<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1997
REGISTRATION NO. 333-34937
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER
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(4)..................... 1,115,663 -- --
<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(3)
Warrants to purchase Common Stock(4)..................... --
</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) Previously paid on September 4, 1997 in connection with the initial filing
of the registration statement.
(4) 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 274,872 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 OCTOBER 2, 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 30, 1997,
the last reported sale price of the Common Stock was $37.75 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
BANCAMERICA ROBERTSON STEPHENS
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 approximately
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)...... 14,469,174 shares
Use of Proceeds............................................ To repay certain
outstanding indebtedness.
See "Use of Proceeds."
Nasdaq National Market symbol.............................. USTR
</TABLE>
- --------------------------
(1) Includes 665,514 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 175,277 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 29, 1997 after giving
effect to the sale and exercise of the Warrants. Does not include: (i)
2,617,120 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) 395,384 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 $37.50 per share, the
Company would recognize a charge equal to $58.0 million ($34.5 million net of
tax benefit of $23.5 million) or approximately $2.00 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 $3.6 million ($2.1 million net of tax benefit of $1.5 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...................................... $ 51,095
Net income............................................ 35,778
Preferred stock dividends issued and accrued.......... --
Net income attributable to common stockholders........ 35,778
Net income per common and common equivalent share..... 2.11
Weighted average shares outstanding (in thousands).... 16,928
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...................................... $ 25,390
Net income............................................ 21,746
Preferred stock dividends issued and accrued.......... --
Net income attributable to common stockholders........ 21,746
Net income per common and common equivalent share..... 1.29
Weighted average shares outstanding (in thousands).... 16,869
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 $ 380,066
Total assets............................................................... 1,039,125 1,035,507
Total debt and capital lease(10)........................................... 518,966 476,548
Redeemable preferred stock................................................. 20,702 --
Redeemable warrants........................................................ 30,996 --
Total stockholders' equity................................................. 87,704 205,622
</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 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 $13.3 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) $476.5 million of long-term indebtedness (including current
maturities) and $205.6 million of total stockholders' equity, and (ii) long-term
indebtedness to total stockholders' equity ratio of 2.3 to 1.0. See
"Capitalization."
The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
potential acquisition opportunities, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness; (iii) the Company may be more vulnerable to
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 $43.1 million in net proceeds from the sale of an aggregate of
1,210,437 shares of Common Stock offered hereby ($50.5 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 33.3%,
9.9% and 0.9%, respectively, of the outstanding shares of Common Stock (29.8%,
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 14,469,174 shares of Common Stock outstanding, and 758,994 shares of
Nonvoting Common Stock outstanding. In addition, 395,384 shares will be issuable
upon exercise of outstanding Warrants, and 2,617,120 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 7,149,458
shares (not including 388,473 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 7,319,716 of the
remaining shares (7,065,795 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 388,473 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 of USSC (which term includes
the control 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 $37.50 and after deducting applicable underwriting discounts
and estimated expenses payable by the Company) are estimated to be approximately
$71.3 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 $13.3
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...................................................... $ 38 1/4 $
<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 30, 1997, the last reported sale price of the Common Stock as
quoted on the Nasdaq National Market was $37.75 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 $37.50 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.............................................................. 161,000 181,922
Term loan facilities................................................................... 152,238 138,898
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.................................. 495,252 452,834
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
14,287,097 shares issued and outstanding (as adjusted) (1)(2).......................... 1,429
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)..................................................... 45,046 204,763
Retained earnings...................................................................... 41,505 (578)
---------- -----------
Total stockholders' equity......................................................... 87,704 205,622
---------- -----------
Total capitalization (including current portion of long-term debt and capital lease
obligation)...................................................................... $ 658,338 $ 682,170
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Lender Warrants (redeemable warrants) exercisable for an aggregate of
665,514 shares of Common Stock and Preferred B Warrants exercisable for an
aggregate of 175,277 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) 2,617,120 shares of Common Stock issuable upon exercise
of Employee Stock Options, (ii) 1,236,175 shares (395,384 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 (388,473 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 $37.50) 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 $58.0 million ($34.5
million net of tax benefit of $23.5 million) or approximately $2.00 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 $3.6 million ($2.1 million net of tax benefit of $1.5
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 $37.50. 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," "--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 (3,618 (a) 24,627
------------ ------------ ------------
Total assets................................................... $ 1,039,125 $ (3,618) $ 1,035,507
------------ ------------ ------------
------------ ------------ ------------
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................................................. 97,887 981(b) 98,868
Accrued income taxes............................................. 12,860 (4,047 (c) 8,813
------------ ------------ ------------
Total current liabilities...................................... 353,660 (3,066) 350,594
Deferred income taxes.............................................. 37,318 (24,384 (d) 12,934
Long-term obligations:
Long-term debt................................................... 495,014 (42,418 (e) 452,596
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)............................................ 1,145 284(h) 1,429
Nonvoting common stock........................................... 8 -- 8
Capital in excess of par value................................... 45,046 159,717(i) 204,763
Retained earnings................................................ 41,505 (42,083 (j) (578)
------------ ------------ ------------
Total stockholders' equity..................................... 87,704 117,918 205,622
------------ ------------ ------------
Total liabilities and stockholders' equity..................... $ 1,039,125 $ (3,618) $ 1,035,507
------------ ------------ ------------
------------ ------------ ------------
</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 (6,361)(k) 51,095
------------ ----------- ------------
Income before income taxes......................................... 55,548 6,361 61,909
Income taxes....................................................... 23,555 2,576(l) 26,131
------------ ----------- ------------
Net income......................................................... 31,993 3,785 35,778
Preferred stock dividends issued and accrued....................... 1,744 (1,744)(m) --
------------ ----------- ------------
Net income attributable to common shareholders..................... $ 30,249 $ 5,529 $ 35,778
------------ ----------- ------------
------------ ----------- ------------
Net income per common and common equivalent share.................. $ 2.03 $ 2.11
------------ ------------
------------ ------------
Weighted average shares outstanding (in thousands)................. 14,923 16,928
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 (3,138)(k) 25,390
------------ ----------- ------------
Income before income taxes........................................... 34,514 3,138 37,652
Income taxes......................................................... 14,635 1,271(l) 15,906
------------ ----------- ------------
Net income........................................................... 19,879 1,867 21,746
Preferred stock dividends issued and accrued......................... 917 (917)(m) --
------------ ----------- ------------
Net income attributable to common shareholders....................... $ 18,962 $ 2,784 $ 21,746
------------ ----------- ------------
------------ ----------- ------------
Net income per common and common equivalent share.................... $ 1.28 $ 1.29
------------ ------------
------------ ------------
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
$37.50 per share.
(2) The Pro Forma Balance Sheet reflects a noncash charge of approximately
$60.2 million ($35.8 million net of tax benefit of $24.4 million) or
approximately $2.12 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 $37.50. 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...................... $ (1,060)
Adjustment to accrued compensation expense relating to
Merger Incentive Options............................. 2,041
-------------
$ 981
-------------
-------------
(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...................... 13,340
Proceeds from the exercise of Warrants................. 93
Redemption of all outstanding Preferred Stock.......... (21,015)
-------------
$ 42,418
-------------
-------------
(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.......... 67
Adjustment due to exercise of Preferred B Warrants..... 17
-------------
$ 284
-------------
-------------
(i) Issuance of shares of Common Stock by the Company in
conjunction with the Offering (net of underwriting
discounts and commissions)........................... $ 71,050
Adjustment to additional paid in capital for
Offering-related fees................................ (475)
Adjustment due to exercise of Lender Warrants.......... 16,738
Adjustment due to exercise of Preferred B Warrants..... 9
Adjustment due to termination of the put feature of the
remaining Lender Warrants............................ 14,228
Adjustment to Merger Incentive Options (see (2)
above)............................................... 58,167
-------------
$ 159,717
-------------
-------------
(j) Adjustment for compensation expense relating to Merger
Incentive Options (net of tax benefit of $24,384).... $ (35,824)
Adjustment due to loss on early retirement of debt (net
of tax benefit of $4,047)............................ (5,946)
Accrual of Preferred Stock dividends................... (313)
-------------
$ (42,083)
-------------
-------------
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 per share 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 $37.50 and Merger Incentive
Options that will become exercisable upon the occurrence of a Vesting Event, the
Company would recognize a nonrecurring noncash charge of $58.0 million in
compensation expense ($34.5 million net of tax benefit of $23.5 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
27
<PAGE>
for informational purposes only and is not necessarily indicative of either
financial position or results of operations in the future, or that would have
occurred had the events described in the 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
28
<PAGE>
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.
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.
29
<PAGE>
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.
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).
30
<PAGE>
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%.
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,
31
<PAGE>
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.
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, thereby 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 24% 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 37 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. Certain of the Company's trademarks 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 consecutive three-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........... 41 Vice President, Investor Relations
Otis H. Halleen.............. 63 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
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. 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, and Assistant Secretary of the Company from June 27,
1995 to May 8, 1996. 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 Company, a manufacturer and distributor of baby
seats and other juvenile 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.
47
<PAGE>
Following the termination of certain 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.
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 will be selling Warrants to the Underwriters in connection with the
Offering representing an aggregate of 840,791 shares of Common Stock. See
"Principal and Selling Stockholders" and "Underwriting."
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
48
<PAGE>
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 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 $43.1 million ($50.5 million if the
Underwriters' over-allotment option is exercised in full) of the $71.3 million
($92.6 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).
49
<PAGE>
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
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. Mr. Hewson exercised this option in September 1997.
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
50
<PAGE>
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 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.
In December 1996, the Company adopted the 1997 Special Bonus Plan (the
"Special Bonus Plan"). The special bonuses are payable to the participants in
two equal annual installments, beginning on the first anniversary of the date of
a liquidity event. The aggregate amount that may be awarded to the 177 current
participants in the Special Bonus Plan is approximately $2.0 million. Messrs.
Rowsey, Bushell and Schwarz each are eligible to receive, in the aggregate, up
to $130,000 and Mr. Uskup is eligible to receive, in the aggregate, up to
$65,000 under the Special Bonus Plan.
In July 1997, in connection with the negotiation of the executive vice
president employment agreements discussed below, the Company and each of Messrs.
Rowsey, Bushell and Schwarz entered into amendments to their respective stock
option agreements under the Company's Management Equity Plan. The amendments
revise the terms of exercisability of such options following a termination of
such employee without Cause or such employee's termination for Good Reason (each
as defined in such employee's respective employment agreement).
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. In addition, Mr. Larrimore is entitled to reimbursement of premiums
paid on long-term disability insurance up to a specified amount. Finally, 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 generally 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
generally will receive an amount equal to his annual salary plus bonus, his
51
<PAGE>
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
generally 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 generally is entitled to a severance amount
(subject to mitigation) equal to the sum of his base salary and bonuses for 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 29, 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% 1,210,437 4,835,386 33.3%
750 N. St. Paul Street
Suite 1200
Dallas, TX 75201
ASI Partners, L.P. ......................................... 1,799,588(4) 15.5 360,296 1,439,292 9.9
9441 LBJ Freeway
Suite 300
Dallas, TX 75243
Cumberland Capital Corporation ............................. 1,799,588(4) 15.5 360,296 1,439,292 9.9
9441 LBJ Freeway
Suite 300
Dallas, TX 75243
Chase Manhattan Investment Holdings, L.P. .................. 1,235,061(5) 9.6 247,272 987,789 6.7
380 Madison Avenue
New York, NY 10017
Farallon Partners, LLC ..................................... 841,508(6) 7.2 -- 841,508 5.8
One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Daniel H. Bushell........................................... 228,737(7) 1.9 3,912 224,825 1.5
Kathleen S. Dvorak.......................................... 15,040(8) * -- 15,040 *
Daniel J. Good.............................................. 257,943(9) 2.2 124,499 133,444 *
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 * 3,838 15,333 *
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) 9.4 142,249 1,025,837 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 of Nonvoting Common Stock 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 174,413 shares owned indirectly by Farallon Capital Management,
LLC as investment advisor to certain discretionary accounts and 667,095
shares owned indirectly by Farallon Partners, LLC as general partner of the
following partnerships: (i) 299,028 shares owned by Farallon Capital
Partners, L.P., (ii) 229,366 shares owned by Farallon Capital Institutional
Partners, L.P., (iii) 71,032 shares owned by Farallon Capital Institutional
Partners II, L.P., (iv) 27,202 shares owned by Farallon Capital
Institutional Partners III, L.P., and (v) 40,467 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 held 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 Wingate Affiliates and Wingate Affiliates II and 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.................................... 4,491,164 899,178 3,591,986 24.8%
Wingate Partners II, L.P................................. 1,451,153 290,536 1,160,617 8.0
Wingate Affiliates, L.P.................................. 77,957 15,608 62,349 *
Wingate Affiliates II, L.P............................... 25,549 5,115 20,434 *
PAT Investments.......................................... 2,385 477 1,908 *
James A. Johnson(2)...................................... 19,171 3,838 15,333 *
Jay I. Applebaum......................................... 6,291 1,259 5,032 *
ASI Partners, L.P........................................ 1,430,401 286,381 1,144,020 7.9
ASI Partners II, L.P..................................... 156,304 31,294 125,010 *
ASI Partners III, L.P.................................... 58,757 11,764 46,993 *
Cumberland Capital Corporation........................... 154,125 30,857 123,268 *
Daniel J. Good........................................... 204,918 71,475 133,443 *
Julie Good Mora Grantor Trust............................ 26,512 26,512 -- *
Laura Good Stathos Grantor Trust......................... 26,512 26,512 -- *
Chase Manhattan Investment Holdings, L.P................. 1,235,061 247,272 987,789 6.4
Daniel H. Bushell(3)..................................... 228,737 3,912 224,825 1.5
John D. Kennedy(3)....................................... 70,845 782 70,063 *
Lawrence E. Miller(2)(3)................................. 151,633 12,391 139,242 *
Michael D. Rowsey(2)(3).................................. 299,063 10,000 289,063 2.0
William R. Bazant........................................ 12,461 2,495 9,966 *
Theresa K. Blake(2)...................................... 7,930 1,587 6,343 *
Robert Deiters(2)........................................ 16,426 3,289 13,137 *
William Figurelli........................................ 12,461 2,495 9,966 *
James Lyon............................................... 1,133 227 906 *
Rudy Mayo(2)(3).......................................... 36,426 3,289 33,137 *
Paul Pisarski(2)(3)...................................... 36,426 3,289 33,137 *
Thomas Trost(2).......................................... 16,426 3,289 13,137 *
Cheryl Zupke(2)(3)....................................... 7,930 1,588 6,342 *
Craig Zupke(3)........................................... 36,426 3,289 33,137 *
</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 29, 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
14,469,174 shares of Common Stock. In addition, 395,384 shares of Common Stock
will be issuable upon exercise of outstanding Warrants and 2,617,120 shares will
be issuable upon exercise of Employee Stock Options. Of the shares of Common
Stock that will be outstanding after this Offering, 7,149,458 shares (not
including 388,473 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 7,319,716 shares of
Common Stock held by existing stockholders and 6,912 shares issuable upon the
exercise of Preferred B Warrants 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 (144,692 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, 7,319,716 shares (7,065,795 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 1,147,466 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" agreement, (c) as a distribution to limited partners or
stockholders of the undersigned, provided that the
56
<PAGE>
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 Nonvoting Common Stock. Of the authorized shares of
capital stock, 11,628,383 shares of Common Stock and 758,994 shares of Nonvoting
Common Stock were outstanding as of September 29, 1997. No shares of preferred
stock were outstanding as of September 29, 1997. Employee Stock Options
exercisable for an aggregate of 2,617,120 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 purchase price of $7.0 million. On
September 2, 1997, the Company completed the redemption of all
57
<PAGE>
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
388,473 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 Company's
repurchase right under the Lender Warrants will terminate upon consummation of
the Offering.
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 $6.5 million 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 $6.5 million 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 6,912 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
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<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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<PAGE>
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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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, 1997
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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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, BancAmerica
Robertson Stephens 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..........................................
BancAmerica Robertson Stephens.............................................
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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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, 840,791 shares
(1,115,663 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 (including 274,872 shares of
Common Stock issuable upon exercise of Warrants to be transferred to the
Underwriters by certain Selling Stockholders pursuant to such option) 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.
With respect to any Warrants, the consideration payable upon exercise of such
option shall also deduct the applicable Warrant exercise price, as described in
the preceding paragraph. 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 (and Warrants) 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 the Representatives, 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,
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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 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.
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<PAGE>
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 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; and
3. The Company's Current Report on Form 8-K dated May 27, 1997.
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..................................................... 67
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
BANCAMERICA ROBERTSON STEPHENS 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.
<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission..................... $ 47,742
Filing and Listing Fee--National Association of Securities Dealers,
Inc............................................................... 33,755
Fees and Expenses of Accountants................................... 180,000
Fees and Expenses of Legal Counsel................................. 85,000
Printing and Engraving Expenses.................................... 115,500
Blue Sky Fees and Expenses......................................... 5,000
Fees of Transfer Agent and Registrar............................... 5,000
Miscellaneous Expenses............................................. 3,003
---------
Total.......................................................... 475,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Charter and Restated Bylaws of the Company provide for the
indemnification of directors and officers to the fullest extent permitted by the
General Corporation Law of the State of Delaware ("DGCL"). Pursuant to the
provisions of Section 145 of the DGCL, the Company has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company against any and all
expenses, judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification is not available if such person has been adjudged to have
been liable to the Company, unless and only to the extent the court in which
such action was brought determines that, despite the adjudication of liability,
but in view of all the circumstances, the person is reasonably and fairly
entitled to indemnification for such expenses as the court shall deem proper.
The Company has the power to purchase and maintain insurance for such persons.
The statutes also expressly provide that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise.
The above discussion of the Charter and Restated Bylaws of the Company and
of Section 145 of the DGCL is not intended to be exhaustive and is qualified in
its entirety by such Charter and Restated Bylaws of the Company and the DGCL.
The Company also carries director and officer liability insurance policies.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or
II-1
<PAGE>
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).
10.12 -- Indenture, dated as of May 3, 1995, among USSC, the Company and The Bank
of New York(1).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
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).
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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
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.**
10.98 -- Amendments to Stock Option Grants, dated as of June 1, 1997, between the
Company 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.*
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
(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 Amendment No. 1 to
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
October 1, 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>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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>
FREDERICK B. HEGI, JR.*
- ------------------------------ Chairman of the Board October 1, 1997
Frederick B. Hegi, Jr.
