company or issued shares of such common stock held in
the Company's treasury.
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4. ELIGIBILITY AND BASES OF PARTICIPATION
Grants under the Plan may be made, pursuant to Section 6, to key employees,
officers and directors of the Company, or any parent corporation or subsidiary
corporation thereof, who are regularly employed on a salaried basis and who are
so employed on the date of such grant (the "Officer and Key Employee
Participants"), or who are non-employee directors of the Company on the date of
such grant.
5. AUTHORITY OF COMMITTEE
Subject to and not inconsistent with the express provisions of the Plan and
the Code, the Committee shall have plenary authority, in its sole discretion,
to:
a. determine the persons to whom Options shall be granted, the time when
such Options shall be granted, the number of Options, the purchase
price or exercise price of each Option, the period(s) during which
such Option shall be exercisable (whether in whole or in part), the
restrictions to be applicable to Options and the other terms and
provisions thereof (which need not be identical);
b. require, as a condition to the granting of any Option, that the person
receiving such Option agree not to sell or otherwise dispose of such
Option, any common stock acquired pursuant to such Option or any other
"derivative security" (as defined by Rule 16a-l(c) under the Exchange
Act) for a period of at least six (6) months following the later of
(i) the date of the grant of such Option or (ii) the date when the
exercise price of such Option is fixed if such exercise price is not
fixed at the date of grant of such Option:
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Federal Reserve
Board, for the purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company of the
commissions of the broker-dealer:
d. provide the establishment of procedures for an optionee (1) to have
withheld from the total number of shares to be acquired upon the
exercise of an Option that number of Shares having a Fair Market Value
(as defined in Section 9) which, together with such cash as shall be
paid in respect of fractional Shares, shall equal the Option exercise
price, and (2) to exercise a portion of an Option by delivering that
number of shares already owned by such optionee having a Fair Market
Value which shall equal the partial Option exercise price and to
deliver the shares thus acquired by such optionee in payment of shares
to be received pursuant to the exercise of additional portions of such
Option, the effect of which shall be that such optionee can in
sequence utilize such newly acquired shares in payment of the exercise
price of the entire Option, together with such cash as shall be paid
in respect of fractional shares;
e. provide the establishment of a procedure whereby a number of shares of
common stock or other securities may be withheld from the total number
of
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<PAGE>
shares of common stock or other securities to be issued upon exercise
of an Option to meet the obligation of withholding for taxes incurred
by an optionee upon such exercise;
f. prescribe, amend, modify and rescind rules and regulations relating to
the Plan;
g. make all determinations specified in or permitted by the Plan or
deemed necessary or desirable for its administration or for the
conduct of the Committee's business; and
h. establish any procedures determined to be appropriate in discharging
its responsibilities under the Plan.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan; PROVIDED, HOWEVER, that the Committee
may not delegate any duties to a member of the Board of Directors of the Company
who, if elected to serve on the Committee, would not qualify as a "disinterested
person" to administer the Plan as contemplated by Rule 16b-3, as amended, or
other applicable rules under the Exchange Act. The Committee may employ
attorneys, consultants, accountants, or other persons and the committee, the
Company, and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all persons who have received grants under the Plan, the
company and all other interested persons. No member or agent of the Committee
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan and all members and agents of the
Committee shall be fully protected by the Company in respect of any such action,
determination or interpretation.
6. GRANTS OF STOCK OPTIONS
The Committee shall have the authority, in its sole discretion, to grant
incentive stock options ("Incentive Options") pursuant to Section 422 of the
Code, or to grant non-qualified stock options ("Non-Qualified 0ptions") (options
which do not qualify under Section 422 of the Code) or to grant both types of
Options. No option shall be granted for a term of more than ten (10) years.
Notwithstanding anything contained herein to the contrary, an Incentive Option
may be granted only to Officer and key Employee Participants. The terms and
conditions of the Options shall be determined from time to time by the
Committee: PROVIDED, HOWEVER, that the Options granted under the Plan shall be
subject to the following:
a. OPTION PRICE. The Committee shall establish the option price at
the time any Option is granted at such amount as the Committee shall
determine. The option price for each share purchasable under any
Incentive Option granted hereunder shall be such amount as the
Committee shall, in its best judgment, determine to be not less than
one hundred percent (100%) of the Fair Market Value per share at the
date the Option is granted; PROVIDED, HOWEVER, that in the case of an
Incentive Option granted to a person who, at the time such Incentive
Option is granted, owns shares of the Company, or any parent
corporation or subsidiary corporation thereof, which possess more than
ten percent (10%) of
3
<PAGE>
the total combined voting power of all classes of shares of the
Company or of any subsidiary corporation or parent corporation of the
Company, the purchase price for each share shall be such amount as the
Committee, in its best judgment, shall determine to be not less than
one hundred ten percent (110%) of the Fair Market Value per share at
the date the Option is granted. The Option price will be subject to
adjustment in accordance with the provisions of Section 7 of the Plan.
b. PAYMENT. The price per share of common stock of the Company with
respect to each Option shall be payable at the time the Option is
exercised. Such price shall be payable in cash, which may be paid by
wire transfer in immediately available funds, by check or by any other
instrument acceptable to the Company or, in the discretion of the
Committee, by delivery to the Company of shares or common stock of the
Company owned by the optionee or by the Company withholding from the
total number of shares to be acquired pursuant to the Option a portion
of such shares. Shares delivered to or withheld by the Company in
payment of the option price shall be valued at the Fair Market Value
of the common stock of the Company on the day preceding the date of
the exercise of the option.
c. CONTINUATION OF EMPLOYMENT. Notwithstanding anything else
contained herein, each Option by its terms shall require the optionee
to remain in the continuous employ of, or as a director of, the
Company, or any parent corporation or subsidiary corporation thereof,
for at least six (6) months (or three (3) months in the case of an
Incentive Option) from the date of grant of the Option before the
right to exercise any part of the Option will accrue.
d. EXERCISABILITY OF STOCK OPTION. Each Option shall be exercisable
in such installments as may be determined by the Committee at the time
of the grant. The right to purchase shares shall be cumulative so
that when the right to purchase any shares has accrued such shares or
any part thereof may be purchased at any time thereafter until the
expiration or termination of the Option. No Option by its terms shall
be exercisable after the expiration of ten (10) years from the date of
the grant of the Option; PROVIDED, HOWEVER, in the case of an
Incentive Option granted to a person who, at the time such Option is
granted, owns stock of the Company, or any parent corporation or
subsidiary corporation thereof, possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company, or any corporation or subsidiary corporation thereof, such
Option shall not be exercisable after the expiration of five (5) years
from the date such Option is granted.
e. DEATH. In the event of the death of any optionee, the estate of
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
than within six (6) months after the date of death (but not after the
expiration date of the Option), to exercise such optionee's 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 his
death, or will become entitled to purchase during the period of
exercise.
4
<PAGE>
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.
g. OTHER TERMINATION OR FOR CAUSE. If the employment of an optionee
is terminated for any reason other than those specified in the
subsections 6(e) and (f) above, such optionee shall have the right,
within the period designated by the Committee which shall in no event
be less than thirty (30) days (or three (3) months in the case of an
Incentive Option) after the date of such termination (but not after
the expiration date of the Option), to exercise his 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, except that, if such optionee's employment was terminated
by the Company, or any parent corporation or subsidiary corporation
thereof, for good cause, or if the optionee voluntarily terminates
employment without the consent of the Company, or any parent
corporation or subsidiary corporation thereof (of which fact the
Committee shall be the sole judge), such optionee shall immediately
forfeit all rights under his Option except as to the shares of stock
already purchased. Termination for "good cause" shall mean (unless
another definition is agreed to in writing by the Company and the
optionee) termination by action of the Board of Directors because of:
(A) the optionee's theft or embezzlement, or attempted theft or
embezzlement, of money or tangible or intangible assets or property of
the Company or any parent corporation or subsidiary corporation
thereof, (B) any act or acts of moral turpitude by optionee, (C) other
than as a result of a Disability, optionee's failure to devote
adequate time to the Company's or such parent corporation's or such
subsidiary corporation's business as determined in the reasonable
judgment of the Board of Directors, after having given notice of the
asserted problem and a reasonable opportunity to cure, (D) any
intentional acts by optionee which establish optionee's loyalty to a
business entity or person other than the Company, (E) gross negligence
or willful misconduct in the performance of optionee's duties, (F)
conviction of a felony, (G) conviction of a crime, the conviction of
which results in a material injury to the Company or any parent
corporation or subsidiary corporation thereof, or (H) a willful
material breach of any employment agreement entered into between
optionee and the Company or any parent corporation or subsidiary
corporation thereof. The determination that there exists "good cause"
for termination shall be made by the Option Committee (unless
otherwise agreed to in writing by the Company and the optionee) and
such determination shall be conclusive.
h. MAXIMUM EXERCISE. The aggregate Fair Market Value of stock
(determined at the time of the grant of the Option) with respect to
which Incentive Options are exercisable for the first time by an
optionee during any
5
<PAGE>
calendar year under all plans of the Company, or any parent
corporation or subsidiary corporation thereof, shall not exceed
$100,000.
i. LIMIT ON INDIVIDUAL GRANTS. In any calendar year, the maximum
number of shares for which options may be granted under the Plan to
any one optionee is 400,000 shares of common stock (subject to
adjustment in accordance with Section 7 of the Plan.
7. ADJUSTMENT OF SHARES
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, split-up, split-off, spin-off,
combination of shares, exchange of shares or other like change in the capital
structure of the Company, the number or kind of shares or interests subject to
an Option and the per share price or value thereof shall be appropriately
adjusted by the Committee at the time of such event, provided that each
optionee's position with respect to the Option and the per share price or value
thereof shall not, as a result of such adjustment, be worse than it had been
immediately prior to such event. Any fractional shares or interests resulting
from such adjustment shall be eliminated. Notwithstanding the foregoing, (I)
each such adjustment with respect to an Incentive Option shall comply with the
rules of Section 424(a) of the Code, and (ii) in no event shall nay adjustment
be made which would render any Incentive Option granted hereunder other than an
"incentive stock option" for purposes of Section 422 of the Code.
In the event of a Change of Control or a merger between the Company and
another corporation in which the Company is not the surviving entity and where
any optionee holds Options issued pursuant to this Plan which have not been
exercised, such Options shall be canceled and replacement Options shall be
issued by the surviving entity in accordance with Rule 16b-3(f)(1) under the
Exchange Act.
8. MISCELLANEOUS PROVISIONS
a. ASSIGNMENT OR TRANSFER. The Committee may, in its discretion,
authorize all or a portion of the options, other than Incentive Stock
Options, to be granted to an optionee to be on terms which permit
transfer by such optionee to (i) the spouse, children or grandchildren
of the optionee ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership in which such Immediate Family Members are the only
partners, provided that (x) there may be no consideration for any such
transfer, (y) the stock option agreement pursuant to which such
options are granted must be approved by the Committee and must
expressly provide for transferability in a manner consistent with this
Section, and (z) subsequent transfers of transferred options shall be
prohibited except by will or the laws of descent and distribution.
Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately prior to
transfer."
b. INVESTMENT REPRESENTATION. If a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with
respect to the
6
<PAGE>
common stock issuable upon exercise of an Option, is not in effect at
the time such Option is exercised, the Company may require, for the
sole purpose of complying with the Securities Act, that prior to
delivering such common stock to the exercising optionee, such optionee
must deliver to the Secretary of the Company a written statement (i)
representing and warranting that such common stock is being acquired
for investment only and not with a view to the resale or distribution
thereof, (ii) acknowledging and confirming that such common stock may
not be sold unless registered for sale under the Securities Act or
pursuant to an exemption from such registration and (iii) agreeing
that the certificates representing such common stock shall bear a
legend to the effect of the foregoing.
If subsequent to the delivery by an optionee of the written statement
described in the preceding paragraph, the common stock issuable upon
exercise of an Option is registered under the Securities Act, the
Company may release such optionee from such written statement without
effecting a "modification" of the Plan within the meaning of Section
424(h)(3) of the Code.
c. WITHHOLDING TAXES. In the case of distributions of common stock
or other securities hereunder, the Company, as a condition of such
distribution, may require the payment (through withholding from the
optionee's salary, reduction of the number of shares of common stock
or other securities to be issued, or otherwise) of any federal, state,
local or foreign taxes required by law to be withheld with respect to
such distribution.
d. COSTS AND EXPENSES. The costs and expenses of administering the
Plan shall be borne by the Company and shall not be charged against
any Option nor to any employee receiving an Option.
e. FUNDING OF PLAN. The Plan shall be unfunded. The Company shall
not be required to make any segregation of assets to assure the
payment of any Option under the Plan.
f. OTHER INCENTIVE PLANS. The adoption of the Plan does not
preclude the adoption by appropriate means of any other incentive plan
for employees.
g. EFFECT ON EMPLOYMENT. Nothing contained in the Plan or any
agreement related hereto or referred to herein shall affect, or be
construed as affecting, the terms of employment of any Officer and Key
Employee Participants except to the extent specifically provided
herein shall impose, or be construed as imposing, an obligation on (i)
the Company, or any parent corporation or subsidiary corporation
thereof, to continue the employment of any Officer and Key Employee
Participant, and (ii) any Officer and key Employee Participant to
remain in the employ of the Company, or any parent corporation or
subsidiary corporation thereof.
9. DEFINITIONS
a. "Fair Market Value" shall, as it relates to the common stock of
the Company, mean the average of the high and low prices of such
common stock
7
<PAGE>
as reported on a national stock exchange or as listed for quotation on
the NASDAQ National Market System on the date specified herein, or if
there were no sales on such date, on the next preceding day on which
there were sales, or if such common stock is not listed on a national
stock exchange or is not listed for quotation on the NASDAQ National
Market System, the value of such common stock on such date as
determined by the Board of Directors of the Company in good faith.
b. "Disability" means optionee's inability, due to illness,
accident, injury, physical or mental incapacity or other disability
effectively to carry out his duties and obligations as an employee of
the Company or to participate effectively and actively as an employee
of the Company for 90 consecutive days or shorter periods aggregating
at least 180 days (whether or not consecutive) during any twelve-month
period.
10. AMENDMENT OF PLAN
The Board of Directors of the Company shall have the right to amend,
modify, suspend or terminate the Plan at any time, provided that no amendment
shall be made which shall increase the total number of shares of the common
stock of the Company which may be issued and sold pursuant to Options granted
under the Plan or decrease the minimum option price in the case of an Incentive
Option, or modify the provisions of the Plan relating to eligibility with
respect to Incentive Options unless such amendment is made by or with the
approval of the stockholders. The Board of Directors shall be authorized to
amend the Plan and the Options granted thereunder (i) to qualify as "incentive
stock options" within the meaning of Section 422 of the Code or (ii) to comply
with Rule 16b-3 (or any successor rule) under the Exchange Act. No amendment,
modification, suspension or termination of the Plan shall alter or impair any
Options previously granted under the Plan, without the consent of the holder
thereof.
11. EFFECTIVE DATE
The Plan shall become effective January 31, 1992, the date as of which the
Plan was adopted by the Board of Directors (the "Effective Date"); PROVIDED,
HOWEVER, that if the Plan is not approved by a vote of the stockholders of the
Company at an annual meeting or by written consent within twelve (12) months
before or after the Effective Date, the Plan and any Options granted thereunder
shall terminate.
8
<PAGE>
FIRST AMENDMENT TO INDUSTRIAL LEASE
-----------------------------------
THIS FIRST AMENDMENT TO INDUSTRIAL LEASE (this "First Amendment") is
entered into as of the 23rd day of January, 1997 by and between ERI-CP, INC., a
Delaware corporation (successor-in-interest to Carol Point Builders I General
Partnership, a California general partnership) ("Landlord") and UNITED
STATIONERS SUPPLY CO., an Illinois corporation (successor-in-interest to
Associated Stationers, Inc. ["Original Tenant"]) ("Tenant").
R E C I T A L S:
----------------
WHEREAS, Landlord's predecessor-in-interest and Original Tenant entered
into that certain Industrial Lease undated (said Industrial Lease is hereinafter
referred to as the "Lease") for certain premises containing approximately
139,444 rentable square feet located at 898 Carol Court, Carol Stream, Illinois
(the "Demised Premises").
WHEREAS, Original Tenant subsequently was merged with and into Tenant and
in connection therewith, Tenant assumed all of the obligations and rights of
tenant in the Lease.
WHEREAS, Landlord and Tenant desire to amend the Lease to extend the term
(the "Term") of the Lease and to otherwise amend the Lease as provided below.
NOW, THEREFORE, for and in consideration of the recitals hereinabove set
forth and for other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. THCORPORATION OF RECITALS AND TERMS. The foregoing recitals are
hereby incorporated in and made a part of this First Amendment. Unless otherwise
defined in this First Amendment to the contrary, all capitalized terms used
herein shall have the respective meanings as are ascribed to the terms in the
Lease.
2. MERGER AND ASSIGNMENT. Tenant has informed Landlord that Original
Tenant merged into and with Tenant (the "Merger") effective as of March 30,1995.
Tenant represents and warrants to Landlord that pursuant to such Merger, Tenant
has heretofore assumed all obligations and liabilities of Original Tenant
thereunder effective as of said date.
3. EXTENSION OF TERM. Landlord and Tenant hereby agree to extend the Term
of the Lease for an additional five (5) year period, commencing on June 1, 1997
and ending on May 31, 2002 (sometimes herein referred to as the "Extended
Term").
<PAGE>
4. FIXED RENT. Effective as of June 1,1997, Fixed Rent payable under the
Lease during the Term of the Lease shall be as follows:
Monthly Installment
Period Annual Fixed Rent of Fixed Rent
June 1, 1997 - May 31,1999 $594,031.44 $49,502.62
June 1, 1999 - May 31, 2002 634,470.24 52,872.52
5. CONDITION OF THE DEMISED PREMISES. Landlord shall not be required to
provide any alterations or modifications to the Demised Premises. Tenant is
currently in possession of the Demised Premises and accepts the Demised Premises
in its "As-Is" condition.
Tenant at Tenant's expense, (subject to the application of the "Tenant
Allowance" [as such term is defined in the form of Work Letter attached hereto
as Exhibit Al) may install a washroom, a conference room and perform certain
other work in the Demised Premises all as shall be more particularly set forth
in the Working Plans (as defined in the Work Letter) as Tenant's Work (as
defined in the Work Letter). Tenant shall not undertake any construction nor
shall Tenant install any equipment, trade fixtures or personal property without
first executing and delivering to Landlord a counterpart copy of the Work Letter
and thereafter obtaining Landlord's written approval of the Working Plans, which
Working Plans shall be submitted to Landlord in a timely fashion in accordance
with the provisions of Paragraph 3 of the Work Letter. Thereafter no material
changes will be made in the Working Plans without the prior written consent of
Landlord. Tenant shall not commence any work until among other things, Tenant
delivers to Landlord the insurance and any bond required under the terms of the
Work Letter.
6. Additional Amendments to Lease.
(a) Article A-1(n) and (o) of the Lease are hereby deleted in their
entirety and the following substituted therefor:
"(n) Landlord's Address:
ERI-CP, INC.
c/o LaSalle Advisors Limited
200 East Randolph
Chicago, Illinois 60601
<PAGE>
(o) Tenant's Address:
United Stationers Supply Co.
2200 East Golf Road
Des Plaines, Illinois 60016
Attention: President"
(b) The following words are added after the word, "instance", at the end
of the first sentence of Article N-1 of the Lease:
"which consent shall not be unreasonably withheld or delayed."
(c) As a condition to and in consideration of Landlord's covenants
hereunder, Tenant expressly agrees that Paragraph 4 of Rider No. One to the
Lease is hereby deleted in its entirety; it being the express intent of the
parties that Tenant shall have no further rights to extend the Term of the Lease
following the expiration of the Extended Term.
(d) The "Right of First Notification" provision appearing at the end of
Rider No. One of the Lease is hereby deleted in its entirety and the following
substituted therefor:
"RIGHT OF FIRST OFFER. If at any time during the Extended Term,
that certain space contiguous to the Demised Premises depicted on
Exhibit B hereto and containing approximately 135,508 square feet
(the "Option Space") becomes available for leasing, and if no
Event of Default by Tenant exists under the Lease, then Landlord
shall not lease such Option Space to any third party without
first giving Tenant (i) notice of the availability of such space
which shall include the proposed term and rental rate (including
escalations, if any), abatements and allowances, if any, and
other economic concessions that Landlord would agree to with
respect to such Option Space (the "Offered Terms"), and (ji)
three (3) business days after the date of such notice in which to
commit in writing to lease such Option Space on the Offered Terms
for the remainder of Term, taking into account any modifications
in such Offered Terms required by the fact that the remaining
Term may be longer or shorter than that proposed by Landlord, and
otherwise on the terms, covenants and conditions contained in the
Lease. Landlord and Tenant expressly agree that the Offered
Terms, in any event, shall limit Landlord's liability for the
payment of a brokerage commission to any Tenant's broker to the
payment of the then current market expansion commission (i.e., a
commission equal to 50% of the then market commission payable to
outside brokers in connection with new leases of space in the
Building).
<PAGE>
If Tenant fails, refuses or is otherwise unable to commit to such
a lease within the three (3) business day period, Landlord shall
have the right to lease the Option Space to any third party or
parties on such terms as are acceptable to Landlord."
7. BROKERS. Tenant represents and warrants to Landlord that neither it
nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker, other than LaSalle Partners and Grubb & Ellis (the fees of
which shall be payable by Landlord) in the negotiation or making of this First
Amendment and Tenant agrees to indemnify and hold harmless Landlord from any and
all claims, liability, costs and expenses (including attorneys' fees) incurred
as a result of any inaccuracy in the foregoing representation and warranty.
8. FULL FORCE AND EFFECT: INCONSISTENCY. Except as otherwise expressly
set forth in this First Amendment, all provisions of the Lease shall remain in
full force and effect. In the event of any inconsistency between the terms of
the Lease and the terms of this First Amendment, the terms of this First
Amendment shall control.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the day and year first above written.
LANDLORD:
ERI-CP, INC., a Delaware corporation
By: LaSalle Advisors Limited,
Its duly authorized agent
By: ________________________
Name: ______________________
Title: _____________________
TENANT:
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
By: _______________________________
Name: Daniel H. Bushell
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT A
---------
UNITED STATIONERS SUPPLY CO.