President and Chief
RANDALL W. LARRIMORE* Executive Officer of the
- ------------------------------ Company (principal October 1, 1997
Randall W. Larrimore executive officer of the
Company)
Executive Vice President
/s/ DANIEL H. BUSHELL Chief Financial Officer
- ------------------------------ and Assistant Secretary October 1, 1997
Daniel H. Bushell (principal financial and
accounting officer)
DANIEL J. GOOD*
- ------------------------------ Director October 1, 1997
Daniel J. Good
JAMES A. JOHNSON*
- ------------------------------ Director October 1, 1997
James A. Johnson
GARY G. MILLER*
- ------------------------------ Director October 1, 1997
Gary G. Miller
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
MICHAEL D. ROWSEY*
- ------------------------------ Director October 1, 1997
Michael D. Rowsey
JOEL D. SPUNGIN*
- ------------------------------ Director October 1, 1997
Joel D. Spungin
</TABLE>
Daniel H. Bushell, by signing his name hereto, does sign and execute this
Amendment No. 1 to this Registration Statement on behalf of each of the
above-named officers and directors of the Registrant on this 1st day of October,
1997, pursuant to powers of attorney executed by each of such officers and
directors and previously filed with the Securities and Exchange Commission.
<TABLE>
<S> <C>
*By: /s/ DANIEL H. BUSHELL
------------------------------------
Daniel H. Bushell
ATTORNEY-IN-FACT
</TABLE>
II-12
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ASSOCIATED HOLDINGS, INC.
INTO
UNITED STATIONERS INC.
(PURSUANT TO SECTION 253 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
Associated Holdings, Inc., a corporation incorporated on the 30th day of
January, 1992, pursuant to the provisions of the General Corporation Law of the
State of Delaware (the "Corporation"), does hereby certify that the Corporation
owns at least ninety percent (90%) of the outstanding Common Stock, $0.10 par
value, of United Stationers Inc., a corporation incorporated on the 18th day of
August, 1981, pursuant to the General Corporation Law of the State of Delaware
("USI"), having no other class of stock outstanding other than said Common
Stock, and that the Corporation by the following resolutions of its Board of
Directors, duly adopted by unanimous written consent of the members thereof to
be effective as of March 30, 1995, determined to merge itself into said USI:
WHEREAS, the Corporation is the legal and beneficial owner of at least
ninety percent (90%) of the outstanding shares of Common Stock, $0.10 par value
per share ("Common Stock"), of USI; and
WHEREAS, said Common Stock is the only issued and outstanding class of
stock of USI; and
WHEREAS, this Corporation desires to merge itself into USI pursuant to the
provisions of Section 253 of the General Corporation Law of the State of
Delaware (the "DGCL");
NOW, THEREFORE, BE IT RESOLVED, that effective upon the filing of an
appropriate Certificate of Ownership and Merger embodying these resolutions with
the Secretary of State of Delaware, the Corporation merge and it hereby does
merge itself into USI, which will assume all of the liabilities and obligations
of the Corporation;
FURTHER RESOLVED, that the terms and conditions of the merger are as
follows: Upon the proposed merger becoming effective (the "Effective Time"),
each
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share of Common Stock (other than shares of Common Stock held by the Corporation
or any of its subsidiaries or affiliates immediately prior to the Effective Time
("Corporation-owned Shares") and shares of Common Stock then held in the
treasury of USI or any of its subsidiaries ("Treasury Shares")) shall remain
outstanding and be unaffected by the Merger. Each Corporation-owned Share and
each Treasury Share shall be cancelled and retired and cease to exist without
any payment therefor. Each share of Class A Common Stock, $0.01 par value, of
the Corporation outstanding immediately prior to the Effective Time shall be
converted into 3.446286301 shares of Common Stock, certificates for which shall
be issued to the stockholders of the Corporation upon surrender to USI of such
stockholder's certificates formerly representing such shares of Class A Common
Stock of the Corporation. Each share (and fraction thereof) of Class A
Preferred Stock, $0.01 par value, of the Corporation (the "Class A Preferred
Stock") shall be converted into one share (and corresponding fraction thereof)
of Series A Preferred Stock, $0.01 par value, of USI (the "USI Series A
Preferred Stock"); each share (and fraction thereof) of Class B Preferred Stock,
$0.01 par value, of the Corporation (the "Class B Preferred Stock") shall be
converted into one share (and corresponding fraction thereof) of Series B
Preferred Stock, $0.01 par value, of USI (the "USI Series B Preferred Stock");
and each share (and fraction thereof) of Class C Preferred Stock, $ 0.01 par
value, of the Corporation (the "Class C Preferred Stock" and, together with the
Class A Preferred Stock and the Class B Preferred Stock, the "Preferred Stock")
shall be converted into one share (and corresponding fraction thereof) of Series
C Preferred Stock, $0.01 par value, of USI (the "USI Series C Preferred Stock").
At the Effective Time, all shares of Preferred Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each certificate previously representing any such shares of Preferred
Stock shall thereafter represent the right to receive the shares of USI Series A
Preferred Stock, USI Series B Preferred Stock or USI Series C Preferred Stock,
as the case may be, into which such Preferred Stock has been converted;
FURTHER RESOLVED, that the proposed merger be submitted to the stockholders
of the Corporation and that upon receiving the required consent of such
stockholders, the proposed merger shall be approved;
FURTHER RESOLVED, that USI, as the surviving corporation in the merger,
shall notify each stockholder of record of said USI within ten days after the
effective date of the merger that the merger has become effective;
FURTHER RESOLVED, that pursuant to Section 1.1 of that certain Agreement
and Plan of Merger, dated as of February 13, 1995, between the Corporation and
USI,
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and in accordance with Section 153(c) of the DGCL, the Restated Certificate of
Incorporation (the "Certificate of Incorporation") of USI is automatically
amended, to be effective as of the Effective Time, as follows:
Article FOURTH of the Certificate of Incorporation is hereby amended
and restated in its entirety to read as set forth in EXHIBIT A hereto;
Article EIGHTH of the Certificate of Incorporation is hereby amended
and restated in its entirety to read as set forth in EXHIBIT B hereto; and
Article NINTH of the Certificate of Incorporation is hereby amended
and restated in its entirety to read as set forth in EXHIBIT C hereto;
FURTHER RESOLVED, that the Chairman of the Board, the President or any Vice
President of the Corporation be, and each hereby is, authorized to make and
execute, and the Secretary or any Assistant Secretary be, and each hereby is,
authorized to attest, a Certificate of Ownership and Merger setting forth a copy
of these resolutions providing for the merger of the Corporation into USI, and
the date of adoption hereof, and to cause the same to be filed with the
Secretary of State and a certified copy recorded in the office of Recorder of
Deeds of New Castle County, Delaware, and to do all acts and things, whatsoever,
whether within or without the State of Delaware, which may be in any way
necessary or appropriate to effect said merger; and
FURTHER RESOLVED, that the merger has been approved by the holder of all of
the outstanding stock of the Corporation entitled to vote thereon by unanimous
written consent without a meeting in accordance with Section 228 of the DGCL.
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IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by its Chairman and attested by its Assistant Secretary, this 30th day of
March, 1995.
ASSOCIATED HOLDINGS, INC.
By: /s/ Thomas W. Sturgess
-------------------------------------
Thomas W. Sturgess
Chairman of the Board and
Chief Executive Officer
ATTEST:
By: /s/ Gary G. Miller
--------------------------------
Gary G. Miller
Secretary
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EXHIBIT A
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 46,500,000 shares, consisting
of (a) 1,500,000 shares of a class designated as Preferred Stock, par value $.01
per share (the "PREFERRED STOCK"), (b) 40,000,000 shares of a class designated
as Common Stock, par value $.10 per share (the "COMMON STOCK"), and (c)
5,000,000 shares of a class designated as Nonvoting Common Stock, par value $.01
per share (the "NONVOTING COMMON STOCK").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock, Common Stock and Nonvoting
Common Stock are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted by the board of directors of the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the board
of directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to fix and state by the resolution or
resolutions from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the class or series is to have voting rights,
full, special, or limited, or is to be without voting rights, and whether or not
such class or series is to be entitled to vote as a separate class either alone
or together with the holders of one or more other classes or series of stock;
(ii) the number of shares to constitute the class or series and
the designations thereof;
(iii) the preferences, and relative, participating, optional, or
other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
A-1
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(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and, if such retirement or
sinking fund or funds are to be established, the annual amount thereof, and the
terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(viii) whether or not the shares of any class or series, at the
option of the Corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for, the shares of
any other class or classes or of any other series of the same or any other class
or classes of stock, securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or rates at which such
exchange may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
(ix) such other special rights and protective provisions with
respect to any class or series as may to the board of directors of the
Corporation seem advisable.
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(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all of the
foregoing respects. The board of directors of the Corporation may increase the
number of shares of the Preferred Stock designated for any existing class or
series by a resolution adding to such class or series authorized and unissued
shares of the Preferred Stock not designated for any other class or series. The
board of directors of the Corporation may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution
subtracting from such class or series authorized and unissued shares of the
Preferred Stock designated for such existing class or series, and the shares so
subtracted shall become authorized, unissued, and undesignated shares of the
Preferred Stock.
2. Provisions Relating to the Common Stock and Nonvoting Common Stock.
(a) IDENTICAL RIGHTS. Except as otherwise provided in this ARTICLE
FOURTH, all shares of Common Stock and Nonvoting Common Stock shall be identical
and shall entitle the holder thereof to the same rights and privileges.
(b) DIVIDENDS. From and after the date of issuance, the holders of
outstanding shares of Common Stock and Nonvoting Common Stock shall be entitled
to receive dividends on the shares of Common Stock and Nonvoting Common Stock
when, as, and if declared by the Board of Directors, out of funds legally
available for such purpose. All holders of shares of Common Stock and Nonvoting
Common Stock shall share ratably, in accordance with the numbers of shares held
by each such holder, in all dividends or distributions on shares of Common Stock
payable in cash, in property or in securities of the Corporation (other than
shares of Common stock). All dividends or distributions declared on shares of
Common Stock and Nonvoting Common Stock which are payable in shares of Common
Stock or Nonvoting Common Stock shall be declared on both classes of shares at
the same rate, provided that any such dividend or distribution shall be payable
in shares of the class of Common Stock or Nonvoting Common Stock held by the
stockholder to whom the dividend or distribution is payable.
(c) STOCK SPLITS, ETC. The Corporation shall not in any manner
subdivide (by stock split, stock dividend, or otherwise), or combine (by reverse
stock split, or otherwise) the outstanding shares of Common Stock or Nonvoting
Common Stock unless the outstanding shares of the other class shall be
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proportionately subdivided or combined. No reclassification or any other
adjustment or modification of the rights or preferences shall be effected
(including without limitation pursuant to a merger, consolidation or liquidation
involving the Corporation) with respect to either the Common Stock or the
Nonvoting Common Stock unless both the Common Stock and Nonvoting Common Stock
are reclassified or the rights or preferences are adjusted or modified in
exactly the same manner and at the same time. In this regard, and without
limiting the generality of the foregoing, in the case of any consolidation or
merger of the Corporation with or into any other entity (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all the assets of the Corporation, or the reclassification of the
Common Stock into any other form of capital stock of the Corporation, whether in
whole or in part, each share of Nonvoting Common Stock shall, after such
consolidation, merger, sale, or transfer or reclassification, be converted into
the kind and amount of shares of stock and other securities and property which
such holder would have been entitled to receive upon such consolidation, merger,
sale, or transfer or reclassification if such holder had held such Common Stock
issuable upon the conversion of such share of Nonvoting Common Stock immediately
prior to such consolidation, merger, sale, or transfer or reclassification;
provided, however, that no such shares of stock or other securities into which
shares of Nonvoting Common Stock are so converted shall have any voting rights
whatsoever.
(d) LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the Corporation, the
holders of shares of Common Stock and Nonvoting Common Stock shall be entitled
to share ratably, in accordance with the number of shares held by each such
holder, in all of the assets of the Corporation available for distribution to
the holders of shares of Common Stock.
(e) VOTING RIGHTS. Except as otherwise provided herein or by law, the
entire voting power of the Corporation shall be vested in the holders of shares
of Common Stock and each holder of shares of Common Stock shall be entitled to
one vote for each share of Common Stock held of record by such holder; PROVIDED
that, without the consent of the holders of record of at least 51% of Nonvoting
Common Stock at the time outstanding (assuming, for the purposes of this
provision, that the holders of rights to acquire shares of Nonvoting Common
Stock shall be deemed to be the holders of the shares of Nonvoting Common Stock
which are at the time issuable upon the full exercise thereof
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whether or not such holders are then entitled to exercise such rights pursuant
to the terms thereof), given in writing or by the vote at any regular or special
meeting of stockholders of the Corporation, the Corporation shall not:
(i) amend, alter, modify, or repeal any provision of this
Certificate of Incorporation or the By-Laws of the Corporation in any
manner which adversely affects the relative rights, preferences,
qualifications, powers, limitations or restrictions of the Nonvoting Common
Stock, or amend, alter, modify, or repeal this Section 2(e);
(ii) increase or decrease the authorized number of shares of
any class of capital stock of the Corporation or authorize, issue, or
otherwise create securities convertible into or exercisable for any shares
of capital stock of the Corporation other than the shares of Common Stock
and Nonvoting Common Stock authorized hereunder and the shares of Series A,
Series B, and Series C Preferred Stock designated in that certain
Certificate of the Powers, Designations, Preferences, and Rights of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock dated March 30, 1995;
(iii) voluntarily effect an exchange or reclassification of
shares of Nonvoting Common Stock into shares of another class of capital
stock of the Corporation; or
(iv) effect a merger or consolidation of the Corporation with
another corporation, unless the certificate or articles of incorporation of
the surviving corporation shall provide that the shares of the capital
stock of such surviving corporation into which the shares of Nonvoting
Stock hereunder shall be converted shall have the identical rights and
privileges as the shares of capital stock of such surviving corporation
into which the shares of Common Stock hereunder shall be converted, other
than the voting rights in this Section 2(e) and the conversion and other
rights in Section 3 below which shall not be adversely affected by such
merger or consolidation.
3. CONVERSION.
(a) RIGHT TO CONVERSION. Subject to and upon compliance with the
provisions of this Section 3, any holder of shares of Nonvoting Common Stock
shall be entitled at any time and from time to time to convert each share of
Nonvoting Common
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Stock held by such holder into a share of Common Stock at the conversion rate of
one share of Common Stock for one share of Nonvoting Common Stock.
(b) PROCEDURE. The conversion of any shares of Nonvoting Common
Stock into shares of Common Stock shall be effected by the holder of the shares
of Nonvoting Common Stock to be converted surrendering the certificate therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
shares of Common Stock or at such other place as the Corporation is willing to
accept such surrender accompanied by written notice to the Corporation at such
office or other place that it elects to so convert and stating the number of
shares of Nonvoting Common Stock being converted. Thereupon the Corporation
shall promptly issue and deliver at such office or other place to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled, registered in the name of such holder or a designee of
such holder as specified in such notice. Such conversion shall be deemed to
have been made at the close of business on the date of such surrender of the
shares to be converted in accordance with the procedure set forth in the first
sentence of this Section 3(b), and the Person entitled to receive the shares
issuable upon such conversion shall be treated for all purposes as having become
the record holder of such shares at such time. In the event of the conversion of
less than all of the shares of Nonvoting Common Stock into shares of Common
Stock evidenced by the certificate so surrendered, the Corporation shall execute
and deliver to or upon the written order of such holder, without charge to such
holder, a new certificate evidencing the shares of Nonvoting Common Stock not
converted.
(c) RESERVATION. The corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, or any
shares of Common Stock held in its treasury, solely for the purpose of issue
upon conversion of the shares of Nonvoting Common Stock as provided herein, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Nonvoting Common Stock. The shares of Common Stock
so issuable shall when so issued be duly and validly issued, fully paid, and
nonassessable.
(d) CERTAIN LEGAL REQUIREMENTS. No person subject to the provisions
of Regulation Y shall, and no such Person shall permit any of its Bank Holding
Company Affiliates to, convert any shares of Nonvoting Common Stock held by it
into shares of Common Stock, and the Corporation shall not be required to
convert any such shares of Nonvoting Common Stock, if after giving effect to
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such conversion, (i) such Person and its Bank Holding Company Affiliates would
own more than 5% of the total issued and outstanding shares of Common Stock or
(ii) such Person would Control the Corporation (and, for purposes of this clause
(ii), a reasoned opinion of counsel to such Person (which is based on facts and
circumstances deemed appropriate by such counsel) to the effect that such Person
does not control the Corporation shall be conclusive).
4. DEFINITIONS.
As used in this ARTICLE FOURTH, the terms indicated below shall have
the following respective meanings:
"BANK HOLDING COMPANY AFFILIATE" shall mean, with respect to any
Person subject to the provisions of Regulation Y, (i) if such Person is a bank
holding company, any company directly or indirectly controlled by such bank
holding company, and (ii) otherwise, the bank holding company that controls such
Person and any company (other than such Person) directly or indirectly
controlled by such bank holding company.
"CONTROL" (including, with its correlative meanings, "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") shall mean, with respect to any Person, the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities, by contract, or otherwise.
"PERSON" means an individual, partnership, association, joint venture,
corporation, business, trust, estate, unincorporated organization, or government
or any department, agency or subdivision thereof.
"REGULATION Y" shall mean Regulation Y promulgated by the Board of
Governors of the Federal Reserve System (12 C.F.R. Section 225) or any successor
regulation.
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EXHIBIT B
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
EIGHTH is in effect. Any repeal or amendment of this Article EIGHTH shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article EIGHTH. Such
right shall include the right to be paid by the Corporation expenses incurred in
investigating or defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the Delaware General
Corporation Law, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense is not permitted under the
Delaware General Corporation Law, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) to have made its determination prior to the commencement of such
action that indemnification of, or advancement of costs of defense to, the
claimant is permissible in the circumstances nor an actual determination by the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) that such indemnification or
advancement is not
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permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his or her heirs, executors,
administrators, and personal representatives. The rights conferred above shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, by-law, resolution of stockholders or directors,
agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
Without limiting the generality of the foregoing, to the extent permitted
by then applicable law, the grant of mandatory indemnification pursuant to this
Article EIGHTH shall extend to proceedings involving the negligence of such
person.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
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EXHIBIT C
NINTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article NINTH by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article NINTH, a director shall not be liable to the
Corporation or its stockholders to such further extent as permitted by any law
hereafter enacted, including without limitation any subsequent amendment to the
Delaware General Corporation Law.
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UNITED STATIONERS INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES, AND RIGHTS OF THE
SERIES A PREFERRED STOCK,
SERIES B PREFERRED STOCK
AND SERIES C PREFERRED STOCK
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
The following resolutions were duly adopted by unanimous written
consent of the Board of Directors (the "BOARD OF DIRECTORS") of United
Stationers Inc., a Delaware corporation (the "CORPORATION"), pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware (the "DGCL"), on March 30, 1995.