----------------------------
1. DEFINITIONS. Terms which are defined in the Lease shall have the same
meanings when used in this Work Letter. In addition, the following terms shall
have the following meanings:
(a) "Space Plans" means plans, drawings, and specifications showing
the intended design, character, and finishes of the Tenant's Work in the Demised
Premises, including partition and door locations and storefront signs.
(b) "Systems Plans" means drawings, plans and specifications for the
mechanical, sprinkler, heating, air conditioning, electrical and plumbing
Systems to be installed by Tenant's contractors in the Demised Premises.
(c) "Tenant Improvement Plans" means the Space Plans and the Working
Plans.
(d) "Tenant's Work" means the work described in Paragraph 4 below.
(e) "Working Plans" means the final working plans and specifications
prepared by or for Tenant (including, without limitation, the Systems Plans) for
the work to be performed by Tenant in the Demised Premises, which Working Plans
shall contain sufficient detail and shall be otherwise suitable in all respects
for submission to the building department of the Village of Carol Stream to
obtain a building permit. Working Plans shall be consistent with the Space Plans
approved by Landlord.
(f) "Tenant's Contractors" means any contractor hired by Tenant and
any subcontractor hired by such contractor.
2. INTENTIONALLY OMITTED.
3. PREPARATION AND APPROVAL OF TENANT IMPROVEMENT PLANS.
(a) Tenant hereby agrees to cause to be prepared by a registered
architect or a space planner, and submitted to Landlord for landlord's review
and approval, the (i) Space Plans, and (ii) the Working Plans.
A-1
<PAGE>
(b) Within fifteen (15) business days after Landlord has received the
Space Plans and within twenty (20) business days after Landlord has received the
Working Plans, Landlord shall notify Tenant of Landlord's approval or
disapproval thereof, and in the event of disapproval, Landlord shall specify the
reasons for such disapproval. Tenant shall cause the Space Plans or the Working
Plans, as the case may be, to be revised and resubmitted to Landlord for
Landlord's review and approval within five (5) days after Landlord notifies
Tenant of disapproval thereof.
(c) Neither review nor approval by Landlord of the Space Plans or the
Working Plans shall constitute a representation or warranty by Landlord that any
of such plans either (i) are complete or suitable for their intended purpose, or
(ii) comply with applicable laws, ordinances, codes and regulations, it being
expressly agreed by Tenant that Landlord assumes no responsibility or liability
whatsoever to Tenant or to any other person or entity for such completeness,
suitability, or compliance.
(d) Once approved by Landlord, Tenant shall not make any material
changes, modifications or additions to the Tenant Improvement Plans without the
prior written consent of Landlord.
4. TENANT'S WORK.
(a) Tenant, at its sole cost and expense (but subject to the
application of the Tenant Allowance described in Paragraph 9 below) shall
perform all work in accordance with the Tenant Improvement Plans approved by
Landlord.
(b) All Tenant's Work shall be performed by contractors and suppliers
as are reasonably approved, in advance, in writing, by Landlord.
(c) Tenant hereby agrees to deliver to Landlord, within three (3)
days following the execution of the general contract for the Tenant's Work, a
true correct and complete copy of such general contract together with a total
project budget outlining the aggregate cost of all Tenant's Work to be performed
in the Demised Premises, all fees payable to Tenant's contractor for overhead,
general conditions and profit and all other hard and soft costs associated with
preparing the Demised Premises for Tenant's occupation thereof (other than
Tenant's furniture installation, phone installation and equipment installation)
(all of such costs are herein collectively referred to as "Tenant's Project
Cost").
5. PROCEDURE AND SCHEDULES FOR THE CONSTRUCTION OF TENANT'S WORK.
(a) GENERAL REQUIREMENTS.
At least five (5) days prior to the commencement of Tenant's Work
hereunder, Tenant shall submit to Landlord the following:
A-2
<PAGE>
(i) All required building and other permits.
(ii) A construction schedule setting forth, in detail, the
construction sequence of the various trades, furnishing and move-in
activities, which shall set forth, among other things, the estimated date
of completion of Tenant's Work.
(iii) Evidence that appropriate public utility companies have been
notified as necessary to provide service for construction and occupancy
purposes.
(iv) Tenant's general contractor's sworn statement in form
satisfactory to Landlord identifying by trade the names, addresses and
telephone numbers of each subcontractor and supplier.
(v) In addition to the foregoing, Tenant shall not permit
Tenant's Contractors to commence any work until Tenant has received
evidence of the following insurance covering Tenant's Contractors'
performance of the work:
(1) Workers' Compensation Insurance in compliance with law
and Employer's Liability Insurance in the minimum amount of Five
Hundred Thousand Dollars ($500,000.00) and as required under any
applicable employee benefit act or statute, as will protect
Tenant's Contractors from any and all liability under such acts.
(2) Commercial General Liability Insurance including
premises/operations liability, independent contractors'
liability, products and completed operations liability (to be
maintained in effect for two (2) years following completion and
acceptance of such contract work), contractual liability and
broad form property damage liability in a minimum amount of One
Million Dollars ($1,000,000) per occurrence, combined single
limit of bodily injury, personal injury or property damage with
annual aggregate of One Million Dollars ($1,000,000) for all such
occurrences.
(3) Commercial Automobile Liability Insurance covering the
ownership, operation, maintenance, use, loading and unloading of
any owned, non-owned and hired automobile in the amount of One
Million Dollars ($1,000,000) per occurrence of bodily injury or
property damage.
(4) Umbrella Liability Insurance providing limits in excess
of those limits indicated in 5.(a)(v)(l), (2) and (3) (except
Worker's Compensation Insurance) in the amount of Five Million
Dollars ($5,000,000) per occurrence, combined single limit for
bodily injury, personal injury and property damage.
A-3
<PAGE>
(5) Builder's Risk Insurance, written on a completed value
FORM, insuring against risks of direct physical loss or damage
excluding only standard perils, covering Tenant's Work and all
other improvements to the Demised Premises and all furniture,
trade fixtures, equipment, merchandise and all other items of
Tenant's property in the Demised Premises, in an amount not less
than the actual replacement cost of the work, and shall not
include a co-insurance provision of less than one hundred percent
(100%).
Tenant shall furnish the insurance to be provided by Tenant under Article F
of the Lease prior to the commencement of Tenant's Work, and shall furnish to
Landlord certificates evidencing the coverages required by this Paragraph, which
certificates shall state that such insurance coverage may not be changed or
cancelled without at least thirty (30) days' prior written notice to Landlord
and shall name as additional named insured parties (i) Landlord, (ii) the holder
of each mortgage encumbering the Demised Premises of which Landlord shall have
notified Tenant, and (iii) such other persons as Landlord may from time to time
designate. All insurance shall otherwise be in form and substance satisfactory
to Landlord.
(b) COMMENCEMENT OF CONSTRUCTION. Tenant shall commence
construction of Tenant's Work promptly following the approval of the Working
Plans and Tenant's receipt of Landlord's written notice to proceed with such
work.
6. REQUIREMENTS DURING PERFORMANCE OF TENANT'S WORK. Tenant shall
fully perform and comply with each of the following covenants, conditions and
requirements:
(a) Tenant and Tenant's agents, contractors, workmen, mechanics,
suppliers and invitees shall work in harmony and not interfere with Landlord and
Landlord's contractors in doing work for other tenants and occupants of the
Building.
(b) Tenant shall require all entities performing work on behalf
of Tenant to provide protection for existing improvements to an extent that is
reasonably satisfactory to Landlord and shall allow Landlord or its agent access
to the Demised Premises, for inspection purposes, at all times during the period
when Tenant is undertaking construction activities thereon. In the event any
entity performing work on behalf of Tenant causes any damage to the property of
Landlord or others, Tenant shall cause such damage to be repaired at Tenant's
expense and if Tenant fails to cause such damage to be repaired promptly upon
Landlord's demand therefor, Landlord, in addition to any other rights or
remedies available to Landlord under the Lease or at law or equity, may cause
such damage to be repaired, in which event Tenant, upon Landlord's demand, shall
promptly pay to Landlord the cost of such repairs.
(c) All contractors and subcontractors shall use only those entrances
designated by Landlord for ingress and egress of personnel and the delivery and
removal of equipment and material through or across any common areas shall only
be permitted with the written approval of Landlord and during hours determined
by Landlord. Construction equipment
A-4
<PAGE>
and materials are to be located in confined areas approved by Landlord and truck
traffic is to be routed to and from the Building as directed by Landlord so as
not to burden the operation of the Building. Landlord shall have the right to
order any contractor or subcontractor who violates the above requirements to
cease work and to immediately remove it, its equipment, and its employees from
the Buildings.
(d) Tenant shall be responsible for providing trash removal service.
Tenant shall cause each entity employed by it to perform work on the Demised
Premises to abide by the provisions of this Work Letter as to the storage of
trash and shall cause Tenant's general contractor to leave the Demised Premises
in a clean and safe condition at the end of each day. Should Landlord deem it
necessary to remove Tenant's trash because of accumulation, an additional charge
to Tenant will be on a time and material basis.
(e) Tenant agrees that all services and work performed on the Demised
Premises by, on behalf of, or for the account of Tenant, shall be done in a
first-class workmanlike manner using only good grades of material and shall be
performed only by bondable licensed contractors, covered by a collective
bargaining agreement with the appropriate trade union.
(f) Tenant agrees to protect, indemnify, defend and hold Landlord
harmless from and against any and all losses, damages, liabilities, claims,
liens, costs, and expenses, including reasonable attorney's fees of whatever
nature, including those to the person and property of Tenant, its employees,
agents, invitees, licensees and others arising out of or in connection with the
performance of Tenant's Work by Tenant or Tenant's contractors in or about the
Demised Premises, the Building, and the cost of any repairs to the Demised
Premises, necessitated by activities of Tenant or Tenant's Contractors.
(g) Following any material default by Tenant hereunder, Landlord
shall have the right (but not the obligation) to perform on behalf of and for
the account of Tenant, subject to reimbursement by Tenant, any of Tenant's Work
which Landlord determines shall be so performed, provided that Landlord notifies
Tenant at the time Landlord approves the Tenant Improvement Plans of any such
work to be performed by Landlord. The cost to Landlord of any Tenant's Work
performed or supplied to Tenant by Landlord shall become due and payable within
five (5) business days after Tenant has been invoiced for same by Landlord.
8. COMPLETION DELIVERIES. Within five (5) business days after the
substantial completion of the Tenant's Work, Tenant shall deliver to Landlord
the following (collectively, the "Closing Deliveries"):
(a) An Architect's Certificate, in form and substance satisfactory to
Landlord, certifying that the Tenant's Work is in place and has been performed
in accordance with the approved Working Plans;
A-5
<PAGE>
(b) A detailed breakdown, in a farm and substance satisfactory to
Landlord, of the final and total costs of Tenant's Work prepared by Tenant and
its Contractor(s), together with receipted invoices showing payment thereof;
subject to any punch list matters;
(c) Original waivers of lien and contractor's affidavits in such form
as may be required by Landlord, from all parties performing labor or supplying
materials in connection with Tenant's Work and sworn statements and long form
affidavits and waivers from Tenant's architect, engineer and contractors and any
other party with whom Tenant contracted directly for labor or materials
furnished Tenant in or for the Demised Premises;
(d) Copies of all warranties for workmanship, materials and equipment
received by Tenant from manufacturers and/or installers in connection with
Tenant's Work;
(e) "As-built" drawings of all improvements, certified by the
appropriate architect or engineer, and information regarding any special
requirements for cleaning the improvements completed on behalf of Tenant;
(f) Information with regard to any special security systems installed
by Tenant;
(g) An Estoppel Certificate in the form and substance reasonably
satisfactory to the parties;
(h) Such other supporting documentation as Landlord may reasonably
require.
9. TENANT ALLOWANCE. (a) Provided that Tenant has obtained Landlord's
approval of the Tenant Improvement Plans as provided above and has completed
Tenant's Work prior to July 1, 1997 ("Tenant's Work Completion Date"), Tenant
shall be entitled to an allowance (the "Tenant Allowance") to be applied toward
Tenant's costs incurred in the performance of the Tenant's Work in an amount up
to $20,000.00.
(b) Landlord shall disburse the Tenant Allowance to Tenant within
thirty (30) days of Landlord's receipt of all of the Closing Deliveries
described in Paragraph 8 above. Notwithstanding the foregoing, Landlord shall
reimburse Tenant out of the Tenant Allowance for costs incurred by Tenant for
the preparation of the Tenant Improvement Plans within thirty (30)'days
following Landlord's receipt from Tenant of paid invoices evidencing to
Landlord's reasonable satisfaction such costs.
(c) Notwithstanding anything contained herein to the contrary,
provided that the "hard costs" of Tenant's Work shall not be less than
$10,000.00, if Tenant does not timely use the entire amount of the Tenant
Allowance for the purposes stated above, then any excess thereof (not to exceed
$10,000.00) shall be applied and credited to Fixed Rent first becoming due after
Tenant's Work Completion Date.
A-6
<PAGE>
10. MISCELLANEOUS.
(a) Tenant hereby appoints Otis H. Halleen as Tenant's representative
in connection with the matters set forth in this Work Letter and such person has
and shall have full authority and responsibility to act on behalf of Tenant and
to make all decisions and determinations as may be necessary or desirable in
connection with preparing the Demised Premises for the operation of Tenant's
business therein. Tenant shall inform Landlord in writing of any change in
Tenant's representative.
(b) Tenant's obligation to pay Fixed Rent and Additional Rent with
respect to the Demised Premises during the Extended Term shall commence on June
1, 1997 irrespective of the status of completion of the Tenant's Work.
(c) This Work Letter shall not be deemed applicable to any additional
space added to the original Demised Premises at any time or from time to time or
to any portion of the original Demised Premises or any additions thereto in the
event of a renewal or extension of the initial term of the Lease unless
expressly so provided in the Lease or any amendment or supplement thereto signed
by both Landlord and Tenant.
(d) The failure by Tenant to pay any monies due Landlord pursuant to
this Work Letter within the time period herein stated shall deemed an Event of
Default under the terms of the Lease for which Landlord shall be entitled to
exercise all remedies available to Landlord for nonpayment of rent. All late
payments shall be subject to a service charge pursuant to Articles Q-16 and Q-17
of the Lease.
(e) This Work Letter is expressly made a part of the Lease and is
subject to each and every term and condition thereof, including, without
limitation, the limitations on liability set forth therein.
(f) Tenant shall be solely responsible to determine at the site all
dimensions of the Demised Premises and the Building in which the Demised
Premises are located which affect any work to be performed by Tenant hereunder.
A-7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Work Letter as of the
23rd day of January, 1997.
LANDLORD:
ERI-CP, INC., a Delaware corporation
By: LaSalle Advisors Limited,
Its duly authorized agent
By: _____________________
Name: K. C. Woodrow
Title: Managing Director
TENANT:
UNITED STATIONERS SUPPLY CO.,
an Illinois corporation
By: _______________________________
Name: Daniel H. Bushell
Title: Executive Vice President and
Chief Financial Officer
A-8
<PAGE>
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (this "Amendment") is made as of this 3RD day
of December, 1996 by and between KEYSTONE - OHIO PROPERTY HOLDING CORP., an
Ohio corporation (successor to MLH INCOME REALTY PARTNFRSHIP V) having an
address at c/o RREEF Management Company, 2218 Dividend Drive, Columbus, Ohio
43228 ("Landlord") and UNITED STATIONERS SUPPLY CO. (successor to Associated
Stationers, Inc.), an Illinois corporation having an address at 2200 East Golf
Road, Des Plaines, Illinois 60016 ("Tenant").
WITNESSETH:
WHEREAS, Westbelt Business Park Joint Venture, as predecessor-in-interest to
Landlord, and Boise Cascade Corporation, as predecessor-in-interest to Tenant,
entered into a Lease Agreement dated May 10, 1984, as amended by an Amendment to
Lease dated September, 1985, a Second Amendment to Lease dated as of March 19,
1986, a Renewal of Lease dated May 23, 1989 and a Third Amendment to Lease dated
as of August 11, 1994 (collectively, as amendcd, the "Lease") with respect to
certain premises consisting of approximately 126,665 square feet of space (the
"Leased Premises") in the building (the "Building") located at 1634 Westbelt
Drive, Columbus, Ohio, as more particularly described in the Lease; and
WHEREAS, Landlord and Tenant desire to amend the Lease with respect to (i)
the addition to the Leased Premises of certain premises in the building located
at 1622 Westbelt Drive (the "Expansion Building") consisting of approximately
45,000 rentable square feet of space as more particularly shown on Exhibit "A"
attached hereto and made a part hereof (the "Expansion Space") and (ii) as
otherwise provided in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree as follows:
1. NO CONFLICTS WITH LEASE. The provisions of this Amendment shall
supersede any inconsistent provisions contained in the Lease, whether such
inconsistent provisions are contained in the printed portion of the Lease or any
addendum, rider or exhibit annexed thereto. All capitalized items not otherwise
defined herein shall have the respective meanings ascribed to them iii the
Lease.
2. EXPANSION SPACE. Effective from and after January 2, 1997, the
Lease shall be amended so that (i) the Leased Premises shall be increased by the
Expansion Space, (ii) the term "leased premises" as used in the Lease shall be
stipulated to include the Expansion Space and (iii) Exhibit "A" of the Lease
shall be amended by adding Exhibit "A" annexed hereto and made a part hereof.
3. BASE RENT. Effective from and after January 2, 1997, Tenant shall
pay base rent on the Expansion Space (in addition to all other rent payable
pursuant to the Lease) as follows:
Annual Monthly
Period Base Rental Base Rental PSF
------ ----------- ----------- ---
1/2/97-8/31/97 $90,000.00 $7,500.00 $2.00
9/1/97-8/31/99 $128,250.00 $10,687.50 $2.85
<PAGE>
4. OPERATING EXPENSES. As provided in Paragraph 3(e) of the Lease,
Tenant shall pay its pro rata share of all operating expense for the
Building; provided, however, that, in the ease of the Expansion Space,
Tenant's pro rata share and the operating expenses shall be determined with
reference to the Expansion Building, not the Building.
5. CONDITION OF THE LEASED PREMISES. Landlord agrees to provide the
following improvements to the Expansion Space prior to its delivery to Tenant.
a. Additional metal halide lighting to result in a lighting level
consistent with existing premises;
b. Separate service panel for Expansion Space;
c. Demising wall at south end of Expansion Space;
d. Two additional six-foot, manual levelers at location selected by
Tenant;
e. Dock shelters in good condition for all loading doors; and
f. HVAC, plumbing and electrical building systems in good working order
and condition.
Otherwise, Tenant acknowledges and agrees that it shall accepting possession of
the Expansion Space in its present "as-is" condition as suitable for Tenant's
intended use and occupancy thereof. Tenant's occupancy of the Expansion Space
shall be conclusive proof that same has been so accepted by Tenant, is in
satisfactory condition arid complies fully with Landlord's covenants and
obligations. Tenant acknowledges that Landlord shall have no obligation to
perform any tenant improvement work of any kind in connection with Tenant's
occupancy of the Expansion Space, except as specifically set forth herein, and
Tenant, at Tenant's sole cost and expense, shall perform all necessary or
desirable work in connection with preparing the Expansion Space for its
occupancy.
6. EXTENSION OPTION. The Extension Option stated in Paragraph 7 of the
Third Amendment shall apply to the Expansion Space as well and is hereby
reaffirmed in its entirety.
7. RIGHT OF FIRST REFUSAL. Paragraph 8 of the Third Amendment regarding a
right of first refusal is hereby deleted in its entirety.
8. EXCULPATION. Notwithstanding anything contained in the Lease to the
contrary, Tenant agrees that it shall look solely to the estate and property of
the Landlord in the land and building comprising the Building of which the
Leased Premises are a part for the collection of any judgment (or any other
Judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants and
conditions of this Lease to be observed and performed by Landlord and no other
property or estates of Landlord or any of its trustees, board of directors,
officers, investment managers, beneficiaries, agents, employees, partners
(general or limited), affiliates, shareholders or joint venturers shall be
subject to levy, execution or other enforcement procedures for the satisfaction
of Tenant's remedies. In the event of any sale of the Building or a lease
thereof by Landlord, Landlord shall be entirely freed, relieved and released of
all covenants and obligations of Landlord hereunder.
9. NO AGREEMENT UNTIL EXECUTED. This Amendment shall not constitute an
agreement by Landlord and shall not be binding upon Landlord unless and until
this Amendment shall be executed by Landlord and Tenant, and shall be delivered
by Landlord to Tenant.
10. BINDING EFFECT. This Amendment shall not be changed orally, and shall
be binding upon and inure to the benefit of Landlord arid Tenant, their
respective heirs, successors and, as permitted their assigns. Tenant hereby
confirms that it has assumed the performance of all of the terms, covenants and
conditions of the Lease and agrees to perform all of the terms, covenants and
conditions of the Lease with the same effect as though Tenant had executed the
Lease as the tenant originally named therein.
11. INCORPORATION. Except as herein expressly amended or modified the
terms and
<PAGE>
conditions of the Lease are hereby ratified and confirmed and shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date first written above.
LANDLORD:
KEYSTONE-OHIO PROPERTY HOLDING CORP.
an Ohio corporation
By: RREEF MANAGEMENT COMPANY,
a California corporation
WITNESS/ATTEST:
(Printed Name) By:
Title:
Date:
TENANT:
UNITED STATIONERS SUPPLY CO.
WITNESS:
By:
Name:
(Printed Name)
Title:
<PAGE>
EXHIBIT "A"
EXPANSION SPACE
Exhibit A is intended only to show the general Iayout of the Premises as of the
beginning of the Term of this Lease. It does not in any way supersede any of
Landlord's rights set forth in Section 17.2 with respect to arrangements and/or
locations of publIc parts of the Building and changes in such arrangements
and/or locations. It is not to be scaled, any measurements or distances shown
should he taken as approximate.
LEASED PREMISES APPROXIMATELY 45,000 Square Feet
<PAGE>
Amendment No.2 to Agreement of Lease
Between
THE ESTATE OF JAMES CAMPBELL, DECEASED
Landlord
and
UNITED STATIONERS SUPPLY CO.