WHEREAS, the Corporation is a party to an Agreement and Plan of
Merger, dated as of February 13, 1995, between the Corporation and Associated
Holdings, Inc., a Delaware corporation ("ASSOCIATED"), pursuant to which the
Corporation will be merged with and into Associated, with Associated surviving
(the "MERGER"), and Associated Stationers, Inc., a Delaware corporation and
wholly-owned subsidiary of Associated ("ASI"), will be merged with and into
United Stationers Supply Co., an Illinois corporation and wholly-owned
subsidiary of the Corporation ("SUPPLY CO."), with Supply Co. surviving (the
"SUBSIDIARY MERGER"); and
WHEREAS, the Board of Directors is authorized, within the limitations
and restrictions stated in the Corporation's Certificate of Incorporation, as
amended to date (as amended, the "CERTIFICATE OF INCORPORATION"), to fix by
resolution or resolutions the designation of each series of preferred stock and
the powers, preferences, and relative participating, optional, or other special
rights, and qualifications, limitations, or restrictions thereof, including,
without limiting the generality of the foregoing, such provisions as may be
desired concerning voting, redemption, dividends, dissolution, or the
distribution of assets, conversion, or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the DGCL; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of three series of
preferred stock and the number of shares constituting each of such series;
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Corporation hereby fixes the
designations and preferences and relative, participating, optional, and other
special rights, and qualifications, limitations, and restrictions of (i) a
series of preferred stock consisting of 15,000 shares (of which 5,000 shares
will be initially issued as of the Effective time of the Merger (the "EFFECTIVE
TIME")) to be designated Series A Preferred Stock (the "SERIES A PREFERRED
STOCK"), (ii) a series of preferred stock consisting of 15,000 shares (of which
6,724.4436 shares will be initially issued as of the Effective Time) to be
designated Series B Preferred Stock (the "SERIES B PREFERRED STOCK") and (iii) a
series of preferred stock consisting of 15,000 shares (of which 10,086.6657
shares will be initially issued as of the Effective Time) to be designated
Series C Preferred Stock (the "SERIES C PREFERRED STOCK");
RESOLVED FURTHER, that the Corporation hereby fixes the designations
and preferences and relative, participating, optional, and other special rights,
and qualifications, limitations, and restrictions of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock; and
RESOLVED FURTHER, that the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock are hereby authorized on the terms
and with the provisions herein set forth:
I. TERMS APPLICABLE TO THE SERIES A PREFERRED STOCK.
1.1 DIVIDENDS. (a) Subject to the provisions of Sections 1.1(b),
1.2(f), and 1.2(h) the holders of Series A Preferred Stock shall be entitled to
receive, as and when declared by the Board of Directors of the corporation out
of funds legally available for such purpose, dividends on the outstanding shares
of Series A Preferred Stock at the Series A Preferred Dividend Rate, payable on
each Preferred Dividend Payment Date to holders of record as they appear on the
stock transfer books of the Corporation on such record dates, not more than 60
days nor less than 10 days preceding the payment dates for such dividends, as
are fixed by the Board of Directors (or, to the extent permitted by applicable
law, a duly authorized committee thereof). Such dividends shall be cumulative
and shall accrue with respect to each share of Series A Preferred Stock, whether
or not declared, whether or not restricted by the terms of the Debt Agreements
or otherwise pursuant to the provisions hereof, and whether or not there are
funds legally available for the payment thereof until paid. The dividends on
the Series A Preferred Stock may be declared payable in cash or in additional
shares of Series A Preferred Stock valued at $1,000 per share, in
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the discretion of the Board of Directors. No other dividends may be declared or
paid to the holders of Series A Preferred Stock. All dividends declared by the
Board of Directors upon shares of Series A Preferred Stock in accordance with
this Section 1.1(a) shall be declared and paid pro rata with respect to all
shares of Series A Preferred Stock then outstanding.
(b) If at any time the Corporation shall have failed to pay any
accumulated dividends on any shares of Series A Preferred Stock on any Preferred
Dividend Payment Date as provided above, or if at any time the corporation shall
have failed to redeem shares of Series A Preferred Stock as required by Section
1.2(a) for any reason, the Corporation shall not
(i) declare or pay any dividend on any Junior Shares or make any
payment on account of, or set apart money for, a sinking or other analogous
fund for the purchase, redemption, or other retirement of any Junior Shares
or make any distribution with respect thereto, either directly or
indirectly and whether in cash or property or in obligations or shares
(other than in Junior Shares) of the corporation or any Subsidiary,
(ii) purchase any shares of Series A Preferred Stock (except for a
consideration payable in Junior Shares) or redeem fewer than all of the
shares of Series A Preferred Stock then outstanding, or
(iii) permit any Subsidiary to purchase any Junior Shares or permit
any Subsidiary to purchase fewer than all of the shares of Series A
Preferred Stock then outstanding,
unless, at the time of any such dividend, payment, distribution, purchase, or
redemption, all accrued and unpaid dividends on shares of Series A Preferred
Stock are contemporaneously paid in full in cash or additional shares of Series
A Preferred Stock and all shares of Series A Preferred Stock which the
Corporation shall have so failed to redeem are contemporaneously redeemed.
1.2 REDEMPTION.
(a) SCHEDULED REDEMPTION. Subject to any limitations contained
elsewhere in this Certificate of the Powers, Designations, Preferences, and
Rights of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (this "Certificate of Designations"), the Corporation shall,
subject to Section 1.2(b), redeem all, but not less than all, shares of Series A
Preferred Stock on July 31, 2006, out of funds
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legally available for such purpose, at a price per share equal to the Redemption
Price.
(b) MANDATORY REDEMPTION. Subject to any limitations contained
elsewhere in this Certificate of Designations, in the event of the occurrence of
a Cash-Out Event, the Corporation agrees, at the election of any holder of then
outstanding shares of Series A Preferred Stock made as set forth in Section
1.2(i) below, to redeem all, but not less than all, of such holder's shares of
Series A Preferred Stock then outstanding, out of funds legally available for
such purpose, at a price per share equal to the Redemption Price therefor.
Notwithstanding any provision contained in this Certificate of Designations, the
Corporation shall not be required to effect a redemption otherwise required by
Section 1.2(a) or (b) prior to the earlier to occur of (i) the redemption in
full of the notes in the aggregate principal amount of $130,000,000 to be issued
by Supply Co. after the Effective Time (the "NOTES") or (ii) the date ten (10)
years after the issuance of the Notes. If pursuant to such Cash-Out Event the
holders of Common Stock of the Corporation receive cash, Marketable Securities,
or a combination thereof, then, at the option of the Corporation, the
Corporation may, in lieu of the cash redemption contemplated in the immediately
preceding sentence, redeem such Series A Preferred Stock by converting each such
share into such cash, Marketable Securities, or a combination thereof, in the
same proportions as the holders of Common Stock of the Corporation so receive,
the value of which shall equal the Redemption Price.
(c) REDEMPTIONS AT OPTION OF CORPORATION. At any time, and from time
to time, the Corporation may, at its election, redeem, out of funds legally
available for such purpose, any portion or all of the Series A Preferred Stock
then outstanding at a price per share equal to the Redemption Price. Any
redemption of shares pursuant to this Section 1.2(c) will be made ratably (as
nearly as practicable) among the holders of the Series A Preferred Stock based
upon the number of shares held by each such holder.
(d) OPTIONAL REDEMPTION THROUGH NOTE EXCHANGE.
(i) Subject to the provisions of subdivision (iv) of this Section
1.2(d), at the option of the Corporation, the Corporation may, at any time
out of funds legally available for such purpose, redeem all, but not less
than all, shares of the Series A Preferred Stock then outstanding in
exchange for, and through the issue by the Corporation in the manner
provided in this subdivision of, Series A Exchange Notes to
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be issued under the Series A Indenture. Such exchange, if any, shall be a
redemption of the Series A Preferred Stock in exchange for the Series A
Exchange Notes. The Series A Exchange Notes issued to each holder shall be
in an aggregate principal amount equal to the Liquidation Value of the
shares of Series A Preferred Stock redeemed by the Corporation in exchange
therefor.
(ii) Not more than 60 nor less than 30 days prior to the exchange
date, the Corporation shall mail irrevocable written notice, by registered
or certified mail, postage prepaid and return receipt requested, to each
record holder (and, to the extent such holder is a corporation, to the
attention of its Chief Executive Officer and its Corporate Secretary),
specifying the exchange date and the time and place where certificates
representing shares of Series A Preferred Stock are to be surrendered for
Series A Exchange Notes. Upon mailing such notice, the Corporation will be
obliged to redeem all shares of Series A Preferred Stock in exchange for
the Series A Exchange Notes on the exchange date specified in such notice.
Upon surrender in accordance with such notice of the certificates
evidencing any shares of Series A Preferred Stock so exchanged (properly
endorsed or signed for transfer, if the Corporation shall require and the
notice shall so state), the Corporation will cause the Series A Exchange
Notes to be authenticated and issued in exchange for such shares of Series
A Preferred Stock and to be mailed to the holder of the shares of Series A
Preferred Stock at such holder's address of record or such other address as
the holder shall specify upon such surrender of such certificates.
(iii) On the exchange date, (A) the shares of Series A Preferred Stock
subject to such exchange and redemption shall cease to be entitled to any
dividends accruing after the exchange date, (B) all rights of the
respective holders of such shares, as stockholders of the Corporation by
reason of the ownership of such shares, except the right to receive the
Series A Exchange Notes upon surrender (and endorsement, if required by the
Corporation) of the respective certificates representing such shares, shall
cease, (C) such shares shall cease to be outstanding, and (D) the person or
persons entitled to receive the Series A Exchange Notes issuable upon such
exchange shall be treated for all purposes as the registered holder or
holders of Series A Exchange Notes; PROVIDED, HOWEVER, that interest shall
not begin to accrue on any such Series A Exchange Note issuable to a holder
of Series A Preferred Stock until such time as
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such holder surrenders the certificate or certificates evidencing such
shares of Series A Preferred Stock.
(iv) The Corporation may redeem shares of Series A Preferred Stock in
exchange for Series A Exchange Notes only if, on the Exchange Date, (x) the
Corporation has paid all accrued dividends on all outstanding shares of
Series A Preferred Stock and (y) the Series A Indenture shall be executed
and delivered by the corporation and the trustee thereunder.
(e) REDEMPTION PRICE. For each share of Series A Preferred Stock
which is to be redeemed for cash the Corporation will be obligated on the
Redemption Date to pay to the holder thereof (upon surrender of the certificate
representing such share to the Corporation's stock transfer agent, or if none,
to the Corporation at its principal office) an amount in cash equal to the
Redemption Price. If the funds of the Corporation legally available for
redemption of shares of Series A Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares to be redeemed on such date,
those funds which are legally available shall be used to redeem the maximum
possible number of shares ratably (as nearly as practicable) among the holders
of the shares to be redeemed based upon the aggregate Redemption Price of such
shares held by each such holder. As and when additional funds of the
Corporation are legally available for the redemption of shares, such funds shall
as soon as practicable be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on any Redemption Date.
(f) DIVIDENDS AFTER REDEMPTION DATE. Subject to any limitations
contained elsewhere in this Certificate of Designations, no share of Series A
Preferred Stock is entitled to any dividends accruing after the redemption of
such share. Subject to any limitations contained elsewhere in this Certificate
of Designations, on the date of such redemption dividends will cease to accrue,
all rights of the holder of such share as such holder will cease, and such
shares will be deemed not to be outstanding.
(g) REDEEMED OR OTHERWISE ACQUIRED SHARES. Any shares of Series A
Preferred Stock which are redeemed or otherwise acquired by the Corporation will
be retired and cancelled and may not be reissued.
(h) RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS. Notwithstanding
anything in this Certificate of Designations to the
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contrary, no dividend payment or other distribution or redemption may be made
with respect to Series A Preferred Stock if such payment or other distribution
or redemption will be in contravention of the restrictions or limitations on
such payments or other distributions or redemptions contained in (i) this
Certificate of Designations,(ii) the Debt Agreements, (iii) the Subordinated
Note, or (iv) any and all applicable state or federal laws, rules, and
regulations or in any and all orders of any state or federal governmental
authority.
(i) REDEMPTION METHODS.
(i) In order to effect a redemption under either Section 1.2(a) or
1.2(c) above, the Corporation shall deliver written notice, by registered
or certified mail, postage prepaid and return receipt requested, to the
holders of record (and, to the extent any such holder is a corporation, to
the attention of its Chief Executive Officer and its Corporate Secretary)
of the shares to be redeemed, addressed to such holders at their last
addresses as shown on the stock transfer books of the corporation. Each
such notice of redemption shall specify the date fixed for redemption (to
be a date not less than 30 days from the date of such notice), the
Redemption Price, places of payment, that payment will be made upon
presentation and surrender of the certificates representing shares to be
redeemed and that on and after the date of such redemption (or such earlier
date as permitted hereunder) dividends will cease to accumulate on such
shares. Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given when mailed, and failure to
give such notice by mail, or any defect in such notice, to the holders of
any shares designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares to be redeemed on or
after the date fixed for redemption as stated in such notice. Each holder
of the shares called for redemption shall surrender its certificate or
certificates evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price in cash, with respect to any redemption
under Sections 1.2(a) or 1.2(c). If less than all shares evidenced by any
such surrendered certificate are redeemed, a new certificate shall be
issued evidencing the unredeemed shares.
(ii) In order to effect a redemption under Section 1.2(b) above,
within 30 days after the date of the occurrence of a Cash-Out Event the
Corporation shall deliver
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notice by registered or certified mail, postage prepaid and return receipt
requested, to the holders of record (and, to the extent such holder is a
corporation, to the attention of its Chief Executive Officer and its
Corporate Secretary) of the shares to be redeemed, addressed to such
holders at their last addresses as shown on the stock transfer books of the
Corporation. Each such notice of redemption shall specify the date fixed
for redemption (to be a date not less than 30 days from the date of such
notice), the Redemption Price, places of payment, that payment will be made
upon presentation and surrender of the certificates representing shares to
be redeemed, a description in reasonable detail of the applicable Cash-Out
Event giving rise to the redemption, and a description in reasonable detail
of any Marketable Securities to be included, and that on or after the date
of such redemption (or such earlier date as permitted hereunder) dividends
will cease to accumulate on such shares. Any notice which is mailed as
herein provided shall be conclusively presumed to have been duly given when
mailed, and failure to give such notice by mail, or any defect in such
notice, to the holders of any shares designated for redemption shall not
affect the validity of the proceedings for the redemption of any other
shares to be redeemed on or after the date fixed for redemption as stated
in such notice. Each holder of the shares called for redemption who elects
to exercise the right of redemption under Section 1.2(b) above must
surrender its certificate or certificates evidencing all such shares to the
Corporation on or before the date set for redemption and at the place
designated in the Corporation's notice and shall thereupon be entitled to
receive payment of the Redemption Price in cash, Marketable Securities, or
a combination thereof, as applicable. Any failure on the part of any
holder notified as provided above to surrender such certificate or
certificates on or before the date set for redemption at the place
designated for redemption as provided above, shall be conclusively deemed
to have not elected to redeem such holder's shares under and pursuant to
Section 1.2(b) above and shall not be entitled to receive the Redemption
Price as provided above.
(iii) Notwithstanding any other provision of this Certificate of
Designations, if on or after the date on which any notice of redemption is
first sent to the holders of shares to be redeemed, funds necessary for the
redemption shall be available therefor and shall have been irrevocably
deposited or set aside, then, notwithstanding that the certificates
evidencing any shares so called for redemption
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shall not have been surrendered, the dividends with respect to the shares
so called shall cease to accrue after the date fixed for redemption, the
shares shall no longer be deemed outstanding, holders thereof shall cease
to be stockholders, and all rights whatsoever with respect to the shares so
called for redemption (except the right of the holders to receive the
Redemption Price without interest upon surrender of their certificates
therefor) shall terminate.
1.3 VOTING RIGHTS. Except as set forth below and as otherwise
required by law, holders of shares of Series A Preferred Stock shall have no
voting rights. In connection with any right to vote, each holder of Series A
Preferred Stock will have one vote for each share held. Any shares of Series A
Preferred Stock held by the Corporation or its Subsidiaries shall not have
voting rights hereunder and shall not be counted in determining the presence of
a quorum. So long as the Series A Preferred Stock is outstanding, the
Corporation shall not, without the affirmative vote or written consent of the
holders of at least 51% of all outstanding Series A Preferred Stock voting
separately as a series:
(a) amend, alter, modify, or repeal any provision of the Certificate
of Incorporation or the By-Laws of the Corporation in any manner which affects
materially and adversely the relative rights, preferences, qualifications,
powers, limitations, or restrictions of the Series A Preferred Stock;
(b) increase the authorized number of shares of Preferred Stock of
the Corporation, authorize, issue, or otherwise create securities convertible
into any shares of capital stock of the Corporation other than Junior Shares.
(c) voluntarily effect any reclassification of the Series A Preferred
Stock.
Whenever dividends on the Series A Preferred Stock shall be in arrears
in an amount equal to at least six quarterly dividends (whether or not
consecutive), (i) the number of members of the Board of Directors of the
Corporation shall be increased by one, effective as of the time of election of
such directors as hereinafter provided and (ii) the holders of the Series A
Preferred Stock (voting separately as a series) will have the exclusive right to
vote for and elect such one additional director of the Corporation at any
meeting of the stockholders of the Corporation at which directors are to be
elected held during the period such dividends remain in arrears. The right of
the holders of the Series A Preferred Stock to vote for such one
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additional director shall terminate when all accrued and unpaid dividends on the
Series A Preferred Stock have been declared and paid in cash or in additional
shares of Series A Preferred Stock or set apart for payment. The term of office
of any director so elected shall terminate immediately upon the termination of
the right of the holders of the Series A Preferred Stock to vote for such one
additional director.
The foregoing right of the holders of the Series A Preferred Stock
with respect to the election of one director may be exercised at any annual
meeting of the stockholders of the Corporation or at any special meeting of the
stockholders of the Corporation held for such purpose. If the right to elect an
additional director shall have accrued to the holders of the Series A Preferred
Stock more than 90 days preceding the date established for the next annual
meeting of stockholders, the President of the Corporation shall, within 20 days
after the delivery to the Corporation at its principal office of a written
request for a special meeting signed by the holders of at least 10% of the
Series A Preferred Stock then outstanding, call a special meeting of the holders
of the Series A Preferred Stock to be held within 60 days after the delivery of
such request for the purpose of electing such additional directors.
The holders of the Series A Preferred Stock voting as a series shall
have the right to remove without cause at any time and replace any director such
holders shall have elected pursuant to this Section.
1.4 LIQUIDATION. (a) In the event of any voluntary or involuntary
liquidation, dissolution, or winding-up of the Corporation, the holders of
shares of Series A Preferred Stock shall be entitled to receive the Series A
Preferred Liquidation Value of such shares held by them in preference to and in
priority over any distributions upon Junior Shares. Upon payment in full to the
holders of shares of Series A Preferred Stock of the Series A Preferred
Liquidation Value of such shares, the holders of shares of Series A Preferred
Stock shall not be entitled, as such holders, to any further participation in
any distribution of assets of the Corporation. If the assets of the Corporation
are not sufficient to pay in full the Series A Preferred Liquidation Value
payable to the holders of shares of Series A Preferred Stock, the holders of all
such shares shall share ratably (to the exclusion of any other holders of
capital stock) in such distribution of assets.
(b) Neither a consolidation or merger of the Corporation with or into
any other corporation, nor a sale or
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transfer of all or part of the Corporation's assets for cash, securities, or
other property, nor a merger of any other corporation with or into the
Corporation shall be considered a liquidation, dissolution, or winding-up of the
Corporation within the meaning of this Section 1.4.
II. TERMS APPLICABLE TO SERIES B AND SERIES C PREFERRED STOCK.
2.1 IDENTICAL RIGHTS. Except as otherwise provided in this
Certificate of Designations, all shares of Series B Preferred Stock and Series C
Preferred Stock shall be identical and shall entitle the holders thereof to the
same rights and privileges.
2.2 DIVIDENDS. (a) Subject to the provisions of Sections 2.2(b),
2.3(f), and 2.3(h), the holders of Series B and Series C Preferred Stock shall
be entitled to receive, as and when declared by the Board of Directors of the
Corporation out of funds legally available for such purpose, dividends on the
outstanding shares of Series B and Series C Preferred Stock at the Series B and
Series C Preferred Dividend Rates, payable on each Preferred Dividend Payment
Date to holders of record as they appear on the stock transfer books of the
Corporation on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates for such dividends, as are fixed by the Board of
Directors (or, to the extent permitted by applicable law, a duly authorized
committee thereof). Such dividends shall be cumulative and shall accrue with
respect to each share of Series B and Series C Preferred Stock, whether or not
declared, whether or not restricted by the terms of the Debt Agreements or
otherwise pursuant to the provisions hereof, and whether or not there are funds
legally available for the payment thereof until paid. The dividends on the
Series B and Series C Preferred Stock may be declared payable in cash or in
additional shares of the same series of Preferred Stock, in the discretion of
the Board of Directors; provided that dividends on Series C Preferred Stock may
be payable in additional shares of Series C Preferred Stock only for Dividend
Payment Dates occurring on or prior to January 31, 1999. No other dividends may
be declared or paid to the holders of Series B or Series C Preferred Stock. All
dividends declared by the Board of Directors upon shares of Series B or Series C
Preferred Stock in accordance with this Section 2.2(a) shall be declared and
paid pro rata with respect to all shares of Series B and Series C Preferred
Stock then outstanding.
(b) If at any time the Corporation shall have failed to pay any
accumulated dividends on any shares of Series B and
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Series C Preferred Stock on any Preferred Dividend Payment Date as provided
above, or if at any time the Corporation shall have failed to redeem shares of
Series B or Series C Preferred Stock as required by Section 2.3(a) for any
reason, the Corporation shall not:
(i) declare or pay any dividend on any Junior Shares or make any
payment on account of, or set apart money for, a sinking or other analogous
fund for the purchase, redemption or other retirement of any Junior Shares
or make any distribution with respect thereto, either directly or
indirectly and whether in cash or property or in obligations or shares
(other than in Junior Shares) of the Corporation or any Subsidiary;
(ii) purchase any shares of Series B or Series C Preferred Stock
(except for a consideration payable in Junior Shares) or redeem fewer than
all of the shares of Series B and Series C Preferred Stock then outstanding
(except in a manner consistent with the last sentence of Section 2.3(c));
or
(iii) permit any Subsidiary to purchase any Junior Shares or permit any
Subsidiary to purchase fewer than all of the shares of Series B and Series
C Preferred Stock then outstanding;
unless, at the time of any such dividend payment, distribution, purchase or
redemption, all accrued and unpaid dividends on shares of Series B and Series C
Preferred Stock are contemporaneously paid in full in cash or additional shares
of Series B or Series C Preferred Stock, as applicable, and all shares of Series
B or Series C Preferred Stock which the Corporation shall have so failed to
redeem are contemporaneously redeemed.
(c) Notwithstanding any other provision in this Certificate of
Designations, the Corporation shall not, and shall not permit any of its
Subsidiaries to, take any of the actions specified in subsections 2.2(b)(i),
(ii), or (iii) above in excess of $1 million in the aggregate for all such
actions, unless at the time such action is taken:
(i) the Corporation has redeemed for cash all shares of Series B and
Series C Preferred Stock, if any, which have been issued to the holders of
Series B and Series C Preferred Stock, respectively, as in-kind dividends
on the
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Series B or Series C Preferred Stock, respectively, pursuant to
Section 2.2(a) above;
(ii) the Corporation and its wholly-owned Subsidiaries, on a
consolidated basis, have common equity computed in accordance with
generally accepted accounting principles, after giving effect to any
purchases, redemptions, payments, distributions or disbursements under
subsections 2.2(b)(i), (ii), or (iii) above, of at least $26 million;
(iii) if any such purchases, redemptions, payments, distributions, or
disbursements specified in subsections 2.2(b)(i), (ii), or (iii) above are
to be made on or after July 31, 1999, then all shares of Series B Preferred
Stock shall have been redeemed or otherwise retired; and
(iv) if any such purchases, redemptions, payments, distributions, or
disbursements specified in subsections 2.2(b)(i), (ii), or (iii) above are
to be made on or after the dates required for redemptions of shares of
Series C Preferred Stock pursuant to Section 2.3(c) below, then that
portion of such Series C Preferred Stock so required to be redeemed as of
such dates shall have been redeemed or otherwise retired;
PROVIDED, HOWEVER, nothing in this Section 2.2(c) shall limit or impair the
Corporation's obligation to make payments or disbursements for any amount it is
obligated to pay under or pursuant to (i) the Warrant Agreement dated as of
January 31, 1992 between the Corporation (as successor-in-interest to Associated
Holdings, Inc., a Delaware corporation merged into the Corporation) and Chase
Manhattan Investment Holdings, Inc., as amended, and FURTHER PROVIDED, nothing
in this Section 2.2(c) shall limit the Corporation or its Subsidiaries from
re-purchasing Common Stock or options to purchase Common Stock of the
Corporation held by any employee of the Corporation or its Subsidiaries in
connection with the termination of such employee's employment.
2.3 REDEMPTION.
(a) SCHEDULED REDEMPTION. Subject to any limitations contained
elsewhere in this Certificate of Designations, the Corporation shall redeem all
shares of Series B Preferred Stock on July 31, 1999. The Corporation shall
redeem all shares of Series C Preferred Stock by January 31, 2002, such
redemption to be made in four equal (as nearly as practicable) quarterly
installments of principal on April 30, 2001, July 31, 2001,
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October 31, 2001, and January 31, 2002. Scheduled redemptions shall be made out
of funds legally available for such purpose, at a price per share equal to the
Redemption Price.
(b) MANDATORY REDEMPTION. Subject to any limitations contained
elsewhere in this Certificate of Designations, in the event of the occurrence of
a Cash-Out Event, the Corporation agrees, at the election of any holder of then
outstanding shares of Series B or Series C Preferred stock, as applicable, made
as set forth in Section 2.3(i) below, to redeem all, but not less than all, of
such holder's shares of Series B or Series C Preferred Stock, as applicable,
then outstanding, out of funds legally available for such purpose, at a price
per share equal to the Redemption Price therefor. If pursuant to such Cash-Out
Event the holders of Common Stock of the Corporation received cash, Marketable
Securities, or a combination thereof, then, at the option of the Corporation,
the Corporation may, in lieu of the cash redemption contemplated in the
immediately preceding sentence, redeem such Series B or Series C Preferred
Stock, as applicable, by converting each such share into such cash, Marketable
Securities or a combination thereof, in the same proportions received by the
holders of Common Stock of the Corporation, the value of which shall equal the
Redemption Price.
(c) REDEMPTIONS AT OPTION OF CORPORATION. At any time, and from time
to time, the Corporation may, at its election, redeem, out of funds legally
available for such purpose, any portion or all of the Series B and Series C
Preferred Stock then outstanding at a price per share equal to the Redemption
Price. Any redemption of shares pursuant to this Section 2.3(c) will be made
ratably (as nearly as practicable) among the holders of the Series B and Series
C Preferred Stock based upon the number of shares held by each such holder
without distinction between series.
(d) OPTIONAL REDEMPTION THROUGH NOTE EXCHANGE.
(i) Subject to the provisions of subdivision (iv) of this Section
2.3(d), at the option of the Corporation, the Corporation may, at any time
out of funds legally available for such purpose, redeem all, but not less
than all shares of the Series B and Series C Preferred Stock then
outstanding in exchange for, and through the issue by the Corporation in
the manner provided in this subdivision of, Series B Exchange Notes (with
respect to exchanges of Series B Preferred Stock) and Series C Exchange
Notes (with respect to exchanges of Series C Preferred Stock). The Series
B Exchange Notes shall be issued under the Series B Indenture
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and the Series C Exchange Notes shall be issued under the Series C
Indenture. The Series B Exchange Notes or Series C Exchange Notes issued to
each holder shall be in an aggregate principal amount equal to the
Liquidation Value of the shares of Series B and Series C Preferred Stock
redeemed by the Corporation in exchange thereof.
(ii) Not more than 60 nor less than 30 days prior to the exchange
date, the Corporation shall mail irrevocable written notice, by registered
or certified mail, postage prepaid and return receipt requested, to each
record holder (and, to the extent such holder is a corporation, to the
attention of its Chief Executive Officer and its Corporate Secretary),
specifying the exchange date and the time and place where certificates
representing shares of Series B and Series C Preferred Stock are to be
surrendered for Series B and Series C Exchange Notes. Upon mailing such
notice, the Corporation will be obliged to redeem all shares of Series B
and Series C Preferred Stock in exchange for the Exchange Notes on the
exchange date specified in such notice. Upon surrender in accordance with
such notice of the certificates evidencing the shares of Series B or Series
C Preferred Stock so exchanged (properly endorsed or signed for transfer,
if the Corporation shall require and the notice shall so state), the
Corporation will cause the Series B or Series C Exchange Notes, as
applicable, to be authenticated and issued in exchange for such shares of
Series B or Series C Preferred Stock and to be mailed to the holders of the
shares of Series B or Series C Preferred Stock at such holder's address of
record or such other address as the holder shall specify on such surrender
of such certificates.
(iii) On the exchange date, (A) the shares of Series B and Series C
Preferred Stock subject to such exchange and redemption shall cease to be
entitled to any dividends accruing after that date, (B) all rights of the
respective holders of such shares, as stockholders of the Corporation by
reason of the ownership of such shares, except the right to receive the
Series B and Series C Exchange Notes upon surrender (and endorsement, if
required by the Corporation) of the respective certificates representing
such shares, shall cease, (C) such shares shall cease to be outstanding,
and (D) the person or persons entitled to receive the Series B or Series C
Exchange Notes, as applicable, issuable upon such exchange shall be treated
for all purposes as the registered holder or holders of Series B or Series
C Exchange Notes, as applicable; PROVIDED, HOWEVER, that interest shall not
begin to accrue on any such Series B or
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Series C Exchange Notes issuable to a holder of Series B or Series C
Preferred Stock, as applicable, until such time as such holder surrenders
the certificate or certificates evidencing such shares of Series B or
Series C Preferred Stock, as applicable.
(iv) The Corporation may redeem shares of Series B and Series C
Preferred Stock in exchange for Series B and Series C Exchange Notes only
if, on the Exchange Date, (x) the Corporation has redeemed any outstanding
shares of Series A Preferred Stock and, if such redemption of Series A
Preferred Stock is effected by the issuance of a Series A Exchange Note,
such Series A Exchange Notes shall be senior to any Series B or Series C
Exchange Note issued in exchange for Series B or Series C Preferred Stock,
(y) the Corporation has paid all accrued dividends on all outstanding
shares of Series B or Series C Preferred stock, as applicable, and (z) the
Series B Indenture or the Series C Indenture, as applicable, shall be
executed and delivered by the Corporation and the applicable trustee
thereunder.
(e) REDEMPTION PRICE. For each share of Series B and Series C
Preferred Stock which is to be redeemed for cash, the Corporation will be
obligated on the Redemption Date to pay to the holder thereof (upon surrender of
the certificate representing such share to the Corporation's stock transfer
agent, or if none, to the Corporation at its principal office) an amount in cash
equal to the Redemption Price. If the funds of the Corporation legally
available for redemption of shares of Series B and Series C Preferred Stock on
any Redemption Date are insufficient to redeem the total number of shares to be
redeemed on such date, those funds which are legally available shall be used to
redeem the maximum possible number of shares ratably (as nearly as practicable)
among the holders of the shares to be redeemed based upon the aggregate
Redemption Price of such shares held by each such holder. As and when
additional funds of the Corporation are legally available for the redemption of
shares, such funds shall as soon as practicable be used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any
Redemption Date.
(f) DIVIDENDS AFTER REDEMPTION DATE. Subject to any limitations
contained elsewhere in this Certificate of Designations, no share of Series B or
Series C Preferred Stock is entitled to any dividends accruing after the
redemption of such share. On the date of such redemption dividends will cease
to accrue, all rights of the holder of such share as such holder will cease, and
such shares will not be deemed to be outstanding.
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(g) REDEEMED OR OTHERWISE ACQUIRED SHARES. Any shares of Series B or
Series C Preferred Stock which are redeemed or otherwise acquired by the
Corporation will be retired and cancelled and may not be reissued.
(h) RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS. Notwithstanding
anything in this Certificate of Designations to the contrary, no dividend
payment or other distribution or redemption may be made with respect to Series B
or Series C Preferred Stock if such payment or other distribution or redemption
will be in contravention of the restrictions or limitations on such payments or
other distributions or redemption contained in (i) this Certificate of
Designations, (ii) the Debt Agreements, (iii) the Subordinated Note or (iv) any
and all applicable state or federal laws, rules, and regulations or in any and
all orders of any state or federal governmental authority.
(i) REDEMPTION METHODS. Any redemption of shares of Series B or
Series C Preferred Stock under and pursuant to Sections 2.3(a), 2.3(b), or
2.3(c) shall be conducted in the same applicable manner as described with
respect to the Series A Preferred Stock in Section 1.2(i) above.
Notwithstanding any other provision of this Certificate of Designations, if on
or after the date on which any notice of redemption is first sent to the holders
of shares to be redeemed, funds necessary for the redemption shall be available
therefor and shall have been irrevocably deposited or set aside, then,
notwithstanding that the certificates evidencing the shares so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called shall cease to accrue after the date fixed for redemption,
shares shall no longer be deemed outstanding, owners thereof shall cease to be
stockholders, and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price
without interest thereon upon surrender of their certificates therefor) shall
terminate.
2.4 VOTING RIGHTS. Except as otherwise set forth below and as
otherwise required by law, holders of shares of Series B or Series C Preferred
Stock shall have no voting rights. In connection with the right to vote, each
holder of Series B Preferred Stock will have one vote for each share held and
each holder of Series C Preferred Stock shall have one vote for each share held.
Any shares of Series B or Series C Preferred Stock held by the Corporation or
its Subsidiary shall not have voting rights hereunder and shall not be counted
in determining the presence of a quorum. So long as the Series B Preferred
Stock or Series C Preferred Stock is outstanding, the Corporation shall
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not without the affirmative vote or written consent of the holders of all
outstanding Series B and Series C Preferred Stock, each voting as a separate
series:
(a) amend, alter, modify, or repeal any provision of the Certificate
of Incorporation or the By-Laws of the Corporation in any manner which affects
adversely the relative rights, preferences, qualifications, powers, limitations,
or restrictions of that series of Preferred Stock;
(b) increase the authorized number of shares of capital stock of the
Corporation, or authorize, issue, or otherwise create securities convertible
into any shares of capital stock of the Corporation other than shares of Series
A (only for purposes of paying dividends in-kind on Series A Preferred Stock),
Series B or Series C Preferred Stock, Common Stock and/or Junior Shares; or
(c) voluntarily effect any reclassification of the Series B or Series
C Preferred Stock.
Whenever dividends on Series B Preferred Stock shall be in arrears in
an amount equal to at least six quarterly dividends (whether or not
consecutive), (i) the number of members of the Board of Directors of the
Corporation shall be increased by one, effective as of the time of the election
of such directors as hereinafter provided and (ii) the holders of Series B
Preferred Stock (voting separately as a series) will have the exclusive right to
vote for and elect one additional director of the Corporation at any meeting of
the stockholders of the Corporation at which directors are to be elected held
during the period such dividends remain in arrears. The right of the holders of
Series B Preferred Stock to vote for such one additional director shall
terminate when all accrued and unpaid dividends on the Series B Preferred Stock
have been declared and paid in cash or in-kind or set apart for payment. The
term of office of any director so elected shall terminate immediately upon the
termination of the right of the holders of the Series B Preferred Stock to vote
for such one additional director.
Whenever dividends on Series C Preferred Stock shall be in arrears in
an amount equal to at least six quarterly dividends (whether or not
consecutive), (iii) the number of members of the Board of Directors of the
Corporation shall be increased by one, effective as of the time of the election
of such directors as hereinafter provided and (iv) the holders of Series C
Preferred Stock (voting separately as a series) will have the exclusive right to
vote for and elect one additional director of the
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Corporation at any meeting of the stockholders of the Corporation at which
directors are to be elected held during the period such dividends remain in
arrears. The right of the holders of Series C Preferred Stock to vote for such
one additional director shall terminate when all accrued and unpaid dividends on
the Series B Preferred Stock have been declared and paid in cash or in-kind or
set apart for payment. The term of office of any director so elected shall
terminate immediately upon the termination of the right of the holders of the
Series C Preferred Stock to vote for such one additional director.
The foregoing right of the holders of Series B and Series C Preferred
Stock with respect to the election of one director per series may be exercised
at any annual meeting of the stockholders of the Corporation or at any special
meeting of the stockholders of the Corporation held for such purpose. If the
right to elect an additional director shall have accrued to the holders of
Series B Preferred Stock or Series C Preferred Stock more than 90 days preceding
the date established for the next annual meeting of stockholders, the President
of the Corporation shall, within 20 days after the delivery to the Corporation
at its principal office of a written request for a special meeting signed by the
holders of at least 10% of the Series B Preferred Stock or Series C Preferred
Stock, as applicable, then outstanding, call a special meeting of the holders of
the Series B or Series C Preferred Stock, as applicable, to be held within 60
days after the delivery of such request for the purpose of electing such
additional directors. The holders of the Series B Preferred Stock voting as a
series shall have the right to remove without cause at any time and replace any
director such holder shall have elected pursuant to this Section. The holders
of the Series C Preferred Stock voting as a series shall have the right to
remove without cause at any time and replace any director such holder shall have
elected pursuant to this Section.
2.5 LIQUIDATION. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the corporation, the holders of shares
of Series B and Series C Preferred Stock shall be entitled to receive the Series
B or Series C Preferred Liquidation Value of such shares held by them in
preference to and in priority over any distributions upon Junior Shares. Upon
payment in full to the holders of shares of Series B and Series C Preferred
Stock of the Series B and Series C Preferred Liquidation Values of such shares,
the holders of shares of Series B or Series C Preferred Stock shall not be
entitled, as such holders, to any further participation in any distribution of
assets of the Corporation. If the assets of the Corporation are not sufficient
to pay in full the Series B and
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Series C Preferred Liquidation Value payable to the holders of shares of Series
B or Series C Preferred Stock, the holders of all such shares shall share
ratably (to the exclusion of any other holders of capital stock) in such
distribution of assets.