Tenant
This Amendment No. 2 is to that certain Agreement of Lease dated as of January
5, 1994, and to that certain Amendment No. 1 to Agreement of Lease dated October
4, 1994, between THE ESTATE OF JAMES CAMPBELL, DECEASED (The "Landlord"), and
UNITED STATIONERS SUPPLY CO., ("Tenant"), having its address at 2200 East Golf
Road, Des Plaines, IL 60016-1267 (the "Lease").
Landlord and Tenant desire to amend the Lease. In consideration of the mutual
covenants contained here, it is agreed:
1. ARTICLE 1 OF THE LEASE.
The defined terms Fixed Rent and Term set forth in Article 1
of the Lease are amended as follows:
FIXED RENT. - Commencing April 1, 1997 the Fixed Rent shall increase
to $25,851.96 per month, triple net, through March 31,
1998. Commencing April 1, 1998 the Fixed Rent shall
increase to $26,701.87 per month, triple net, through
March 31, 1999.
TERM - April 1, 1997, to March 31, 1999.
2. Tenant accepts Premises in "as is" condition.
3. RENT ABATEMENT - Base rent shall be abated for the month of April 1997.
4. Except as amended herein, the Lease is ratified and affirmed.
Dated this 1st day of February, 1997
LANDLORD:
THE TRUSTEES UNDER THE WILL AND
OF THE ESTATE OF JAMES CAMPBELL,
DECEASED, acting in their fiduciary and not
in their individual capacities
By:
By:
TENANT:
UNITED STATIONERS SUPPLY CO.
By:
Its EVP/CFO
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
On this 6th day February, 1997, before me, a Notary Public in and for the
State of Illinois, duly commissioned and sworn, personally appeared DANIEL H.
BUSHELL, known to me to be the Executive Vice President and Chief Financial
Officer of United Stationers Supply Co., an Illinois corporation and the
corporation named in and which executed the foregoing instrument, and he
acknowledged to me that he signed the same as the free and voluntary act and
deed of said corporation for the uses and purposes therein mentioned.
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on the document.
WITNESS my hand and official seal the day and year in this certificate above
written.
Print Name
NOTARY PUBLIC in and for the State of Illinois
My commission expires 4/21/97.
<PAGE>
ACORD Certificate of Insurance
Issue Date: August 19, 1997
Producer:
Mesirow Insurance Services
321 N. Clark Street, Suite 1200
Chicago, IL 60610
Insured:
United Stationers Supply
United Stationers Inc.
2200 East Golf Road
Des Plaines, IL 60016-1267
This certificate is issued as a matter of information only and confers no rights
upon the certificate holder. This certificate does not amend, extend or alter
the coverage afforded by the policies below.
Coverages:
This is to certify that the policies of insurance listed below have been issued
to the insured named above for the policy period indicated, notwithstanding any
requirement, term or condition of any contract or other document with respect to
which this certificate may be issued or may pertain, the insurance afforded by
the policies described herein is subject to all the terms, exclusions and
conditions of such policies. Limits shown may have been reduced by paid claims.
Companies affording coverage:
A. FEDERAL INSURANCE COMPANY
Type of Insurance: Directors & Officers Liability
Policy Number: 81460332
Policy Effective Date: 3/30/96
Policy Expiration Date: 4/01/97
Limits: $5,000,000 In Excess of $250,000 Deductible
B. ILLINOIS NATIONAL INSURANCE COMPANY
Type of Insurance: Excess Directors & Officers Liability
Policy Number: 4828657
Policy Effective Date: 3/30/96
Policy Expiration Date: 4/01/97
Limits: $5,000,000 in Excess of $5 million
<PAGE>
C. GREAT AMERICAN INSURANCE COMPANY
Type of Insurance: Excess Directors & Officers Liability
Policy Number: DFX0009370
Policy Effective Date: 3/30/96
Policy Expiration Date: 4/01/97
Limits: $15,000,000 in Excess of $10 million
Description of operations/locations/vehicles/special items:
None
Certificate Holder:
United Stationers Inc.
2200 East Golf Road
Des Plaines, IL 60016
Cancellation:
Should any of the above described policies be canceled before the expiration
date thereof, the issuing company will endeavor to mail ____ days written notice
to the certificate holder named to the left, but failure to mail such notice
shall impose no obligation or liability of any kind upon the company, its agents
or representatives.
Authorized Representative:
James C. Styer
<PAGE>
ACORD Certificate of Insurance
Issue Date: August 19, 1997
Producer:
Mesirow Insurance Services
321 N. Clark Street, Suite 1200
Chicago, IL 60610
Insured:
United Stationers Supply
United Stationers Inc.
2200 East Golf Road
Des Plaines, IL 60016-1267
This certificate is issued as a matter of information only and confers no rights
upon the certificate holder. This certificate does not amend, extend or alter
the coverage afforded by the policies below.
Coverages:
This is to certify that the policies of insurance listed below have been issued
to the insured named above for the policy period indicated, notwithstanding any
requirement, term or condition of any contract or other document with respect to
which this certificate may be issued or may pertain, the insurance afforded by
the policies described herein is subject to all the terms, exclusions and
conditions of such policies. Limits shown may have been reduced by paid claims.
Companies affording coverage:
A. FEDERAL INSURANCE COMPANY
Type of Insurance: Directors & Officers Liability
Policy Number: 81460332
Policy Effective Date: 4/01/97
Policy Expiration Date: 4/01/98
Limits: $10,000,000
$250,000 Deductible
B. GREAT AMERICAN INSURANCE COMPANY
Type of Insurance: Excess Directors & Officers Liability
Policy Number: DFX0009370
Policy Effective Date: 4/01/97
Policy Expiration Date: 4/01/98
Limits: $15,000,000
<PAGE>
Description of operations/locations/vehicles/special items:
None
Certificate Holder:
United Stationers Inc.
2200 East Golf Road
Des Plaines, IL 60016
Cancellation:
Should any of the above described policies be canceled before the expiration
date thereof, the issuing company will endeavor to mail ____ days written notice
to the certificate holder named to the left, but failure to mail such notice
shall impose no obligation or liability of any kind upon the company, its agents
or representatives.
Authorized Representative:
James C. Styer
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made and entered into as of the 23rd day of May, 1997 by and
among United Stationers Inc., a Delaware corporation (the "Parent"), United
Stationers Supply Co., an Illinois corporation ("Supply", and together with the
Parent and their successors and assigns permitted under this Agreement, the
"Company"), and Randall W. Larrimore (the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. DEFINITIONS.
(a) "Base Salary" shall mean the Executive's base salary as specified
under Section 4 below.
(b) "Board" shall mean the Board of Directors of the Parent.
(c) "Cause" shall mean the Executive's:
(1) conviction of, or plea of NOLO CONTENDERE to, a felony;
(2) theft or embezzlement, or attempted theft or embezzlement,
of money or property or assets of the Company or any of its
affiliates;
(3) use of illegal drugs;
(4) material breach of this Agreement;
(5) commission of any act or acts of moral turpitude in
violation of Company policy;
(6) breach of Section 3 of this Agreement or gross negligence or
willful misconduct in the performance of his duties; or
(7) breach of any fiduciary duty owed to the Company, including,
without limitation, engaging in directly competitive acts
while employed by the Company.
(d) "Change in Control" shall mean the first to occur of the
following events:
<PAGE>
(1) any "person" (as such term is used in Sections 3(a) (9) and
13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or group of persons becomes a
"beneficial owner" (as such term is used in Rule 13d-3 of
the Exchange Act) of 40 percent or more of the Voting Stock
of the Parent;
(2) the majority of the Board consists of individuals other than
Incumbent Directors;
(3) the Parent adopts any plan of liquidation providing for the
distribution of all or substantially all of its assets, or
the Parent or Supply adopts any plan of liquidation
providing for the distribution of all or substantially all
of the assets of the Parent and its Subsidiaries taken as a
whole; PROVIDED, HOWEVER, that the adoption of such plan of
liquidation is not in conjunction with a merger of Supply
with and into the Parent;
(4) the sale or other disposition of all or substantially all of
the assets or business of the Parent and its Subsidiaries
taken as a whole; PROVIDED, HOWEVER, that the shareholders
of the Parent immediately prior to such sale or disposition,
do not beneficially own, directly or indirectly, in
substantially the same proportion as they owned the Voting
Stock of the Parent prior to the sale or disposition, all of
the Voting Stock or other ownership interests of the entity
or entities, if any, that succeed to the business of the
Parent; or
(5) the merger or consolidation of the Parent with or into
another company (the "Other Company"); PROVIDED, HOWEVER,
that immediately after the merger or consolidation, the
shareholders of the Parent immediately prior to the merger
or consolidation hold, directly or indirectly, 50 percent or
less of the Voting Stock of the surviving corporation (there
being excluded from the number of shares held by such
shareholders, but not from the Voting Stock of the surviving
corporation, any shares received by any "affiliate" (as such
term is defined under Rule 12b-2 of the Exchange Act) of the
Other Company in exchange for stock of the Other Company) -
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Common Stock" shall mean the common stock, $.10 par value per
share, of the Parent.
(g) "Disability" or "Disabled" shall mean a disability as determined
under the Company's long-term disability plan or program as in effect on the
date the disability first occurs, or if no such plan or program exists on the
date the disability first occurs, then a "disability" as defined under Code
Section 22 (e) (3).
<PAGE>
(h) "Effective Date" shall mean May 23, 1997.
(i) "Good Reason" shall mean the occurrence of any of the
following, without the Executive's prior written consent, during the 90-day
period preceding the date on which the Executive terminates his employment with
the Company:
(1) the reduction of the Executive's Base Salary as specified
under Section 4 below;
(2) the exclusion of the Executive from, or diminution in the
Executive's participation in, any pension, bonus, management
incentive, profit sharing and other similar incentive,
compensation or deferred compensation plans made available
generally to senior management personnel of the Company,
other than exclusions, changes or diminutions applicable to
all senior management personnel;
(3) any diminution in expense reimbursement benefits enjoyed by
the Executive, except pursuant to a general change in the
Company's reimbursement policies;
(4) any material reduction in the Executive's title or duties
which has the effect of materially reducing the Executive's
status within the Company, including, without limitation,
removal of the Executive from the Board or the failure to
re-elect the Executive to the Board;
(5) any relocation of the Company's headquarters outside of the
Chicago metropolitan area;
(6) the breach by the Company of any of its covenants or
obligations under this Agreement; or
(7) the notification by the Company in accordance with Section 2
below that the Term of Employment will end on the 2nd
anniversary of the Section 2 Notification Date.
(j) "Incumbent Directors" shall mean the members of the Board as
of the Effective Date; PROVIDED, HOWEVER, that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by 2/3rds of the directors who then comprised the Incumbent Directors shall be
considered to be an Incumbent Director.
(k) "Section 2 Notification Date" shall mean the date as specified in
Section 2.
(l) "Subsidiary" shall mean any corporation of which the Parent owns,
directly or indirectly, more than 50 percent of the Voting Stock or any other
business entity in which the Parent directly or indirectly has an ownership
interest of more than 50 percent.
(m) "Target Award" shall mean the Executive's annual incentive
compensation award opportunity as specified under Section 5 below.
<PAGE>
(n) "Term of Employment" shall mean the period as specified under
Section 2 below.
(o) "Voting Stock" shall mean the capital stock of any class or
classes having general voting power under ordinary circumstances, in the absence
of contingencies, to elect the directors of a corporation.