(b) Neither a consolidation or merger of the Corporation with or into
any other corporation, nor a sale or transfer of all or part of the
Corporation's assets for cash, securities or other property, nor a merger of any
other corporation with or into the Corporation, shall be considered a
liquidation, dissolution, or winding-up of the Corporation within the meaning of
this Section 2.5.
III. DEFINITIONS.
As used in this Certificate of Designations, the terms indicated below
shall have the following respective meanings:
"AFFILIATE", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, by contract or otherwise. Additionally, with respect to Wingate
Partners, L.P., the term "Affiliate" for purposes of the definition of Change of
Control shall be deemed to include James T. Callier, Jr., Frederick B. Hegi,
Jr., Thomas W. Sturgess, James A. Johnson, Dennis J. Johnson, Sue Goddard,
Wallace R. Hawley, Lee Walton, Bud Applebaum, Estate of Howard Beasley, Callier
Buy-Out Partners, as defined in the Agreement of Limited Partnership of Wingate
Partners, L.P., Peter J. Wodtke, and pension plans for the benefit of such
individuals or entities.
"BANK HOLDING COMPANY AFFILIATE" shall mean, with respect to any
Person subject to the provisions of Regulation Y, (i) if such Person is a bank
holding company, any company directly or indirectly controlled by such bank
holding company, and (ii) otherwise, the bank holding company that controls such
Person and any company (other than such Person) directly or indirectly
controlled by such bank holding company.
"BUSINESS SALE" means a transaction or a series of transactions,
whether effected by sale or exchange of securities or assets, merger or
consolidation, or otherwise, that results in the sale of the Corporation or its
business to an Independent
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Third Party or group of Independent Third Parties, pursuant to which such
Independent Third Party or group of Independent Third Parties would acquire (a)
capital stock of the Corporation possessing the voting power under normal
circumstances to elect a majority of the Board or (b) all or substantially all
of the Corporation's assets determined on a consolidated basis.
"CASH-OUT EVENT" means the occurrence of a Business Sale, a Change in
Control, a Qualified Public Offering, or a Recapitalization. In the case of the
Series C Preferred Stock, "CASH-OUT EVENT" shall also include the expiration of
the Agreement for Data Processing Services, dated January 31, 1995, between ASI
and Affiliated Computer Services, Inc. (together with all amendments thereto and
extensions, modifications, and waivers thereof, the "Supply Agreement")
providing for the furnishing of information systems services to Supply Co., or
the early termination of the Supply Agreement for any reason other than
termination of such agreement by Affiliated Computer Services, Inc.
"CHANGE IN CONTROL" means an occurrence by which Wingate Partners and
its Affiliates and Cumberland Capital Corporation and its Affiliates shall have
collectively sold or otherwise disposed of and received the pecuniary benefit of
33-1/3% of the Common Stock legally or beneficially owned by them collectively
as of March 31, 1995, subject to appropriate adjustment in the event of a stock
split, reverse stock split or similar transaction and excluding any sales or
other dispositions made by any of them to employees of the Corporation or of any
of its Subsidiaries of up to 10% of such holdings.
"CONTROL" (including, with its correlative meanings, "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") shall mean, with respect to any Person, the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities, by contract, or otherwise.
"DEBT AGREEMENTS" means the Credit Agreement, dated as of March 30,
1995, among ASI, AHI, The Chase Manhattan Bank (National Association) and the
other lenders named therein, and the notes and other documents and instruments
executed and delivered in connection therewith, as said agreement and notes and
other documents and instruments may from time to time be amended or
supplemented, and any agreements evidencing any renewal, extension, refinancing,
refunding or replacement thereof.
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"DIVIDEND BASE" of any share of Series A, Series B, or Series C
Preferred Stock means $1,000, subject to appropriate adjustment in the event of
a stock split, reverse stock split or similar transaction.
"INDEPENDENT THIRD PARTY" means any person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Common Stock
on a fully diluted and converted basis (a "5% OWNER"), who is not controlling,
controlled by, or under common control with the Corporation or any such 5%
Owner, and who is not the spouse or descendant (by birth or adoption) of any
such 5% Owner or a trust for the benefit of such 5% Owner and/or such other
persons.
"JUNIOR SHARES" means with respect to the priority of any class or
series of Preferred Stock, shares of Common Stock, or shares of any other series
or class of Preferred Stock of the Corporation which are designated as junior to
such series in the Certificate of Incorporation or any amendment thereto, or in
the resolution designating the class or series of such Preferred Stock and any
warrants, options, or other rights to acquire or purchase such securities. The
shares of Series B and Series C Preferred Stock are Junior Shares in relation to
the Series A Preferred Stock. Any shares of Additional Preferred Stock,
regardless of designation, shall be deemed Junior Shares in relation to the
Series A, Series B, and Series C Preferred Stock.
"LIQUIDATION DATE" means as to any series of Preferred Stock, the
first date on which the assets of the Corporation are distributed to the holders
of such series of Preferred Stock in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation.
"MARKETABLE SECURITIES" shall mean Common Stock or common stock or
other securities of any corporation that is the successor to substantially all
of the business or assets of the Corporation or the ultimate parent of such
successor which is (or will, upon distribution thereof, be) listed on the New
York Stock Exchange, the American Stock Exchange, or approved for quotation on
the Nasdaq National Market System.
"PERSON" means an individual, partnership, association, joint venture,
corporation, business, trust, estate, unincorporated organization, or government
or any department, agency or subdivision thereof.
"PREFERRED DIVIDEND PAYMENT DATE" shall mean each April 30, July 31,
October 31, and January 31, or the next
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business day following each such date of any year commencing with the initial
payment April 30, 1992.
"QUALIFIED PUBLIC OFFERING" means a sale in a public offering or
series of public offerings, registered under the Securities Act, of Common
Stock; PROVIDED, HOWEVER, that such offering or series of offerings shall not be
deemed to be a Qualified Public Offering UNLESS such offering or offerings shall
have resulted in (A)(i) public ownership of not less than 20% of the Common
Stock of the Corporation on a fully-diluted basis (which such shares of Common
Stock are listed upon the New York Stock Exchange, the American Stock Exchange,
or are approved for quotation on the Nasdaq National Market System), and
(ii) such offering or offerings shall have resulted in receipt by the
Corporation of aggregate cash proceeds (after deduction of underwriter discounts
and the costs associated with such offering or offerings) of at least $37.5
million, or (B) the holders of Common Stock of the Corporation receive, as a
result of such offering or offerings, cash, Marketable Securities, or a
combination thereof valued at not less than $1 million.
"RECAPITALIZATION" means a recapitalization of the Corporation
pursuant to which the holders of Common Stock of the Corporation receive cash,
securities (other than shares junior to the Series B or Series C Preferred
Stock), property, or other assets and such consideration is valued at not less
than $1 million.
"REDEMPTION DATE" as to any share of Series A, Series B, or Series C
Preferred Stock means the date specified in the notice of any redemption at the
Corporation's option or the applicable date specified herein in the case of any
other redemption; PROVIDED that no such date will be a Redemption Date unless
the applicable Redemption Price is actually paid or has been set aside for
payment to such stockholder in full as of such date, and if not so paid or set
aside for payment to such stockholder in full, the Redemption Date will be the
date on which such Redemption Price is fully paid.
"REDEMPTION PRICE" of any share of Series A, Series B, or Series C
Preferred Stock means as of the Redemption Date an amount equal to the sum of
$1,000 plus the aggregate of accrued and unpaid dividends on such share to such
date, subject to appropriate adjustment in the event of a stock split, reverse
stock split, or similar transaction.
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"REGULATION Y" shall mean Regulation Y promulgated by the Board of
Governors of the Federal Reserve System (12 C.F.R. Section 225) or any successor
regulation.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES A EXCHANGE NOTES" means the Series A Subordinated Exchange
Notes which may be issued by the Corporation to the holders of the Series A
Preferred Stock upon a redemption pursuant to Section 1.2(d). Such Series A
Exchange Notes shall have a maturity date of July 31, 1999 and shall bear
interest at the rate of 10% for interest paid in cash and 13% for interest paid
in-kind in additional Series A Exchange Notes. Such interest shall be payable
quarterly in arrears, either in cash or in-kind, on the Preferred Dividend
Payment Dates. Such Series A Exchange Notes will permit a required prepayment
to the same amounts on the same dates as would have applied to an optional or
mandatory redemption of the Series A Preferred Stock (assuming that the exchange
pursuant to Section 1.2(d) had not occurred), shall not contain any financial
covenants by, or other restrictive covenants (other than limitations imposed by
senior debt and applicable law) on, the Corporation, and shall provide for an
event of default only upon the Corporation's failure to make payments in
accordance with its terms or upon a bankruptcy filing by or against the
Corporation which filing is not dismissed within 60 days after filing. The
payment of principal, interest, and premium (if any) will be subordinated to
senior debt (to be defined as any obligation of the Corporation or its
subsidiaries for borrowed money including the obligations under the Subordinated
Note).
"SERIES A INDENTURE" means an indenture for the Series A Exchange
Notes that qualifies under and is in compliance with the Trust Indenture Act to
be entered into between the Corporation and a trustee acceptable to the
Corporation and a majority of the holders of Series A Exchange Notes and
containing such terms and provisions as are approved by the Board of Directors
of the Corporation.
"SERIES A PREFERRED DIVIDEND RATE" means a rate of 10% per annum,
computed on the basis of a 360-day year and twelve 30-day months, to be applied
to the Dividend Base for the Series A Preferred Stock as from time to time
adjusted; provided that in the event of and during continuance of a failure by
the Corporation to pay in cash a dividend on the Series A Preferred Stock on any
Preferred Dividend Payment Date or to make any redemption payment when due, the
dividend rate shall be increased
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to 13% per annum, and shall remain at said rate until such failure is cured,
such increase to be effective retroactive to the first day of the accrual period
for which the dividend was not paid.
"SERIES A, SERIES B, AND SERIES C PREFERRED LIQUIDATION VALUE" of any
share of Series A, Series B, or Series C Preferred Stock means as of any
particular date an amount equal to the sum of $1,000 plus the aggregate of
accrued and unpaid dividends on such share to such date, subject to appropriate
adjustment in the event of a stock split, reverse stock split, or similar
transaction.
"SERIES B AND SERIES C EXCHANGE NOTES" means the Series B Subordinated
Exchange Notes and the Series C Subordinated Exchange Notes which may be issued
by the Corporation to the holders of the Series B or Series C Preferred stock,
as applicable, upon a redemption pursuant to Section 2.3(d). Series B Exchange
Notes shall have a maturity date of July 31, 1999. The Series C Exchange Notes
shall have a maturity date of January 31, 2002, with payments to be made thereon
in four equal (as nearly as practicable) installments of principal on April 30,
2001, July 31, 2001, October 31, 2001, and January 31, 2002. Both Series B and
Series C Exchange Notes shall bear interest at the rate of 11% for interest paid
in cash and 12% for interest paid in-kind in additional Series B or Series C
Exchange Notes, as applicable. Such interest shall be payable quarterly in
arrears, either in cash or in-kind as would have applied to the Series B and
Series C Preferred Stock Dividend on the Preferred Dividend Payment Dates. Such
Notes will permit or require prepayments in the same amounts and at the same
dates as would have applied to an optional or mandatory redemption of the Series
B and Series C Preferred Stock (assuming that the exchange pursuant to
Section 2.3(d) had not occurred), shall not contain any financial covenants by,
or other restrictive covenants (other than limitations imposed by senior debt
and applicable law) on, the Corporation, and shall provide for an event of
default only upon the Corporation's failure to make payments in accordance with
its terms or upon a bankruptcy filing by or against the Corporation, which
filing is not dismissed within 60 days after filing. The payment of principal,
interest, and premium (if any) will be subordinated to senior debt (to be
defined as any obligation of the Corporation for borrowed money including the
obligations under the Subordinated Note) and payments in respect of Series A
Exchange Notes.
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"SERIES B INDENTURE" means an indenture for the Series B Exchange
Notes that qualifies under and is in compliance with the Trust Indenture Act to
be entered into between the Corporation and a trustee acceptable to the
Corporation and a majority of the holders of Series B Exchange Notes and
containing such terms and provisions as are approved by the Board of Directors
of the Corporation.
"SERIES B OR SERIES C PREFERRED DIVIDEND RATE" means a rate of 9% per
annum computed on the basis of a 360-day year and twelve 30-day months, to be
applied to the Dividend Base for the Series B or Series C Preferred Stock as
from time to time adjusted; provided that in the event of and during continuance
of a failure by the Corporation to pay in cash a dividend on the Series B or
Series C Preferred Stock on any Preferred Dividend Payment Date or to make any
redemption payment when due, the dividend rate shall be increased to 10% per
annum, and shall remain at said rate until such failure is cured, such increase
to be effective retroactive to the first day of the accrual period for which the
dividend was not paid.
"SERIES C INDENTURE" means an indenture for the Series C Exchange
Notes that qualifies under and is in compliance with the Trust Indenture Act to
be entered into between the Corporation and a trustee acceptable to the
Corporation and a majority of the holders of Series C Exchange Notes and
containing such terms and provisions as are approved by the Board of Directors
of the Corporation.
"SUBORDINATED NOTE" means the Senior Subordinated Credit Agreement,
dated as of March __, 1995, among ASI, AHI, The Roebling Fund, a Delaware
statutory business trust, and the other lenders named therein, and the notes and
other documents and instruments executed and delivered in connection therewith,
as said agreement and notes and other documents and instruments may from time to
time be amended or supplemented, and any agreements evidencing any renewal,
extension, refinancing, refunding or replacement thereof.
"SUBSIDIARY" means any corporation, a majority (by number of votes) of
the voting securities of which shall, at the time as of which any determination
is being made, be owned by the Corporation, directly or indirectly through one
or more Subsidiaries.
"SUPPLY CO." means United Stationers Supply Co., an Illinois
corporation and wholly-owned subsidiary of the Corporation.
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"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended, the rules and regulations promulgated thereunder, and any successor
legislation thereto.
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IN WITNESS WHEREOF, United Stationers Inc. has caused this
certificate to be signed on its behalf by its President and attested by its
Secretary, this 30th day of March, 1995.
UNITED STATIONERS INC.
By: /s/ Thomas W. Sturgess
---------------------------------------
Thomas W. Sturgess
Chairman of the Board and Chief
Executive Officer
ATTEST:
/s/ Gary G. Miller
- ------------------------------
Gary G. Miller
Secretary
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RESTATED
CERTIFICATE OF INCORPORATION
OF
UNITED STATIONERS INC.
The undersigned hereby certifies as follows:
1. The original Certificate of Incorporation of the corporation was filed
in the office of the Secretary of State of Delaware on August 18,1981.
2. The Restated Certificate of Incorporation of the corporation is as
follows:
FIRST: The name of the corporation is:
UNITED STATIONERS INC.
SECOND: The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the corporation are:
(a) To acquire by purchase, subscription or otherwise, and to
own, hold, sell, negotiate, assign, hypothecate, deal in, exchange,
transfer, mortgage, pledge or otherwise dispose of, alone or in syndicate
or otherwise in conjunction with others, any shares of the capital stock,
scrip, rights, participating certificates, certificates of interest, or any
voting trust certificates in respect of the shares of capital stock of, or
any bonds, mortgages, securities, evidences of indebtedness, acceptances,
commercial paper, choses in action, and obligations of every kind and
description (all of the foregoing being hereinafter sometimes called
"securities") Issued or created by any public, quasi-public or private
corporation, joint stock company, association, partnership, common law
trust, firm or individual, or of any combinations, organizations or
entities whatsoever, irrespective of their forms or the names by which they
may be described, or of the Government of the United States of America, or
any foreign government, or of any state, territory, municipality or other
political subdivision, or of any government agency; and to issue in
exchange therefor, in the manner permitted by law, shares of the capital
stock, bonds or other obligations of the corporation; and while the holder
or owner of any such securities, to possess and exercise in respect thereof
any and all rights, powers and privileges of ownership, including the right
to vote thereon: and, to the extent now or hereafter permitted by law, to
aid by loan, guarantee or otherwise those issuing, creating or responsible
for any such securities: and to do any and all lawful things designed to
protect, preserve, improve or enhance the value of any such securities.
(b) To carry on and conduct any and every kind of manufacturing,
distribution and service business; to manufacture, process, fabricate,
rebuild, service, purchase or otherwise acquire, to design, invent or
develop, to import or export, and to distribute, lease, sell, assign or
otherwise dispose of and generally deal in and with raw materials,
products, goods, wares, merchandise and real and personal property of every
kind and character; and to provide services of every kind and character.
(c) To conduct any lawful business, to exercise any lawful purpose
and power, and to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law.
<PAGE>
(d) In general, to possess and exercise all the powers and privileges
granted by the Delaware General Corporation Law or by any other law of
Delaware or by this Certificate of Incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or
purposes of the corporation.
FOURTH: The total number of shares which the corporation shall have
authority to issue is Forty-One Million Five Hundred Thousand (41,500,000)
shares, of which One Million Five Hundred Thousand (1,500,000) shares, without
par value, shall be Preferred Stock (hereinafter referred to as "Preferred
Stock") and Forty Million (40,000,000) shares of the par value of Ten Cents
($.10) each shall be Common Stock (hereinafter referred to as "Common Stock").
Such shares of Preferred Stock and Common Stock may be issued for such
consideration, not less than the par value thereof, as shall be fixed from time
to time by the Board of Directors, and shares issued for not less than the
consideration so fixed shall be fully paid and non-assessable.
The Preferred Stock may be issued from time to time in one or more
series with such distinctive serial designations and:
(a) may have such voting powers, full or limited, or may be without
voting powers and may have such sinking fund provisions;
(b) may be subject to redemption at such time or times and at such
prices;
(c) may be entitled to receive such dividends (which may be
cumulative or non-cumulative) at such rate or rates, on such conditions,
and at such times, and payable in preference to, or in such relation to,
the dividends payable on any other class or classes or series of stock;
(d) may have such rights and preferences upon dissolution of, or upon
any distribution of the assets of, the corporation;
(e) May be made convertible into, or exchangeable for, shares of any
other class or classes or of any other series of the same or any other
class or classes or series of stock of the corporation, at such price or
prices or at such rates of exchange, and with such adjustments; and
(f) shall have such other designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof,
as shall hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such Preferred Stock from time to time adopted by the
board of directors pursuant to authority so to do which is hereby vested in the
board of directors.
Each share of Common Stock shall entitle the holder thereof to one vote, in
person or by proxy, at any and all meetings of the stockholders of the
corporation, on all propositions before such meetings.
The number of authorized shares of any class of stock of the corporation,
including but without limitation, the Preferred Stock and the Common Stock, may
be increased or decreased by the affirmative vote of the holders of a majority
of the stock of the corporation entitled to vote.
No holder of the stock of the corporation of any class shall have any
preferential, preemptive, or other rights to subscribe for or to purchase from
the corporation any stock of the corporation or any class whether or not now
authorized, or to purchase any bonds, certificates of indebtedness, debentures,
notes, obligations, warrants, options or other securities, which the corporation
may at any time issue, whether or not the same shall be convertible into stock
of the corporation of any class, or which entitle the owner or holder to
purchase stock of the corporation of any class.
<PAGE>
FIFTH: In furtherance and not in limitation of the power conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause the mortgage or pledge of the property and
assets of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
SIXTH: All power of the corporation shall be exercised by or under the
direction of the board of directors except as otherwise provided herein or
required by law. For the management of the business and for the conduct of the
affairs of the corporation, and in further creation, definition, limitation and
regulation of the power of the corporation and of its directors and of its
stockholders. it is further provided as follows:
1. ELECTION OF DIRECTORS. Election of directors need not be by
written ballot unless the by-laws of the corporation shall so provide.
2. NUMBER TENURE AND QUALIFICATIONS. The total number of directors
which shall constitute the whole board shall be nine (9), but this number
may be increased or decreased from time to time by amendment of the by-laws
by the directors or the stockholders from time to time, provided that in no
case shall the number of directors constituting the whole board be less
than three (3). The directors shall be divided into three (3) classes with
respect to their term of office, class I, class II, and class Ill, as
nearly equal in number as possible, to be determined by the board of
directors. The directors shall be elected at the annual meetings of the
stockholders, except as provided in Section 4 of this Article Sixth. At the
1987 annual meeting of stockholders, the class I directors shall be elected
to a term of office expiring at the 1988 annual meeting of stockholders,
the class II directors shall be elected to a term of office expiring at the
1989 annual meeting of stockholders and the class III directors shall be
elected to a term of office expiring at the 1990 annual meeting of
stockholders; and, in each case, each director shall hold office until his
respective successor shall have been elected and qualified. At each annual
election of directors held after the 1987 annual meeting of stockholders,
the directors elected to succeed those directors whose terms then expire
shall be elected to a term of office expiring at the third succeeding
annual meeting of stockholders and shall hold office until their respective
successors are elected and qualified. In the event of any change in the
number of directors, any resultant increase or decrease in the number of
directorships shall be apportioned among the three classes of directors so
as to maintain all classes as nearly equal in number of directors as
possible, as shall be determined by the whole board of directors at the
time of such increase or decrease. Directors need not be stockholders or
residents of Delaware.
3. BUSINESS AT ANNUAL MEETINGS; NOMINATIONS TO BOARD OF DIRECTORS.
(a) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(i) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the board of directors; (ii) otherwise properly
brought before the meeting by or at the direction of the board of
directors; or (iii) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal
executive offices of the corporation not later than the close of business
on the tenth (10th) day following the date on which notice of such annual
meeting is first given to
<PAGE>
stockholders. A stockholder's notice to the secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting:
(A) a brief description of the business desired to be brought before the
annual meeting; (B) the name and address (which shall be the same as they
appear in the corporation's records if the stockholder is a record holder)
of the stockholder proposing such business; (C) the class and number of
shares of the corporation which are beneficially owned by the stockholder;
and (D) any material interest of the stockholder in such business. The
presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 3(a),
and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be
transacted.
(b) NOMINATIONS. Subject to the rights of holders of any class
or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of directors
may be made by the board of directors or a committee appointed by the board
of directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the
election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to
the secretary of the corporation not later than (i) with respect to an
election to be held at an annual meeting of stockholders, ninety (90) days
prior to the anniversary date of the immediately preceeding annual meeting,
and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the
seventh (7th) day following the date on which notice of such meeting is
first given to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the
stockholder is a record owner of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed
by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the United States Securities
and Exchange Commission; and (e) the consent of each such nominee to serve
as a director of the corporation if so elected. The presiding officer of
the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise fixed
pursuant to the provisions of Article Fourth hereof relating to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation or the right to elect directors under
specified circumstances, newly created directorships resulting from any increase
in the number of directors and any vacancies on the board of directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the board of directors. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
5. REMOVAL OF DIRECTORS. Subject to the rights of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation or the right to elect directors under specified circumstances, any
director may be removed by the holders of a majority of the voting power of the
then outstanding shares of the "Voting Stock" (defined in Article Seventh),
voting together as a single class, but only for cause Except as may otherwise be
provided by law, cause for removal shall be construed to exist only if:
<PAGE>
(a) the director whose removal is proposed has been convicted of a
felony by a court of competent jurisdiction and such conviction is no
longer subject to direct appeal, or
(b) the director whose removal is proposed has been adjudged by a
court of competent jurisdiction to be liable for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders or (ii)
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law.
6. STOCKHOLDER ACTION. Except as otherwise required by law and subject
to the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation:
(a) special meetings of stockholders of the corporation may be called
only by the chairman of the board, the president, the board of directors
pursuant to a resolution approved by a majority of the entire board of
directors, or at the written request of the holders of at least eighty
percent (80%) of the voting power of the then outstanding Voting Stock
acting together as a single class. Such request shall state the purpose or
purposes of the proposed meeting. The notice of any such special meeting
shall be issued within sixty (60) days after the corporation's receipt of
such request. Written notice of a special meeting stating the time, place
and object thereof shall be given to each stockholder entitled to vote
thereat, at least fifty (50) days before the date fixed for the meeting.
Business transacted at any special meeting of stockholders shall be limited
to the purposes stated in the notice; and
(b) any action required or permitted to be taken at any annual or
special meeting of the stockholders of the corporation may be taken without
a meeting, without prior notice and without a vote, only if a consent in
writing setting forth the actions so taken shall be signed by the holders
of at least eighty percent (80%) of the voting power of the then
outstanding Voting Stock acting together as a single class. All such
consents must be executed and delivered to the secretary of the corporation
not less than thirty (30) days nor more than sixty (60) days prior to the
action to be taken pursuant to such consent.
7. BY-LAW AMENDMENTS. The board of directors shall have power to make,
alter, amend and repeal the by-laws (except to the extent that any by-laws
adopted by the stockholders may expressly prohibit amendment by the board of
directors). Any by-laws made by the directors under the powers conferred hereby
may be altered, amended or repealed by the directors or by the stockholders.
Anything to the contrary herein contained notwithstanding, no by-law shall be
adopted or amended by the board of directors or the stockholders which shall be
inconsistent with any of the terms and provisions of this certificate of
incorporation
8. ADDITIONAL POWERS OF DIRECTORS. In addition to the powers and
authority hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the corporation; subject,
nevertheless, to the provisions of the statutes of Delaware, of this certificate
of incorporation, and to any by-laws from time to time made by the stockholders;
provided, however, that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-laws had not been made.
SEVENTH: SECTION 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
(a) HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to any
affirmative vote required by law or this certificate of incorporation, and
except as otherwise expressly provided in Section 2 of this Article
Seventh:
(i) any merger or consolidation of the corporation or any
"Subsidiary" (as herein defined) with (a) any "Interested Stockholder"
(as herein defined) or (b) any other corporation (whether or not
itself an Interested Stockholder) which is, or after such
<PAGE>
merger or consolidation would be, an "Affiliate" (as herein defined)
of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate of any
Interested Stockholder of the assets of the corporation or any
Subsidiary having a Fair Market Value equal to ten percent (10%) or
more of the total assets reflected on the corporation's most recently
published consolidated balance sheet; or
(iii) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for securities or other property (or a combination thereof), other
than solely cash, having a Fair Market Value equal to ten percent
(10%) or more of the total assets reflected on the corporation's most
recently published consolidated balance sheet; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf
of an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation, or any
merger or consolidation of the corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of
the corporation or any Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall, in the case of each of clauses (i) through (v) above, require
the affirmative vote of the holders of at least eighty percent (80%)
of the voting power of the then outstanding shares of "Voting Stock"
(as herein defined) of the corporation voting together as a single
class (it being understood that for purposes of this Article Seventh,
each share of the Voting Stock shall have the number of votes granted
to it pursuant to Article Fourth of this certificate of incorporation)
(b) OTHER VOTE REQUIREMENTS NOT CONTROLLING. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or in any agreement with
any national securities exchange or otherwise.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of
Section 1 of this Article Seventh shall not BE applicable to any particular
"Business Combination" (as herein defined), and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of this certificate of incorporation, if all of the conditions specified in
either of the following paragraphs (a) and (b) are met:
(a) APPROVAL BY DISINTERESTED DIRECTORS. The Business Combination
shall have been approved by a majority of the "Disinterested Directors" (as
herein defined); OR
(b) PRICE AND PROCEDURAL REQUIREMENTS. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the "Fair Market Value"
(as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
<PAGE>
(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of Common
Stock acquired by it (1) within the two-year period immediately
prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder,
whichever is higher; and
(B) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date
being referred to in this Article Seventh as the "Determination
Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share
by holders of shares of any other class of outstanding Voting Stock
shall be at least equal to the highest of the following (it being
intended that the requirements of this paragraph (b)(ii) shall be
required to be met with respect to every class of outstanding Voting
Stock, whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock);
(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of such
class of Voting Stock acquired by it (1) within the two-year
period immediately prior to the Announcement Date or (2) in the
transaction in which it became an Interested Stockholder,
whichever is higher;
(B) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution 6r winding up of the corporation; and
(C) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the form used
to acquire the largest number of shares of such class of Voting Stock
previously acquired by it. The price determined in accordance with
paragraphs (b)(i) and (b)(ii) of this Section 2 shall be subject to
appropriate adjustment in the event of any stock dividend. stock
split, combination of shares or similar event.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on the outstanding Preferred Stock; (b) there shall have
been (1) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Disinterested
Directors, and (2) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual rate
is approved by a majority of the Disinterested Directors; and (c) such
<PAGE>
Interested Stockholder shall have not become the beneficial owner of
any additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except proportionately
as a stockholder), of any loans, advances guarantees pledges or other
financial assistance or any tax credits or other tax advantages
provided by the corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public stockholders of the corporation
at least thirty (30) days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
SECTION 3. CERTAIN DEFINITIONS. For the purposes of this Article
Seventh:
(a) The term "person" means any individual, firm, corporation or
other entity.
(b) The term "Interested Stockholder" means any person (other than
the corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of
twenty percent (20%) or more of the voting power of the outstanding
Voting Stock; or
(ii) is an Affiliate of the corporation and at any time
within the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of twenty percent
(20%) or more of the voting power of the then outstanding Voting
Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933.
Anything in this Section 3(b) to the contrary notwithstanding, the term
"Interested Stockholder" shall not include (A) the corporation, or (B) any
person or entity which, at the date of adoption of - certificate of
incorporation by the Board of Directors (the "Adoption Date") and at all
times (except during one or more periods not exceeding seven (7) days in
length) between the Adoption Date and the date of the proposed Business
Combination, holds at least one of the capacities listed below:
(1) is a Subsidiary;
(2) is an employee benefit plan of the corporation or any
Subsidiary;
(3) is a member of the Executive Committee of the Board of
Directors of the corporation;
(4) is a beneficial owner of fifteen percent (15%) or more of
the outstanding common stock of the corporation; or
(5) is any entity in which one or more of the persons or
entities referred to in clauses (B)(1), (B)(2), (B)(3) or (B)(4) of
this Section 3(b) owns or holds more than fifty percent (50%) of the
equity interest or voting power.
<PAGE>
(c) The term "Business Combination" as used in this Article
Seventh means any transaction which is referred to in any one or more
of clauses (i) through (v) of paragraph (a) of Section 1 of this
Article Seventh.
(d) A person shall be a "Beneficial Owner" of any Voting Stock:
(i) which such person or any of its "Affiliates" or
"Associates" (as herein defined) beneficially owns, directly or
indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or
indirectly, by any other person with which such person or any of
its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
(e) For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of Paragraph (d) of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options or otherwise.
(f) The term "Affiliate" of, or a person "Affiliated" with, a
specific person, means a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
(g) The term "Associate" used to indicate a relationship with any
person, means (1) any corporation or organization (other than this
corporation or a majority-owned subsidiary of this corporation) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class of equity
securities,'(2) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity, (3) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person, or (4) any investment company registered under the Investment
Company Act of 1940 for which such person or any affiliate of such person
serves as investment adviser.
(h) The term "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
corporation; provided, however, that for the purposes of the definitions of
Interested Stockholder set forth in paragraph (b) of this Section 3, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
corporation.
(i) The term "Disinterested Director" means any member of the Board
of Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with the Interested Stockholder
and is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
(j) The term "Fair Market Value" means. (i) in the case of stock, the
highest closing
<PAGE>
sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing last sale price or closing bid quotation with respect to a share of
such stock during the 3-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by the Board of Directors in good faith; and (ii) in the case of
property other than cash or stock, the fair market value of such property
on the date in question as determined by the Board of Directors in good
faith.
(k) The term "Voting Stock" means all outstanding shares of capital
stock of the corporation or another corporation entitled to vote generally
in the election of directors, and each reference to a proportion of shares
of Voting Stock shall refer to such proportion of the votes entitled to be
cast by such shares.
(l) In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used
in paragraphs (b)(i) and (b)(ii) of Section 2 of this Article Seventh shall
include the shares of Common Stock and/or the shares of any other class of
outstanding Voting Stock retained by the holders of such shares.
(m) The term "Announcement Date" shall have the meaning specified in
Section 2(b)(i)(A).
(n) The term "Determination Date" shall have the meaning specified in
Section 2(b)(i)(B).
SECTION 4. POWERS OF THE BOARD OF DIRECTORS. A majority of the
Directors shall have the power and duty to determine for the purposes of this
Article Seventh, on the basis of information known to them after reasonable
inquiry: (a) whether a person is an Interested Stockholder, (b) the number of
shares of Voting Stock beneficially owned by any person, (c) whether a person is
an Affiliate or Associate of another, and (d) the Fair Market Value of any
assets which are the subject of any Business Combination. A majority of the
Directors shall have the further power to interpret all of the terms and
provisions of this Article Seventh.
SECTION 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
STOCKHOLDERS. Nothing contained in this Article Seventh shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
EIGHTH: Indemnification.
(a) The corporation shall indemnify (i) any person who was a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit, and (ii) any person who was or is party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees),
<PAGE>
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any such action, suit or proceeding, in
each case to the fullest extent permissible under Section 145 of the
Delaware General Corporation Law, as amended from time to time, or the
indemnification provisions of any successor statute.
(b) The foregoing provisions of this Article Eighth shall be
deemed to be a contract between the corporation and each director and
officer who serves in such capacity at any time while this Article Eighth
is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts.
The foregoing rights of indemnification shall not be deemed exclusive of
any other rights to which any director or officer may be entitled apart
from the provisions of this Article Eighth. The board of directors in its
discretion shall have power on behalf of the corporation to enter into
agreements with respect to the indemnification of any person, other than a
director or officer, made a party to any action, suit or proceeding by
reason of the fact that he, his testator or intestate, is or was an
employee, agent or otherwise acting on behalf of the corporation or serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise.
NINTH: No director of the corporation shall be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or any successor provision, or (iv) for any transaction from which the
director derived an improper personal benefit.
TENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ELEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the by-laws of the corporation.
TWELFTH: The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. The foregoing and
anything contained elsewhere in this certificate of incorporation to the
contrary notwithstanding, the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to alter, amend, repeal, or adopt
any provision inconsistent with Article Sixth, Section 2; Article Sixth, Section
3; Article Sixth, Section 4; Article Sixth, Section 6; and Article Seventh.
<PAGE>
3. This Restated Certificate of Incorporation has been duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, United Stationers Inc. has caused this certificate to
be signed by Joel D. Spungin, its President, and attested by Otis H. Halleen,
its corporate secretary this 9th day of January, 1987.
UNITED STATIONERS INC.
By: /s/ Joel D. Spungin
--------------------------------
Joel D. Spungin, PRESIDENT
(CORPORATE SEAL)
ATTEST:
By /s/ Otis H Halleen
-----------------------------------
Otis H Halleen, CORPORATE SECRETARY
<PAGE>
[Letterhead of Weil, Gotshal & Manges LLP]
October 2, 1997
United Stationers Inc.
2200 East Golf Road
Des Plaines, Illinois 60016
Ladies and Gentlemen:
We have acted as counsel to United Stationers Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of a Registration
Statement on Form S-2 (No. 333-34937) (as amended, the "Registration Statement")
under the Securities Act of 1933, as amended, relating to the proposed offering
of up to 4,600,000 shares of the common stock, $0.10 par value (the "Common
Stock"), of the Company, of which up to 2,000,000 shares will be issued and sold
by the Company (the "Company Shares") and up to 2,600,000 shares will be sold by
certain existing stockholders (the "Selling Stockholders") of the Company (the
"Secondary Shares"). Of the Secondary Shares that may be sold by the Selling
Stockholders, 1,413,132 shares are issued and outstanding as of the date hereof
(the "Outstanding Shares"), up to 1,115,663 shares will be issued by the Company
upon the exercise of certain warrants to purchase Common Stock ("Warrants") in
connection with the Offering (the "Warrant Shares"), and up to 71,205 shares
will be issued by the Company upon the conversion of certain shares of nonvoting
common stock, $0.01 par value, of the Company (the "Nonvoting Common Stock") in
connection with the Offering (the "Nonvoting Shares").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Restated Certificate of
Incorporation of the Company, as amended (the "Charter"), and such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such inquiries of such officers and representatives
as we have deemed relevant and necessary as a basis for the opinions hereinafter
set forth.
<PAGE>
United Stationers Inc.
October 2, 1997
Page 2
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been independently established,
we have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware.
2. The Company Shares have been duly authorized and, when issued and
delivered to the underwriters (the "Underwriters") against payment therefor in
accordance with the terms of the Underwriting Agreement among the Company, the
Selling Stockholders, Bear Stearns & Co. Inc., Morgan Stanley & Co.
Incorporated, Robertson, Stephens & Company LLC and Chase Securities Inc., as
representatives for the Underwriters, will be validly issued, fully paid and
nonassessable and free of preemptive rights pursuant to law or in the Company's
Charter.
3. The Outstanding Shares are validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights
pursuant to law or in the Company's Charter.
4. The Warrant Shares, when issued by the Company upon the exercise
of the Warrants and receipt by the Company of the exercise price therefor in
accordance with their respective terms, will be validly issued, fully paid and
nonassessable and free of preemptive rights pursuant to law or in the Company's
Charter.
5. The Nonvoting Shares, when issued by the Company upon conversion
of the outstanding shares of Nonvoting Common Stock in accordance with the terms
of the Company's Charter will be validly issued, fully paid and nonassessable
and free of preemptive rights pursuant to law or in the Company's Charter.
The opinions expressed herein are limited to the corporate laws of the
State of Delaware and we express no opinion as to the effect on the matters
covered by this letter of the laws of any other jurisdiction.
<PAGE>
United Stationers Inc.