2. TERM OF EMPLOYMENT.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the Term of Employment, which shall begin on the
Effective Date and shall end on (i) the end of the 90-day period following the
date on which the Executive notifies the Company in writing in accordance with
Section 25 below that he wants the Term of Employment to so end or (ii) the 2nd
anniversary of the date on which the Company notifies the Executive in writing
in accordance with Section 25 below that it wants the Term of Employment to so
end. The date that the Executive or the Company notifies the other Party under
this Section 2 shall be referred to herein as a "Section 2 Notification Date."
Notwithstanding anything contained herein to the contrary, the Term of
Employment is subject to earlier termination in accordance with Section 12
below.
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) On the Effective Date and continuing for the remainder of the
Term of Employment, the Executive shall be employed as the Chief Executive
Officer and President of the Company and shall be responsible for the general
management of the affairs of the Company. The Executive shall serve the Company
faithfully, conscientiously and to the best of the Executive's ability and shall
promote the interests and reputation of the Company. Unless prevented by
sickness or Disability, the Executive shall devote substantially all of the
Executive's time, attention, knowledge, energy and skills during normal working
hours and at such other times as the Executive's duties may reasonably require
to the duties of the Executive's employment. The Executive, in carrying out his
duties under this Agreement, shall report to the Board. In addition, it is the
intention of the Parties that effective on or about the Effective Date and
continuing for the remainder of the Term of Employment, the Executive shall be
elected and serve as a member of the Board.
(b) Notwithstanding anything contained herein to the contrary,
nothing shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable number of
other corporations or the boards of a reasonable number of
trade associations and/or charitable organizations, subject
to the Board's prior written consent (which shall not be
unreasonably withheld);
(2) engaging in charitable activities and community affairs; and
(3) managing his personal investments and affairs;
PROVIDED, HOWEVER, that such activities do not materially interfere with the
proper performance of his duties and responsibilities as the Company's Chief
Executive Officer and President.
<PAGE>
4. BASE SALARY
The Executive shall be paid a Base Salary at no less than an annual
rate of $495,000, payable in accordance with the regular payroll practices of
the Company. The Base Salary shall be reviewed by the Board no less frequently
than annually and may, in the Board's sole discretion, be increased when deemed
appropriate.
5. ANNUAL INCENTIVE COMPENSATION PROGRAMS.
The Executive shall participate in the Company's annual incentive
compensation plans or programs applicable to senior-level executives as
established and modified from time to time by the Board in its sole discretion.
The Executive shall have an annual incentive compensation award opportunity in
the aggregate under all such plans or programs equal to 80 percent of the Base
Salary paid during the relevant performance period ("Target Award"). The actual
annual incentive compensation award paid to the Executive under this Section 5
shall have a payout in an amount ranging from a minimum of 50 percent of the
Target Award to a maximum of 150 percent of the Target Award. The performance
targets with respect to the Target Award shall be set by the Board and shall be
consistent with the performance targets established for the Company's executive
vice presidents with respect to their annual incentive compensation award
opportunities. Payment of the annual incentive compensation award under this
Section 5 shall be made at the same time that other senior-level executives
receive their annual incentive compensation awards. Notwithstanding anything
contained herein to the contrary, with respect to the annual incentive
compensation award payable to the Executive for 1997 (the "1997 Award"), the
1997 Award shall be reduced by 40 percent to reflect the period of calendar year
1997 that the Executive was not an employee of the Company.
6. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
(a) The Executive shall be eligible to participate in the Company's
applicable long-term incentive compensation plans or programs as may be
established and modified from time to time by the Board in its sole discretion.
(b) Notwithstanding anything contained herein to the contrary, the
Company shall grant the Executive options to purchase 250,000 shares of Common
Stock (the "Options") on the Effective Date (the "Date of Grant") . The Options
shall be divided into 3 tranches ("Tranche 1," "Tranche 2," and "Tranche 3").
The Parties intend that Tranche 1 shall qualify as an "incentive stock option"
as such term is used under Code Section 422.
(1) EXERCISE PRICE. The exercise price of the Options shall be
$21.625.
(2) NUMBER OF SHARES OF COMMON STOCK UNDERLYING EACH TRANCHE.
The number of shares of Common Stock underlying Tranche 1
shall be 23,000 shares. The number of shares of Cannon Stock
underlying Tranche 2 shall be 127,000 shares. The number of
shares of Common Stock underlying Tranche 3 shall be 100,000
shares -
(3) EXPIRATION OF OPTIONS. The Options shall expire on, and
shall not
<PAGE>
be exercisable on and after the 10th anniversary of
the Date of Grant, subject to earlier expiration in
accordance with Section 12 below.
(4) EXERCISABILITY SCHEDULE OF TRANCHES 1 AND 2. No portion of
each of Tranche 1 and Tranche 2 shall be exercisable on the
Date of Grant, but 20 percent of each of Tranche 1 and
Tranche 2 shall become exercisable on, and shall remain
exercisable on and after, each of the first 5 anniversaries
of the Date of Grant, subject to the Options' expiration in
accordance with this Section 6(b) and Section 12 below.
(5) EXERCISABILITY SCHEDULE OF TRANCHE 3. No portion of Tranche
3 shall be exercisable on the Date of Grant, but 20 percent
of Tranche 3 shall become exercisable on each of the first 5
anniversaries of the date of grant; PROVIDED, HOWEVER, that
the daily closing price of the Common Stock has been equal
to or greater than $40.00 for at least 80 of 100 consecutive
trading days since the Date of Grant. Notwithstanding
anything contained herein to the contrary, even if the daily
closing price of the Common Stock has never been equal to or
greater than $40.00 for at least 80 of 100 consecutive
trading days prior to December 31, 2006, 100 percent of
Tranche 3 shall nevertheless become exercisable on December
31, 2006 and shall remain exercisable until the Options'
expiration in accordance with this Section 6(b) and Section
12 below.
(c) Notwithstanding anything contained herein to the contrary, on the
date of a Change in Control, all stock options (including all tranches of the
Options) held by the Executive on such date shall immediately become exercisable
and shall remain exercisable until the date such stock options are scheduled to
expire, subject to earlier expiration in accordance with Section 12 below.
7. EMPLOYEE BENEFIT PROGRAMS.
During the Term of Employment, the Executive shall be entitled to
participate, 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 Section 7 shall not be construed to
require the Company to establish or maintain any plan, program or policy. With
respect to the Executive's participation in any Company health plan, any and all
exclusions with respect to pre-existing medical conditions relating to the
Executive and his dependents shall be waived under such plans. Also, with
respect to the Executive's participation in the Company's Retiree Health Plan,
the Executive shall be deemed to have accrued 5 credited years of service. In
addition, the Executive shall be 100 percent vested in all employee
contributions and earnings thereon made to the United Stationers Inc. 401(k)
Savings Plan.
8. SUPPLEMENTAL PENSION.
The Executive shall be entitled to a supplemental pension benefit
(the
<PAGE>
"Supplemental Pension") in addition to the pension benefit he will receive
under the United Stationers Supply Co. Pension Plan (the "Pension Plan"). The
Supplemental Pension shall be determined in accordance with the formula under
the Pension Plan as in effect on the date of this Agreement, adjusted for any
subsequent changes; PROVIDED, HOWEVER, that for purposes of the determination of
the Supplemental Pension, Credited Service (as such term is defined in Section
2.3(e) of the Pension Plan) shall be equal to 5 years regardless of the
Executive's actual Credited Service. The Supplemental Pension shall be paid at
the same time and in the same manner as when and how the pension benefit under
the Pension Plan is paid to the Executive. In addition, except as otherwise
provided in this Section 8, the Executive's entitlements to the Supplemental
Pension, including without limitation any survivor benefit, claims procedures,
methods of payment, etc. shall be determined in accordance with the provisions
of the Pension Plan.
9. REIMBURSEMENT OF BUSINESS EXPENSES
The Executive is authorized to incur reasonable business expenses
in carrying out his duties and responsibilities under this Agreement, and the
Company shall reimburse him for all such reasonable business expenses reasonably
incurred in connection with carrying out the business of the Company, subject to
documentation in accordance with the Company's policy.
10. PERQUISITES.
(a) During the Term of Employment, the Executive shall be entitled to
participate in the Company's executive fringe benefits applicable to the
Company's senior-level executives in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything contained herein to the contrary,
during the Term of Employment, the Company shall:
(1) pay the dues and assessment fees and any business expenses
associated with the Executive's membership in the Indian
Hill Club (whether under the Company's Club Membership
Policy or otherwise);
(2) provide the Executive with personal financial (including
tax) counseling by a firm to be chosen by the Executive;
PROVIDED, HOWEVER, that the normal annual costs associated
with this perquisite shall not exceed $5,000 per year unless
the Company approves in writing the payment of any such
annual costs exceeding $5,000 per year due to special
situations;
(3) provide the Executive with an appropriate leased automobile
to be selected by the Executive, in accordance with the
Company's Officers' Leased Automobile Policy; and
(4) reimburse the Executive for all premium payments made by him
with respect to any individual long-term disability
insurance policy owned by him; PROVIDED, HOWEVER, that such
reimbursement shall not exceed $12,568 in any calendar year.
<PAGE>
(c) The Parties agree that the Executive shall be liable for any and
all federal, state and local income and employment taxes resulting from the
perquisites provided under this Section 10.
11. VACATION.
The Executive shall be entitled to 20 paid vacation days per calendar
year which shall accrue and otherwise be subject to the Company's vacation
policy.
12. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT DUE TO DEATH. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of his
death;
(2) all annual incentive compensation awards with respect to any
year prior to the year of his death which have been earned
but not paid;
(3) an amount equal to the sum of (i) the Base Salary in effect
on the date of the Executive's death and (ii) if the
Executive's death occurs (x) on or after January 1, 1998,
then the annual incentive compensation award paid or payable
with respect to the year immediately preceding the year in
which the Executive's death occurs or (y) prior to January
1, 1998, then 60 percent of the 1997 Award that would have
been paid in accordance with Section 5 above, payable over
the 12-month period following the date of the Executive's
death in equal installments in accordance with the Company's
regular payroll practice;
(4) the exercisable portion of the Options held by the Executive
as of the date of his death shall remain exercisable until
the earlier of (i) the end of the 1-year period following
the date of the Executive's death or (ii) the date the
Options would otherwise expire, and the unexercisable
portion of the Options held by the Executive as of such date
shall immediately be forfeited;
(5) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 7, 8, 9, 10 or 11 above; and
(6) such other or additional benefits, if any, as may be
provided under applicable plans, programs and/or
arrangements of the Company.
(b) TERMINATION OF EMPLOYMENT FLUE TO DISABILITY. If the
Executive's employment is terminated due to Disability during the Term of
Employment, either by the Company or by the Executive, the Term of Employment
shall end as of the date of the termination of the Executive's employment and
the Executive shall be entitled to the following:
<PAGE>
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) all annual incentive compensation awards with respect to any
year prior to the year of the termination of the Executive's
employment which have been earned but not paid;
(3) an amount equal to the sum of (i) the Base Salary in effect
on the date of the termination of the Executive's employment
and (ii) the annual incentive compensation award paid or
payable with respect to the year immediately preceding the
year in which the termination of the Executive's employment
occurs, payable over the 12-month period following the date
of the termination of the Executive's employment in equal
installments in accordance with the Company's regular
payroll practice;
(4) the exercisable portion of the Options held by the Executive
as of the date of the termination of his employment shall
remain exercisable until the earlier of (i) the end of the
1-year period following the date of the termination of his
employment or (ii) the date the Options would otherwise
expire, and the unexercisable portion of the options held by
the Executive as of such date shall immediately be
forfeited;
(5) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 7, 8, 9, 10 or 11 above; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company
In no event shall a termination of the Executive's employment for Disability
occur unless the Party terminating the Executive's employment gives written
notice to the other Party in accordance with Section 25 below
(c) TERMINATION OF EMPLOYMENT BY THE COMPANY FOR CAUSE. If the
Company terminates the Executive's employment for Cause during the Term of
Employment, the Term of Employment shall end as of the date of the termination
of the Executive's employment for Cause and the Executive shall be entitled to
the following:
(1) Base Salary earned but not paid prior to the date of the
termination of his employment;
(2) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 7, 8, 9, 10 or 11 above; and
(3) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
Any termination of the Executive's employment by the Company for Cause under
this Section 12 Cc) shall be communicated by the Company to the Executive by a
written notice of termination given in accordance with Section 25 below. Such
notice shall (i) indicate the
<PAGE>
specific termination provision of this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the date of the termination of the
Executive's employment is other than the date of receipt of such notice, specify
the date of termination of the Executive's employment (which date shall be not
more than 90 days after the giving of such notice). The failure by the Company
to set forth in such notice any fact or circumstance which contributes to a
showing of Cause shall not waive any right of the Company hereunder or preclude
the Company from asserting such fact or circumstance in enforcing the Company's
rights hereunder.
(d) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE PRIOR TO A SECTION 2
NOTIFICATION DATE. If, prior to a Section 2 Notification Date, the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Term of Employment shall end as of the date of
the termination of the Executive's employment and the Executive shall be
entitled to the following:
(1) Base Salary earned but not paid prior to the date of the
termination of his employment;
(2) all annual incentive compensation awards with respect to any
year prior to the year in which the termination of the
Executive's employment occurs which have been earned but not
paid;
(3) a pro rata Target Award for the year in which the
termination of the Executive's employment occurs; PROVIDED,
HOWEVER, that the Target Award's performance goals
established with respect to the year in which the
termination of the Executive's employment occurs are met;
(4) an amount equal to (i) 2 multiplied by (ii) the sum of (x)
the Base Salary with respect to the year in which the
termination of his employment occurs and (y) the Target
Award with respect to the year in which the termination of
his employment occurs, (the "Severance Benefit"). The
Severance Benefit shall be payable over the 24-month period
following the date of the termination of his employment (the
"Severance Period") in equal installments in accordance with
the Company's regular payroll practice;
(5) the exercisable portion of the Options held by the Executive
as of the date of the termination of his employment shall
remain exercisable until the earlier of (i) the end of the
Severance Period or (ii) the date the options would
otherwise expire;
(6) the unexercisable portion of:
(A) Tranche 1,
(B) Tranche 2, and/or
(C) provided that the daily closing price of the Common
Stock has been equal to or greater than $40.00 for at
least 80 of
<PAGE>
100 consecutive trading days since the Date of Grant and
prior to the date of the termination of the Executive's
employment, Tranche 3,
held by the Executive as of the date of the
termination of his employment shall continue to
become exercisable until the end of the Severance
Period as if the Executive were still an employee,
and any such portion of Tranches 1, 2 and/or 3 that
becomes exercisable during the Severance period shall
remain exercisable until the earlier of (i) the end
of the Severance Period or (ii) the date the options
would otherwise expire;
(7) if (x) the termination of the Executive's employment
under this Section 12(d) occurs during any
100-consecutive-trading-day period following the date
that the daily closing price of the Common Stock is equal
to or greater than $40.00 (a "100-Day Period") and (y)
during any such 100-Day Period the daily closing price of
the Common Stock has not been equal to nor greater than
$40.00 for at least 80 of such 100 consecutive trading
days, then the unexercisable portion of Tranche 3 held by
the Executive as of the date of the termination of his
employment shall be forfeited by the Executive as of such
date; and if (A) the termination of the Executive's
employment under this Section 12(d) occurs during any
100-Day Period and (B) during such 100-Day Period the
daily closing price of the Common Stock has been equal to
or greater than $40.00 for at least 80 of such 100
consecutive trading days, then the unexercisable portion
of Tranche 3 held by the Executive as of the date of the
termination of his employment shall continue to become
exercisable as if he were still an employee of the
Company, and any such portion of Tranche 3 that becomes
exercisable during the Severance Period shall remain
exercisable until the earlier of (i) the end of the
Severance Period or (ii) the date the options would
otherwise expire;
(8) continuation of the lease with respect to the automobile
provided by the Company in accordance with Section 10(b) (3)
above until the earlier of (i) the end of the Severance
Period or (ii) the date such lease would otherwise expire;
(9) continuation of all perquisites provided by the Company to
the Executive under Section l0 above, other than
reimbursement of the club business expense portion of
Section 10(b)(1) above, until the end of the Severance
Period;
(10) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 7, 8, 9, 10 or 11 above;
(11) continued participation, as if he were still an employee, in
the Company's medical, dental, hospitalization, life and
disability insurance plans, programs and/or arrangements and
in other employee benefit plans, programs and/or
arrangements in which
<PAGE>
he was participating on the date of the termination of his
employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans, programs and/or arrangements
of a Subsequent employer (such coverage and benefits to
be determined on a coverage-by-coverage or
benefit-by-benefit basis)
PROVIDED, HOWEVER, that:
(X) if the Executive is precluded from continuing his
participation in any employee benefit plan, program or
arrangement as provided in Section 12(d)(11)(A)
above, he shall be provided with the after-tax economic
equivalent of the benefits provided under the plan,
program or arrangement in which he is unable to
participate for the period specified in this Section
12(d)(11);
(Y) the economic equivalent of any benefit foregone shall
be deemed to be the lowest cost that would be incurred
by the Executive in obtaining such benefit himself on
an individual basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(12) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
Notwithstanding anything contained herein to the contrary, the Board, in its
sole discretion, may accelerate the exercisability of some or all of such
unexercisable portion of Tranche 1, Tranche 2 and/or Tranche 3 on the date of
the termination of the Executive's employment or at any time during the
Severance Period.
(e) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE ON OR AFTER A
SECTION 2 NOTIFICATION DATE. If, on or after a Section 2 Notification Date on
which the Company notifies the Executive that the Term of Employment will end in
accordance with Section 2 above, the Executive's employment is terminated by the
Company without Cause, other than due to death or Disability, the Term of
Employment shall end as of the date of the termination of the Executive's
employment and the Executive shall be entitled to the same payments and benefits
as provided in Section 12(d) above; PROVIDED, HOWEVER, that:
(1) for purposes of determining benefits and entitlements under
Sections 12 (d) (3) through 12 (d) (11) above, the Severance
Period shall begin on the date of the termination of the
Executive's employment and shall end on the 2nd anniversary
of the Section 2 Notification Date (the "Section 12 (e)
Severance Period"); and
<PAGE>
(2) for purposes of determining the Severance Benefit payable
under Section 12 (d) (3) above, the Severance Benefit as
determined in accordance with Section 12 (d) (3) above shall
be multiplied by a fraction the numerator of which shall be
the number of days in the Section 12 (e) Severance Period
and the denominator of which shall be 130, and such reduced
Severance Benefit shall be payable over the Section 22 (e)
Severance Period in equal installments in accordance with
the Company's regular payroll practice.
(f} TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON. The
Executive may terminate his employment for Good Reason at the end of the 60-day
period following the date that the Executive notifies the Company in writing in
accordance with Section 25 below that he intends to terminate his employment for
Good Reason (the "Notification Date"), such notice to state in detail the
particular event that constitutes Good Reason. The Company shall have
reasonable opportunity to cure the event constituting Good Reason; PROVIDED,
HOWEVER, that if the Company has not cured such event to the reasonable
satisfaction of the Executive (and the Executive has not waived the Company's
failure to cure) during the 30-day period following the Notification Date (the
"Curing Period"), the Executive may terminate his employment following the end
of the Curing Period; PROVIDED, HOWEVER, that the Executive may not terminate
his employment for Good Reason after the end of the 90-day period following the
date the event constituting Good Reason first occurs. Upon a termination by the
Executive of his employment for Good Reason, the Term of Employment shall end as
of the date of the termination of the Executive's employment and the Executive
shall be entitled to the same payments and benefits as provided in Section 12(d)
or 12(e) above, as applicable; PROVIDED, HOWEVER, that if the Executive
terminates his employment for Good Reason based on a reduction (i) in Base
Salary under Section (1)(i)(1) above and/or (ii) in his Target Award under
Section (1)(i) (2) above, then the Base Salary and/or the Target Award to be
used in determining the Severance Benefits in accordance with Section 12 (d) (3)
or 12 (e) (2) above shall be the Base Salary and/or the Target Award in effect
immediately prior to such reduction.
(g) VOLUNTARY TERMINATION OF EMPLOYMENT BY THE EXECUTIVE WITHOUT GOOD
REASON. If the Executive voluntarily terminates his employment without Good
Reason, other than a termination of his employment due to death or Disability,
the Executive shall be entitled to the same payments and benefits as provided in
Section 12(c) above. If the Executive notifies the Company in accordance with
Section 2 above that he wants the Term of Employment to end at the end of the
90-day period following such Section 2 Notification Date, and the Executive
terminates his employment as of the end of the Term of Employment, the
termination of the Executive's employment under this Section 12(g) shall not be
deemed a breach of this Agreement.
(h) REDUCTION OF PAYMENTS FOLLOWING A CHANGE IN CONTROL.
Notwithstanding anything contained herein to the contrary, if any amounts due to
the Executive under this Agreement and any other plan or program of the Company
constitute a "parachute payment" (as such term is defined in Code Section
280G(b) (2)), and the amount of the parachute payment, reduced by all federal,
state and local taxes applicable thereto, including the excise tax imposed
pursuant to Code Section 4999, is less than the amount the Executive would
receive if he were paid 3 times his "base amount" (as such term is defined in
Code Section 280G(b) (3)) less $1.00, reduced by all federal, state and local
taxes applicable thereto, then the aggregate of the amounts constituting the
parachute payment shall be reduced to an amount that will equal 3 times the
Executive's base amount less $1.00. The determinations to be made
<PAGE>
with respect to this Section 12(h) shall be made by an accounting firm (the
Auditor") jointly selected by the Company and the Executive and paid by the
Company. The Auditor shall be a nationally recognized United States public
accounting firm that has not during the two years preceding the date of its
selection acted, in any way, on behalf of the Company or any of its
subsidiaries. If the Executive and the Company cannot agree on the firm to
serve as the Auditor, then each shall each select one such accounting firm and
those two firms shall jointly select such an accounting firm to serve as the
Auditor. If a determination is made by the Auditor that a reduction in the
aggregate of all payments due to the Executive upon a Change in Control is
required by this Section 12 (h), the Executive shall have the right to specify
the portion of such reduction, if any, that will be made under this Agreement
and each plan or program of the Company. If the Executive does not so specify
within 60 days following the date of a determination by the Auditor pursuant to
the preceding sentence, the Company shall determine, in its sole discretion, the
portion of such reduction, if any, to be made under this Agreement and each plan
or program of the Company.