October 2, 1997
Page 3
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
AMENDMENT NO. 4 TO WARRANT AGREEMENT, effective as of July 7, 1997
(this "AMENDMENT"), among Chase Manhattan Investment Holdings, L.P. (as
successor-in-interest to Chase Manhattan Investment Holdings, Inc.), Wingate
Partners, L.P., a Delaware limited partnership ("WPLP"), Wingate Partners II,
L.P., a Delaware limited partnership ("WPLP II"), Wingate Affiliates, L.P., a
Delaware limited partnership ("WALP"), Wingate Affiliates II, L.P., a Delaware
limited partnership ("WALP II"), and Daniel J. Good, an individual ("GOOD")
(each of WPLP, WPLP II, WALP, WALP II and Good as successors-in-interest to
Whirlpool Financial Corporation), The Long-Term Credit Bank of Japan, Ltd.,
Chicago Branch, and Arab Banking Corporation (B.S.C.), (collectively, the
"HOLDERS"), United Stationers Inc. (as successor-in-interest to Associated
Holdings, Inc.) (the "ISSUER"), and, for certain purposes, United Stationers
Supply Co. (as successor-in-interest to Associated Stationers, Inc.) (the
"OPERATING COMPANY").
WHEREAS, the Issuer and the Holders desire to amend the Warrant
Agreement, dated as of January 31, 1992, among the Issuer, the Holders, and the
Operating Company (as heretofore amended, the "WARRANT AGREEMENT"); and
WHEREAS, in connection with such amendment, the Issuer desires to
issue Additional Warrants (as hereinafter defined) to the Holders as
satisfaction in full of any and all obligations through the date hereof under
Section 11 of the Warrant Agreement and Section 4 of the Warrants;
NOW THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms used but not defined herein shall have
the respective meanings assigned to such terms in the Warrant Agreement as
amended hereby.
SECTION 2. AMENDMENTS. The Warrant Agreement shall be amended as
follows:
2.1 The definition of "Participating Securities" in Section 1 of
the Warrant Agreement shall be amended by inserting "other than Common
Stock" after the word "security" in first line thereof.
2.2 Section 11 of the Warrant Agreement shall be deleted in its
entirety and replaced with the words "Intentionally Omitted."
<PAGE>
2.3 Section 13.14 of the Warrant Agreement shall be amended and
restated in its entirety as follows:
"13.14. COVENANT OF WINGATE AND CUMBERLAND. None of Wingate,
Cumberland or any transferee of the Employee Shares shall transfer or
sell the Employee Shares to any Person other than a management
employee of the Operating Company or any individual retirement account
of any such management employee."
SECTION 3. ISSUANCE OF ADDITIONAL WARRANTS.
3.1 The Issuer hereby agrees to issue to the Holders additional
Warrants (collectively, the "ADDITIONAL WARRANTS") exercisable for the
number of shares of Common Stock set forth on EXHIBIT A hereto.
3.2 Each of the Holders hereby acknowledges and agrees that the
delivery of the Additional Warrants by the Issuer pursuant to this
Amendment constitutes satisfaction in full through the date hereof of any
and all obligations under Section 11 of the Warrant Agreement and under
Section 4 of such Holder's Warrant.
3.3 Each of the Holders hereby further acknowledges and agrees
that the issuance of the Additional Warrants does not give rise to any
adjustment of such Holder's Warrants under Section 4 thereof.
SECTION 4. REPRESENTATION AND WARRANTIES OF THE ISSUER. The Issuer
represents and warrants to the Holders as follows:
4.1 NO BREACH. The execution, delivery and performance of this
Amendment by the Issuer and the Operating Company, including the issuance
of the Additional Warrants, and the consummation by the Issuer and the
Operating Company of the transactions contemplated hereby and thereby will
not (a) violate the certificate of incorporation or by-laws of the Issuer
or the Operating Company, (b) violate any loan or credit agreement to which
the Issuer or the Operating Company is a party or is bound, or result in a
breach of or default under any other instrument or agreement to which the
Issuer or the Operating Company is a party or is bound in a way that could
reasonably be expected to have a material adverse effect on (i) the
property, business, operations, financial condition, prospects,
liabilities, or capitalization of the Issuer and the Subsidiaries taken as
a whole, (ii) the ability of either the Issuer or the Operating Company to
perform its obligations under this Amendment, the Warrant Agreement, as
2
<PAGE>
amended hereby, the Warrants, or the Registration Rights Agreement, or
(iii) the validity or enforceability of this Amendment, the Warrant
Agreement, as amended hereby, the Warrants, or the Registration Rights
Agreement, or (iv) the rights and remedies of the Holders under the Warrant
Agreement, as amended hereby, the Warrants, or the Registration Rights
Agreement, (c) violate any judgment, order, injunction, decree, or award
against or binding upon the Issuer or the Operating Company, (d) result in
the creation of any material lien upon any of the properties or assets of
the Issuer or the Operating Company, or (e) violate any law, rule or
regulation relating to the Issuer or the Operating Company; PROVIDED, that
as used in this Section 4.1, references to the Warrants and the Warrant
Agreement shall be deemed to include all amendments to the date hereof.
4.2 CORPORATE ACTION. Each of the Issuer and the Operating
Company has all necessary corporate power and authority to execute,
deliver, and perform its respective obligations under this Amendment and
the Additional Warrants; the execution, delivery and performance by the
Issuer and the Operating Company of this Amendment and the Additional
Warrants have been duly authorized by all necessary corporate action
(including all stockholder action to the extent necessary) on the part of
the Issuer and the Operating Company, respectively; and this Amendment and
the Additional Warrants have been duly executed and delivered by the Issuer
and the Operating Company and constitute the legal, valid, and binding
obligations of the Issuer and the Operating Company, enforceable against
the Issuer and the Operating Company in accordance with their terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting the rights of
creditors generally as applicable to the Issuer, or in the case of the
Operating Company, as applicable to it, and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 PRIOR REPRESENTATIONS AND WARRANTIES. After giving effect
to this Amendment, (i) each of the Issuer and the Operating Company is in
compliance with its respective obligations under the Warrant Agreement and
the Registration Rights Agreement and (ii) except for the representations
made by the Issuer in Section 3.07 of the Warrant Agreement, all
representations and warranties made by the Issuer in Section 3 of the
Warrant Agreement are true and correct on and as of the date hereof with
the same force and effect as if made on and as of such date (or, if any
such
3
<PAGE>
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date).
SECTION 5. REPRESENTATION AND WARRANTIES OF HOLDERS. Each Holder
severally represents and warrants that the aggregate number of shares of Common
Stock into which the Warrants (including, without limitation, Additional
Warrants as set forth on EXHIBIT A hereto) held by such Holder are exercisable
set forth next to such Holder's signature hereto is correct as of 12:01 A.M. New
York City time on July 7, 1997, and such Holder had not sold or otherwise
transferred any Warrants representing the right to purchase such number of
shares as of such date and time.
SECTION 6. AGREEMENT OF OPERATING COMPANY. The Operating Company
hereby ratifies and confirms all of its obligations under, and remakes as of the
date hereof all guaranties and waivers contained in, Section 7.03 of the Warrant
Agreement.
SECTION 7. DOCUMENTS OTHERWISE UNCHANGED. Except as herein provided,
the Warrant Agreement shall remain unchanged and in full force and effect, and
each reference to the "Warrant Agreement" and words of similar import in the
Warrant Agreement, as amended hereby, and in the Registration Rights Agreement
shall be a reference to the Warrant Agreement, as heretofore amended and as
amended hereby, and as the same may be further amended, supplemented, and
otherwise modified and in effect from time to time. Each reference to "Warrant"
or "Warrants" in the Warrant Agreement, as amended hereby, this Amendment or the
Registration Rights Agreement shall be deemed to include the Additional
Warrants.
SECTION 8. COUNTERPARTS. This Amendment may be executed in any
number of counterparts, each of which shall be identical and all of which, when
taken together, shall constitute one and the same instrument, and any of the
parties hereto may execute this Amendment by signing any such counterpart.
SECTION 9. EXPENSES. Without limiting its obligations under Section
13.04 of the Warrant Agreement, the Issuer agrees to pay, on demand, all
reasonable out-of-pocket costs and expenses of the Holders (including the
reasonable fees and disbursements of Milbank, Tweed, Hadley & McCloy, special
New York counsel to Chase Manhattan Investment Holdings, L.P., as agent for
certain Holders) incurred in connection with the negotiation, preparation,
execution and delivery of this Amendment.
4
<PAGE>
SECTION 10. BINDING EFFECT. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
SECTION 11. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the law of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
UNITED STATIONERS INC.
By /s/ James A. Pribel
------------------------------
Name: James A. Pribel
Title: Treasurer
UNITED STATIONERS SUPPLY CO.
By /s/ James A. Pribel
------------------------------
Name: James A. Pribel
Title: Treasurer
CHASE MANHATTAN INVESTMENT HOLDINGS, L.P. NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
By: CHASE CAPITAL PARTNERS, ARE EXERCISABLE INCLUSIVE
General Partner OF ADDITIONAL WARRANTS:
476,067.28
By /s/ George E. Kelts
------------------------------
Name: George E. Kelts
Title: Managing Director
and Chief Administrative
Officer
THE LONG-TERM CREDIT BANK OF NUMBER OF SHARES OF COMMON
JAPAN, LTD., CHICAGO BRANCH STOCK FOR WHICH WARRANTS
ARE EXERCISABLE INCLUSIVE
By /s/ Brady S. Sadek OF ADDITIONAL WARRANTS:
------------------------------ 173,449.91
Name: Brady S. Sadek
Title: Vice President and
Deputy General Manager
ARAB BANKING CORPORATION (B.S.C.) NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
ARE EXERCISABLE INCLUSIVE
By /s/ Sheldon Tilney OF ADDITIONAL WARRANTS:
------------------------------ 115,633.27
Name: Sheldon Tilney
Title: Deputy General
Manager
6
<PAGE>
NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
/s/ Daniel J. Good ARE EXERCISABLE INCLUSIVE
- ------------------------------ OF ADDITIONAL WARRANTS:
Daniel J. Good 42,804.38
WINGATE PARTNERS, L.P. NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
By: WINGATE MANAGEMENT ARE EXERCISABLE INCLUSIVE
COMPANY, L.P., its OF ADDITIONAL WARRANTS:
general partner 171,802.67
By /s/ Frederick B. Hegi, Jr.
--------------------------------
Name: Frederick B. Hegi, Jr.
Title: General Partner
WINGATE AFFILIATES, L.P. NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
ARE EXERCISABLE INCLUSIVE
By /s/ Frederick B. Hegi, Jr. OF ADDITIONAL WARRANTS:
-------------------------------- 2,981.85
Name: Frederick B. Hegi, Jr.
Title: General Partner
WINGATE PARTNERS II, L.P. NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
By: WINGATE MANAGEMENT ARE EXERCISABLE INCLUSIVE
COMPANY II, L.P., its OF ADDITIONAL WARRANTS:
general partner 240,539.59
By: WINGATE MANAGEMENT
LIMITED, L.L.C., its
general partner
By: /s/ Frederick B. Hegi, Jr.
--------------------------------
Name: Frederick B. Hegi, Jr.
Title: Principal
WINGATE AFFILIATES II, L.P. NUMBER OF SHARES OF COMMON
STOCK FOR WHICH WARRANTS
ARE EXERCISABLE INCLUSIVE
By /s/ Frederick B. Hegi, Jr. OF ADDITIONAL WARRANTS:
-------------------------------- 4,157.68
Name: Frederick B. Hegi, Jr.
Title: General Partner
7
<PAGE>
EXHIBIT A
ADDITIONAL WARRANTS
SHARES OF COMMON
STOCK INTO WHICH
ADDITIONAL WARRANTS
HOLDER: ARE EXERCISABLE:
- ------ ---------------
Chase Manhattan
Investment Holdings, L.P.. . . . . . . . . . . . 570.60
The Long-Term Credit Bank
of Japan, Ltd., Chicago Branch . . . . . . . . . 207.89
Arab Banking Corporation (B.S.C.). . . . . . . . 138.59
Good, Daniel J.. . . . . . . . . . . . . . . . . 51.30
Wingate Partners, L.P. . . . . . . . . . . . . . 205.91
Wingate Affiliates, L.P. . . . . . . . . . . . . 3.57
Wingate Partners II, L.P.. . . . . . . . . . . . 288.31
Wingate Affiliates II, L.P.. . . . . . . . . . . 4.98
8
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT (this "Agreement"), made and entered into as of the 1st day of
June, 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 Daniel H. Bushell (the "Executive").
W I T N E S S E T H
WHEREAS, Supply and the Executive have entered into an employment agreement
dated October 1, 1995 and which is still in effect as of the date written above
(the "Old Agreement");
WHEREAS, the Supply and the Executive desire to hereby amend and restate
the Old Agreement in its entirety; and
WHEREAS, the Parent desires to be a party to 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 annual Base Salary as
defined in 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) gross negligence or willful misconduct in the performance of
his duties; or
<PAGE>
(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 of Supply" shall mean the first to occur of
the following events:
(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 (i) 40 percent or more of the Voting
Stock of the Parent or (ii) 60 percent or more of the Voting
Stock of Supply;
(2) the majority of the Board consists of individuals other than
Incumbent Directors;
(3) Supply adopts any plan of liquidation providing for the
distribution of all or substantially all of the assets of
Supply 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 Supply 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 Supply; or
(5) the merger or consolidation of Supply 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 United Stationers Inc.
(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
2
<PAGE>
exists on the date the disability first occurs, then a "disability" as defined
under Code Section 22(e)(3).
(h) "Effective Date" shall mean June 1, 1997.
(i) "Good Reason" shall mean the occurrence of any of the following
without the Executive's prior written consent:
(1) the reduction of the Executive's Base Salary as determined
in accordance with 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/or 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 -- PROVIDED, HOWEVER, that any
change in the office or officer to whom the Executive
reports, or in the Executive's duties or title which does
not diminish the Executive's status within the Company,
shall not be deemed "Good Reason";
(5) any relocation of the Company's headquarters or the
Executive's principal place of employment outside of the
Chicago metropolitan area; or
(6) the breach by the Company of any of its covenants or
obligations under this Agreement.
(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" shall mean a notification as specified
in Section 2.
(l) "Section 2 Notification Date" shall mean the date of a Section 2
Notification as specified in Section 2.
(m) "Subsidiary" shall mean any corporation of which the Company
owns, directly or indirectly, more than 50 percent of the Voting Stock or any
other business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent.
(n) "Term of Employment" shall mean the period as specified under
Section 2 below.
3
<PAGE>
(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.
(a) The Company hereby continues to employ the Executive, and the
Executive hereby accepts such continued employment, for the Term of Employment,
which shall begin on the Effective Date and shall end following the giving of a
notice by the Executive or the Company pursuant to Section 24 below. If the
Executive gives such notice, the Term of Employment shall end at the end of the
90-day period following the date on which the Executive notifies the Company in
writing in accordance with Section 24 below that he wants the Term of Employment
to so end. If the Company gives such notice, the Term of Employment shall end
on the later of (i) the 2nd anniversary of the date on which the Company
notifies the Executive in writing in accordance with Section 24 below that it
wants the Term of Employment to so end or (ii) the 3rd anniversary of the
Effective Date. A notification by the Executive or the Company to the other
Party under this Section 2 shall be referred to herein as a "Section 2
Notification," and the date that the Section 2 Notification occurs shall be
referred to herein as a "Section 2 Notification Date."
(b) Notwithstanding anything contained herein to the contrary,
following the date that a Change in Control of Supply occurs:
(1) if the Executive makes a Section 2 Notification during the
period beginning on the date of such Change in Control of
Supply and ending on the 3rd anniversary of the date of such
Change in Control of Supply, the Term of Employment shall
end at the end of the 15-day period following such Section 2
Notification Date (in lieu of the 90-day period provided in
Section 2(a) above);
(2) if the Executive makes a Section 2 Notification on or after
the 3rd anniversary of the date of such Change in Control of
Supply, the Term of Employment shall end at the end of the
90-day period (in accordance with Section 2(a) above)
following such Section 2 Notification Date; and
(3) if the Company makes a Section 2 Notification at any time
following the date of such Change in Control of Supply, the
Term of Employment shall end on the later of (i) the 2nd
anniversary of such Section 2 Notification Date or (y) the
3rd anniversary of the date of the Change in Control of
Supply.
(c) Notwithstanding anything contained herein to the contrary, the
Term of Employment is subject to earlier termination in accordance with Section
11 below.
3. POSITION, DUTIES AND RESPONSIBILITIES.
On the Effective Date and continuing for the remainder of the Term of
Employment, the Executive shall be employed as an Executive Vice President and
Chief Financial Officer of the Company and in accordance with the authority and
direction of the Board shall render such administrative, financial and other
related services to the Company and its Subsidiaries and affiliates as may be
required, or as the Board may from time to time direct,
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commensurate with such position and title. 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
reasonably prevented by sickness, accident 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 Chief Executive Officer of the Company.
4. BASE SALARY.
The Executive shall be paid an annual base salary at no less than an
annual rate of $265,000 (the "Base Salary"), 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 as determined by the Company in
its sole discretion.
6. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
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.
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.
8. 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.
9. PERQUISITES.
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.
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10. VACATION.
The Executive shall be entitled to at least 20 paid vacation days
(being at least 4 weeks) per calendar year which shall accrue and otherwise be
subject to the Company's vacation policy.
11. 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 the Company shall pay or
provide, as applicable, or shall cause to be paid or to be provided, as
applicable, to the Executive's estate and/or his beneficiaries, as the case may
be, the following:
(1) Base Salary earned but not paid prior to the date of the
Executive's death;
(2) all annual incentive compensation awards which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional amount equal to the sum of (i) the Base Salary
in effect on the date of the Executive's death and (ii) the
annual incentive compensation award paid or payable with
respect to the year immediately preceding the year in which
the Executive's death occurs, 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) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(5) 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 DUE 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 Company shall pay
or provide, as applicable, or shall cause to be paid or provided, as applicable,
to the Executive the following:
(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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional 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
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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) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(5) 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 24 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 Company shall pay or provide, as
applicable, or shall cause to be paid or provided, as applicable, to the
Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(4) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
If the event constituting Cause is not curable by the Executive, the Company may
terminate the Executive's employment for Cause effective on the date that the
Company notifies the Executive in writing in accordance with Section 24 below
that his employment is so terminated. If the event constituting Cause is
curable, the Company shall notify the Executive in writing in accordance with
Section 24 below that it intends to terminate his employment for Cause effective
at the end of the 60-day period following the date that the Company so notifies
the Executive (the "Cause Notification Date"), such notice to state in detail
the particular event that constitutes Cause. If the event constituting Cause is
curable, the Executive shall have a reasonable opportunity to cure the event
constituting Cause following the Cause Notification Date; PROVIDED, HOWEVER,
that if the Executive has not cured such event to the reasonable satisfaction of
the Company (and the Company has not waived in writing the Executive's failure
to cure) during the 30-day period following the Cause Notification Date (the
"Cause Curing Period"), the Company
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may terminate the Executive's employment effective following the end of the
Cause Curing Period; PROVIDED FURTHER, HOWEVER, that the Company may not
terminate the Executive's employment for Cause after the end of the 90-day
period following the date the Board first learns that the event constituting
Cause has occurred.