(i) CONTINUED HEALTH-CARE COVERAGE TO AGE 65. In the event of
any termination of the Executive's employment under Sections 12(b), 12(d), 12(e)
or 12 (f), the Executive shall be entitled to continued health-care coverage for
himself and his eligible dependents under the Company's "group health plan" (as
such term is defined in Code Section 4980B(g) (2)) as in effect from time to
time but subject to any limitations on coverage of nonemployees and their
dependents imposed under the terms of such group health plan or by any insurers
or partial insurers of such group health plan (other than such limitations
imposed unilaterally and in bad faith by the Company). The Executive shall be
entitled to such health-care coverage until his 65th birthday; the Executive's
spouse shall be entitled to such health-care coverage until her 65th birthday;
and each of the Executive's eligible dependents shall be entitled to such
health-care coverage until his or her 21st birthday. Unless the Company is
obligated to provide continued health-care coverage in accordance with Section
12(d) (11) above, the Executive shall pay to the Company on an annual basis in
advance the cost of such continued health-care coverage, with such cost to be
equal to the annual "applicable premium" (as such term is used under Code
Section 4980B (f) (4)) as determined in good faith by the Company.
(j) NO MITIGATION: NO OFFSET. In the event of any termination of the
Executive's employment under this Section 12, the Executive shall be under no
obligation to seek other employment and there shall be no offset against amounts
due to the Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that he may obtain except as
specifically provided in this Section 12.
13. CONFIDENTIALITY.
(a) CONFIDENTIAL INFORMATION. The Executive acknowledges the
Company's exclusive ownership of all information useful in the business of the
Company, its subsidiaries and its affiliates (as used in this Section 13 and
Section 14 below, collectively, the "COMPANY") (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
the Executive as a consequence of his employment by the Company (including
information conceived, discovered or developed by the Executive during his
employment with the Company) (collectively, "Confidential Information") .
Confidential Information includes, but is not limited to, the following
especially sensitive types of information:
<PAGE>
(1) the identity, purchase and payment patterns of, and special
relations with, the Company's customers;
(2) the identity, net prices and credit terms of, and special
relations with, the Company's suppliers;
(3) the Company's inventory selection and management techniques;
(4) the Company's product development and marketing plans; and
(5) the Company's finances, except to the extent publicly
disclosed.
(b) PROPRIETARY MATERIALS. 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, 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 the
Executive or with the Executive's assistance and all notes, memoranda and the
like prepared using the Proprietary Materials and/or Confidential Information.
(c) ACKNOWLEDGEMENTS BY EXECUTIVE. While some of the information
contained in Proprietary Materials may have been known to the Executive prior to
employment with the Company, or may now or in the future be in the public
domain, the Executive 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 the Executive, a competitive advantage over persons who do
not know the information or have the compilation of the Proprietary Materials.
The Executive further acknowledges that Confidential Information and Proprietary
Materials include commercially valuable trade secrets and automatically become
the Company' 5 exclusive property when they are conceived, created or received.
The Executive shall report to the Company promptly, orally (or, at the Company's
request, in writing) all discoveries, inventions and improvements, whether or
not patentable, and which either (i) relate to or arise out of any part of the
Company's business in which the Executive participates, or (ii) incorporate or
make use of Confidential Information or Proprietary Materials (all items
referred to in this Section 13 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, the Executive (or after the Executive's
death, the Executive'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
<PAGE>
or desirable to protect the Company's ownership rights and Intellectual
Property.
(d) CONFIDENTIALITY DUTIES OF EXECUTIVE. The Executive shall,
except as may be required by law, during the Term of Employment and during the
3-year period following the date of the termination of the Executive's
employment:
(1) comply with all of the Company's reasonable instructions
(whether oral or written) for preserving the confidentiality
of Confidential Information and Proprietary Materials;
(2) use Confidential Information and Proprietary Materials only
at places designated by the Company and in furtherance of
the Company's business;
(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) not copy all or any part of Proprietary Materials, other
than in the course of carrying out the Executive's duties
and responsibilities under this Agreement;
(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, other than in the course of
carrying out the Executive's duties and responsibilities
under this Agreement;
(6) not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, other than in the
course of carrying out the Executive's duties and
responsibilities under this Agreement, all or any part of
Confidential Information or Proprietary Materials; and
(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.
(e) RETURN OF COMPANY PROPERTY. Upon the termination of the
Executive's employment under Section 12 above or upon the end of the Term of
Employment, the Executive (or in the event of death, the Executive'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 the Executive or others,
which are then in the Executive's possession or control. Records of payments
made by the Company to or for the benefit of the Executive, the Executive's copy
of this Agreement, his rolodexes, personal diaries, personal mementos, personal
effects shall not be deemed Proprietary Materials for purposes of this Section
13, and other such things, lawfully possessed by the Executive which relate
solely to taxes payable by the Executive, employee benefits due to the Executive
or the terms of the Executive's employment with the Company, shall also not be
deemed Proprietary Materials for purposes of this Section 13.
<PAGE>
14. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that during the Term of
Employment and during the 2-year period following the end of the Term of
Employment, the Executive 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 he 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 percent of the outstanding
shares of a corporation's stock which is listed on a national securities
exchange or the NASDAQ National Market) 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.
(b) The Executive covenants and agrees that during the Term of
Employment and during the 2-year period following the end of the Term of
Employment, the Executive shall not at any time, directly or indirectly, solicit
(i) any client or customer of the Company or any of its subsidiaries with
respect to a competitive activity which violates Section 14 (a) above or (ii)
any employee of the Company or any of its subsidiaries for the purpose of
causing such employee to terminate his or her employment with the Company or
such subsidiary.
(c) If the Executive 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.
(d) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) and/or Section 14 (b) above, the Company
shall not have an adequate remedy at law. Accordingly, in the event of any
breach or threatened breach of Section 14 (a) and/or Section 14(b) above, the
Company shall be entitled to such equitable and injunctive relief as may be
available to restrain the Executive and any business, firm, partnership,
individual, corporation or entity participating in the breach or threatened
breach from the violation of the provisions of Section 14 (a) and/or Section
14(b) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) and/or Section 14(b) above,
including the recovery of damages.
(e) The Executive recognizes, acknowledges and agrees 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, the
Executive hereby agrees and submits to the reduction of any such limitations to
such territory or time as to such court shall appear reasonable.
15. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors, heirs (in the case of the Executive) and assigns.
No rights or obligations of the Company under this Agreement may be assigned or
transferred by the Company except that such rights or obligations may be
assigned or transferred pursuant to a merger or consolidation in which the
Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; PROVIDED, HOWEVER, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or
<PAGE>
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law.
16. REPRESENTATION.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents and warrants
that no agreement exists between him and any other person, firm or organization
that would be violated by the performance of his obligations under this
Agreement.
17. ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement between
the Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
18. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
19. WITHHOLDING.
The Company shall be entitled to withhold from any and all payments
made to the Executive under this Agreement all federal, state, local and/or
other taxes or imposts which the Company determines are required to be so
withheld from such payments or by reason of any other payments made to or on
behalf of the Executive or for his benefit hereunder.
20. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
21. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
22. BENEFICIARIES/REFERENCES.
<PAGE>
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to the Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative.
23. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Illinois without reference to
principles of conflict of laws.
24. RESOLUTION OF DISPUTES.
Any disputes arising under or in connection with this Agreement may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in Chicago, Illinois in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the 2 arbitrators shall select a third
arbitrator who shall resolve the dispute. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Costs
of the arbitration shall be shared by the Parties, and all other costs, fees and
expenses, including, without limitation, attorneys' fees of each Party, shall be
borne by the Party incurring such cost, fee or expense.
25. NOTICES.
Any notice given to a Party shall be in writing and shall be deemed to
have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: United Stationers Inc.
United Stationers Supply Co.
2200 East Golf Road
Des Plaines, Illinois 60016
Attention: Chairman of the Board
with a copy to: United Stationers Supply Co.
2200 East Golf Road
Des Plaines, Illinois 60016
Attention: General Counsel
and a copy to: Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: Mary R. Korby, Esq.
and a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
<PAGE>
Attention: Stewart Reifler, Esq.
If to the Executive: Mr. Randall W. Larrimore
230 Sheridan Road
Winnetka, Illinois 60093-1929
and a copy to: McBride Baker & Coles
500 W. Madison
Chicago, IL 60661
Attention: Andrew R. Gelman
26. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or of
any provision of this Agreement.
27. COUNTERPARTS.
This Agreement may be executed in 2 or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
UNITED STATIONERS INC.
By:
Frederick B. Hegi, Jr.
Chairman of the Board
UNITED STATIONERS SUPPLY CO.
By:
Frederick B. Hegi, Jr.
Chairman of the Board
Randall W. Larrimore
<PAGE>
EXHIBIT A
TO EMPLOYMENT AGREEMENT
______________________
The following are benefit plans, programs and policies in which the
Executive is entitled to participate as of the Effective Date:
1. United Stationers Management Incentive Plan
2. United Stationers Inc. Management Equity Plan
3. United Stationers Supply Co. Pension Plan
4. United Stationers Inc. 401(k) Savings Plan
5. United Stationers Supply Co. Deferred Compensation Plan
6. United Stationers Inc. Flexible Spending Plan
7. United Group Medical and Dental Benefit Plans
8. Officer Medical Expense Reimbursement Policy
9. Retiree Health Plan
10. Annual physical exam at Company expense
11. Group Term Life Insurance - 2 1/2 times base salary
12. Travel and Accident Insurance - $300,000
13. Split Dollar Life Insurance
14. Club and Association Dues - in accordance with Company Policy
15. 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
<PAGE>
EXHIBIT 15.1
September 2, 1997
The Board of Directors
United Stationers Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-2) of United Stationers Inc. for the registration of 4,600,000 shares of
its common stock of our reports dated April 17, 1997 and July 25, 1997 relating
to the unaudited condensed consolidated interim financial statements of United
Stationers Inc. that are included in its Forms 10-Q for the quarters ended March
31, 1997 and June 30, 1997.
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to a) the references to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" in the Registration Statement (Form S-2)
and related Prospectus of United Stationers Inc. (the "Company") for the
registration of 4,600,000 shares of its common stock and b) the use therein and
the incorporation by reference therein of our reports dated January 28, 1997,
with respect to the consolidated financial statements and schedule of the
Company as of and for each of the years ended December 31, 1995 and 1996, and
dated June 27, 1995, with respect to the consolidated financial statements and
schedule of United Stationers Inc. (prior to its merger with Associated
Holdings, Inc.) for the seven months ended March 30, 1995, which are included in
the Company's Annual Report (Form 10-K) for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
September 2, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of a) our report dated October 6, 1994 with respect to
the consolidated financial statements and schedule of United Stationers Inc. for
the year ended August 31, 1994 and b) our report dated January 23, 1995 with
respect to the consolidated financial statements and schedule of Associated
Holdings, Inc. for the year ended December 31, 1994, and to the reference to our
Firm under the caption "Experts" in this registration statement.
Arthur Andersen LLP
Chicago, Illinois
September 2, 1997