(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 Company shall pay or
provide, as applicable, or shall cause to be paid or provided, as applicable, to
the Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional amount equal to (x) the sum of (i) the Base
Salary with respect to the year in which the termination of
the Executive's employment occurs 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, multiplied
by (y) a fraction the numerator of which is the number of
full months that would have been remaining in the Term of
Employment assuming for this purpose that the Company had
made a Section 2 Notification on the date of the termination
of the Executive's employment and the denominator of which
is 12 (the "Section 11(d) Severance Benefit"). The Section
11(d) Severance Benefit shall be payable over a period of
time beginning on the date of the termination of the
Executive's employment and ending on the date that the Term
of Employment would have ended assuming for this purpose
that the Company had made a Section 2 Notification on the
date of the termination of the Executive's employment (the
"Section 11(d) Severance Period") in equal installments in
accordance with the Company's regular payroll practice;
(4) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement;
(5) continued participation for the Executive, his spouse and
his eligible dependents, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization
and life insurance plans, programs and/or arrangements in
which he was participating on the date of the termination of
his employment until the earlier of:
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(A) the end of the Section 11(d) Severance Period; or
(B) the date, or dates, the Executive receives equivalent
medical, dental, hospitalization and life insurance
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 11(d)(5)(A) above,
or if the Executive's spouse and/or eligible dependents
are precluded from coverage under any employee benefit
plan, program or arrangement as provided in Section
11(d)(5)(A) above due to the fact that the Executive is
no longer an employee of the Company, he shall be
provided with the after-tax economic equivalent of the
benefits to be provided under the plan, program or
arrangement in which he, his spouse and/or his eligible
dependents are unable to participate for the period
specified in this Section 11(d)(5);
(Y) the economic equivalent of any benefit not provided
shall be deemed to be the lowest cost that would be
incurred by the Executive in obtaining a comparable
benefit himself on a non-group basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(e) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE ON OR
AFTER A SECTION 2 NOTIFICATION DATE. If, on or after the date on which the
Company has made a Section 2 Notification, 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 Company shall pay or provide, as applicable, or
shall cause to be paid or provided, as applicable, to the Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
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(3) an additional amount equal to (x) the sum of (i) the Base
Salary with respect to the year in which the termination of
the Executive's employment occurs 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, multiplied
by (y) a fraction the numerator of which is the number of
full months remaining in the Term of Employment and the
denominator of which is 12 (the "Section 11(e) Severance
Benefit"). The Section 11(e) Severance Benefit shall be
payable over a period of time beginning on the date of the
termination of the Executive's employment and ending on the
date that the Term of Employment was otherwise scheduled to
end (the "Section 11(e) Severance Period") in equal
installments in accordance with the Company's regular
payroll practice;
(4) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement;
(5) continued participation for the Executive, his spouse and
his eligible dependents, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization
and life insurance plans, programs and/or arrangements in
which he was participating on the date of the termination of
his employment until the earlier of:
(A) the end of the Section 11(e) Severance Period; or
(B) the date, or dates, the Executive receives equivalent
medical, dental, hospitalization and life insurance
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 11(e)(5)(A) above,
or if the Executive's spouse and/or eligible dependents
are precluded from coverage under any employee benefit
plan, program or arrangement as provided in Section
11(e)(5)(A) above due to the fact that the Executive is
no longer an employee of the Company, he shall be
provided with the after-tax economic equivalent of the
benefits to be provided under the plan, program or
arrangement in which he, his spouse and/or his eligible
dependents are unable to participate for the period
specified in this Section 11(e)(5);
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(Y) the economic equivalent of any benefit not provided
shall be deemed to be the lowest cost that would be
incurred by the Executive in obtaining a comparable
benefit himself on a non-group basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(f) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON. The
Executive may terminate his employment for Good Reason effective at the end of
the 60-day period following the date that the Executive notifies the Company in
writing in accordance with Section 24 below that he intends to terminate his
employment for Good Reason (the "Good Reason 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 Executive (and the Executive has not waived the
Company's failure to cure) during the 30-day period following the Good Reason
Notification Date (the "Good Reason Curing Period"), the Executive may terminate
his employment effective following the end of the Good Reason Curing Period;
PROVIDED FURTHER, HOWEVER, that the Executive may not terminate his employment
for Good Reason after the end of the 90-day period following the date the
Executive first learns that the event constituting Good Reason has occurred.
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 11(d) ("Termination of Employment by the Company Without
Cause Prior to a Section 2 Notification Date") above or Section 11(e)
("Termination of Employment by the Company Without Cause On or After a Section 2
Notification Date") above, as the case may be; PROVIDED, HOWEVER, that if the
Executive terminates his employment for Good Reason based on a reduction in Base
Salary under Section 1(i)(1) above, then the Base Salary to be used in
determining the amount payable in accordance with Section 11(d)(3) or 11(e)(3)
above, as the case may be, shall be the Base Salary in effect immediately prior
to such reduction.
(g) VOLUNTARY TERMINATION OF EMPLOYMENT BY THE EXECUTIVE WITHOUT GOOD
REASON OR FOLLOWING A CHANGE IN CONTROL OF SUPPLY. 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 11(c) ("Termination of
Employment by the Company for Cause") above. If the Executive makes a Section 2
Notification, and the Executive terminates his employment as of the end of the
Term of Employment (as determined in accordance with Section 2 above), the
termination of the Executive's employment under this Section 11(g) shall not be
deemed a breach of this Agreement by the Executive. Notwithstanding anything
contained herein to the contrary, if the Executive voluntarily terminates his
employment without Good Reason, other than a termination of his employment due
to death or Disability, during the period beginning on the 180th day following
the date of a Change in Control of Supply and ending on the 3rd anniversary of
the date of such Change in Control of Supply, the Executive shall be entitled to
the same payments and benefits as provided in Section 11(f) ("Termination of
Employment by the Executive for Good Reason") above.
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(h) RETIREMENT. The Executive agrees that, in any event, his
employment hereunder shall terminate automatically on his 65th birthday. If his
employment is terminated pursuant to this Section 11(h), the Executive shall be
entitled to any amounts earned, accrued or owing to the Executive but not yet
paid under Section 4, 5, 6, 7, 8, 9 and/or 10 above in accordance with the terms
of the applicable plan, program or arrangement. In addition, the Executive, his
spouse and his eligible dependents shall be entitled to participate in any
Company health plan then in effect for retirees in accordance with the terms of
such plan.
(i) REDUCTION OF PARACHUTE PAYMENTS TO ACHIEVE MAXIMUM PAYMENT TO
EXECUTIVE. 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, would be 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. For example, assume the
Executive's "base amount" was $100 and the aggregate payment to be made was
$301. If the resulting after-tax payment would be (i) $110 treating the $301
payment as a "parachute payment" and (ii) $150 if the $301 payment were reduced
to $299, then the $301 payment would be reduced to $299. On the other hand,
assuming the Executive's "base amount" was $100 and the aggregate payment to be
made was $400, if the resulting after-tax payment would be (x) $160 treating the
$400 payment as a "parachute payment" and (y) $150 if the $400 payment were
reduced to $299, then the $400 payment would NOT be reduced to $299. The
determinations to be made with respect to this Section 11(i) 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 2 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 select 1 such accounting firm and those 2
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 of Supply is required by
this Section 11(i), 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.
(j) CONTINUED HEALTH-CARE COVERAGE TO AGE 65. In the event of any
termination of the Executive's employment under Sections 11(a), 11(b), 11(d),
11(e) or 11(f), or if the Executive voluntarily terminates his employment
without Good Reason, other than a termination of his employment due to death or
Disability, during the period beginning on the 180th day following the date of a
Change in Control of Supply and ending on the 3rd anniversary of the date of
such Change in Control of Supply, the Company shall provide continued coverage
for the Executive and/or 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
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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 11(d)(5) or 11(e)(5) above, the Executive,
his spouse or his eligible dependents, as applicable, 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.
(k) NO MITIGATION; NO OFFSET. In the event of any termination of the
Executive's employment under this Section 11, the Executive shall be under no
obligation to seek other employment; PROVIDED, HOWEVER, that there shall be an
offset against the benefit payable under Section 11(b)(3) above, the Section
11(d) Severance Benefit payable under Section 11(d)(3) above or the Section
11(e) Severance Benefit payable under Section 11(e)(3) above (collectively, the
"Benefits Subject To Offset") by the amount of any remuneration (whether in
cash, property, services or otherwise) paid or provided to or on behalf of the
Executive with respect to any services performed by the Executive (whether as an
employee, a consultant or otherwise) for a party other than the Company or any
of its Subsidiaries during the period that the Benefits Subject To Offset are
payable ("Services"). The Executive agrees that if he performs or will perform
Services then he shall promptly notify the Company in accordance with Section 24
below that he has or will perform such Services. The Company agrees that it
shall not offset any other payments or benefits it is obligated to make or
provide under this Agreement other than the Benefits Subject To Offset specified
in this Section 11(k).
12. 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 12 and
Section 13 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 or with Associated Stationers, Inc.) (collectively,
"Confidential Information"). Confidential Information includes, but is not
limited to, the following especially sensitive types of information:
(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;
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(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 (other than application software which is
generally commercially available), 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's 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 all other ideas, developments, processes, techniques,
designs and other information which may be of benefit to the Company, which the
Executive conceives, makes or develops during his employment with the Company
(whether or not during working hours or with use or assistance of Company
facilities, materials or personnel, and which either (i) relate to or arise out
of any part of the Company's business in which the Executive participates, or
(ii) incorporate or make use of Confidential Information or Proprietary
Materials) (all items referred to in this Section 12 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, instruments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
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(d) CONFIDENTIALITY DUTIES OF EXECUTIVE. The Executive shall, except
as may be required by law, during the Term of Employment and thereafter for the
longest time period permitted by applicable law:
(1) comply with all of the Company's instructions (whether oral
or written) for preserving the confidentiality of
Confidential Information and Proprietary Materials;
(2) use Confidential Information and Proprietary Materials only
in furtherance of the Company's business, and pursuant to
the Company's directions;
(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, except as
the Company directs;
(5) not sell, give, loan or otherwise transfer any copy of all
or any part of Proprietary Materials to any person who is
not an employee of the Company, except as the Company
directs;
(6) not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company
directs, all or any part of Confidential Information or
Proprietary Materials; 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 11 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 all Company property,
including but not limited to, 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 and
other such things, lawfully possessed by the Executive which relate solely to
taxes payable by the Executive, rights or benefits due to the Executive or the
terms of the Executive's employment with the Company, shall not be deemed
Company property or Proprietary Materials for purposes of this Section 12.
13. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that during the Term of
Employment and during the longer of (i) the 2-year period following the end of
the Term of Employment, (ii) the Section 11(d) Severance Period, or (iii) the
Section 11(e) Severance Period, 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
be connected with or directly or indirectly own or have any other interest in or
right with respect to (other than through ownership
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of not more than 1 percent of the outstanding shares of a corporation's stock
which is listed on a national securities exchange) any enterprise (other than
for the Company or for the benefit of the Company) which is a wholesale
distributor of office products (whether or not such enterprise is a wholesale
distributor of other products) and has annual sales with respect to the
wholesale distribution of office products in excess of $1,000,000.
(b) Notwithstanding Section 13(a) above, if the Executive's
employment hereunder is terminated during the Term of Employment, the Executive
may be engaged in the business of selling office products at retail and the
Executive may be engaged by any company whose principal business is the
manufacture of office products; PROVIDED, HOWEVER, that the Executive shall
comply in all other respects with Section 13(a) above.
(c) The Executive covenants and agrees that during the Term of
Employment and during the longer of (i) the 2-year period following the end of
the Term of Employment, (ii) the Section 11(d) Severance Period, or (iii) the
Section 11(e) Severance Period, the Executive shall not at any time, directly or
indirectly, solicit (x) any client or customer of the Company or any of its
subsidiaries with respect to a competitive activity which violates Section 13(a)
above or (y) 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.
(d) 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.
(e) The Parties acknowledge that in the event of a breach or
threatened breach of Section 13(a) and/or Section 13(c) above, the Company shall
not have an adequate remedy at law. Accordingly, in the event of any breach or
threatened breach of Section 13(a) and/or Section 13(c) 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 13(a) and/or Section 13(c) 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 13(a) and/or Section 13(c) above, including the
recovery of damages.
(f) 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.
14. 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;
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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 transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law.
15. 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.
16. 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, including but not
limited to the employment agreement between the Executive and Associated
Stationers, Inc. dated January 31, 1992 and the Old Agreement.
17. 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.
18. 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.
19. 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.
20. 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.
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21. BENEFICIARIES/REFERENCES.
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.
22. 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.
23. 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, and all other costs, fees and expenses, including, without
limitation, attorneys' fees of each Party, shall be assessed and awarded by the
arbitrator in favor of the Party prevailing as to such dispute and against the
other Party.
24. 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 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
Attention: Stewart Reifler, Esq.
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If to the Executive: Mr. Daniel H. Bushell
1829 Morgan Circle
Naperville, Illinois 60563
and a copy to: Levin & Ginsburg Ltd.
180 North LaSalle Street, 22nd Floor
Chicago, Illinois 60601-2794
Attention: Robert S. Levin, Esq. (#328001)
25. 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
construction of any provision of this Agreement.
26. 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:/s/ Frederick B. Hegi, Jr.
---------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
UNITED STATIONERS SUPPLY CO.
By:/s/ Randall W. Larrimore
---------------------------
Randall W. Larrimore
President and Chief Executive Officer
/s/ Daniel H. Bushell
---------------------------
Daniel H. Bushell
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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. Disability Insurance in accordance with insurance policy
15. Club and Association Dues - in accordance with Company Policy
16. Financial and Tax Consulting - and tax return preparations, in
accordance with Company Policy
17. 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
18. Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
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EMPLOYMENT AGREEMENT
AGREEMENT (this "Agreement"), made and entered into as of the 1st day of
June, 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 Steven R. Schwarz (the "Executive").
W I T N E S S E T H
WHEREAS, Supply and the Executive have entered into an employment agreement
dated October 1, 1995 and which is still in effect as of the date written above
(the "Old Agreement");
WHEREAS, the Supply and the Executive desire to hereby amend and restate
the Old Agreement in its entirety; and
WHEREAS, the Parent desires to be a party to 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 annual Base Salary as
defined in 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) gross negligence or willful misconduct in the performance of
his duties; or
<PAGE>
(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 of Supply" shall mean the first to occur of
the following events:
(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 (i) 40 percent or more of the Voting
Stock of the Parent or (ii) 60 percent or more of the Voting
Stock of Supply;
(2) the majority of the Board consists of individuals other than
Incumbent Directors;
(3) Supply adopts any plan of liquidation providing for the
distribution of all or substantially all of the assets of
Supply 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 Supply 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 Supply; or
(5) the merger or consolidation of Supply 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 United Stationers Inc.
(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
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exists on the date the disability first occurs, then a "disability" as defined
under Code Section 22(e)(3).
(h) "Effective Date" shall mean June 1, 1997.
(i) "Good Reason" shall mean the occurrence of any of the following
without the Executive's prior written consent:
(1) the reduction of the Executive's Base Salary as determined
in accordance with 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/or 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 -- PROVIDED, HOWEVER, that any
change in the office or officer to whom the Executive
reports, or in the Executive's duties or title which does
not diminish the Executive's status within the Company,
shall not be deemed "Good Reason";
(5) any relocation of the Company's headquarters or the
Executive's principal place of employment outside of the
Chicago metropolitan area; or
(6) the breach by the Company of any of its covenants or
obligations under this Agreement.
(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" shall mean a notification as specified
in Section 2.
(l) "Section 2 Notification Date" shall mean the date of a Section 2
Notification as specified in Section 2.
(m) "Subsidiary" shall mean any corporation of which the Company
owns, directly or indirectly, more than 50 percent of the Voting Stock or any
other business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent.
(n) "Term of Employment" shall mean the period as specified under
Section 2 below.
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(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.
(a) The Company hereby continues to employ the Executive, and the
Executive hereby accepts such continued employment, for the Term of Employment,
which shall begin on the Effective Date and shall end following the giving of a
notice by the Executive or the Company pursuant to Section 24 below. If the
Executive gives such notice, the Term of Employment shall end at the end of the
90-day period following the date on which the Executive notifies the Company in
writing in accordance with Section 24 below that he wants the Term of Employment
to so end. If the Company gives such notice, the Term of Employment shall end
on the later of (i) the 2nd anniversary of the date on which the Company
notifies the Executive in writing in accordance with Section 24 below that it
wants the Term of Employment to so end or (ii) the 3rd anniversary of the
Effective Date. A notification by the Executive or the Company to the other
Party under this Section 2 shall be referred to herein as a "Section 2
Notification," and the date that the Section 2 Notification occurs shall be
referred to herein as a "Section 2 Notification Date."
(b) Notwithstanding anything contained herein to the contrary,
following the date that a Change in Control of Supply occurs:
(1) if the Executive makes a Section 2 Notification during the
period beginning on the date of such Change in Control of
Supply and ending on the 3rd anniversary of the date of such
Change in Control of Supply, the Term of Employment shall
end at the end of the 15-day period following such Section 2
Notification Date (in lieu of the 90-day period provided in
Section 2(a) above);
(2) if the Executive makes a Section 2 Notification on or after
the 3rd anniversary of the date of such Change in Control of
Supply, the Term of Employment shall end at the end of the
90-day period (in accordance with Section 2(a) above)
following such Section 2 Notification Date; and
(3) if the Company makes a Section 2 Notification at any time
following the date of such Change in Control of Supply, the
Term of Employment shall end on the later of (i) the 2nd
anniversary of such Section 2 Notification Date or (y) the
3rd anniversary of the date of the Change in Control of
Supply.
(c) Notwithstanding anything contained herein to the contrary, the
Term of Employment is subject to earlier termination in accordance with Section
11 below.
3. POSITION, DUTIES AND RESPONSIBILITIES.
On the Effective Date and continuing for the remainder of the Term of
Employment, the Executive shall be employed as an Executive Vice President of
the Company and in accordance with the authority and direction of the Board
shall render such administrative, sales, marketing and other related services to
the Company and its Subsidiaries and affiliates as may be required, or as the
Board may from time to time direct, commensurate with such position and
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<PAGE>
title. 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 reasonably prevented by sickness, accident 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 Chief Executive Officer of the Company.
4. BASE SALARY.
The Executive shall be paid an annual base salary at no less than an
annual rate of $265,000 (the "Base Salary"), 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 as determined by the Company in
its sole discretion.
6. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
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.
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.
8. 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.
9. PERQUISITES.
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.
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10. VACATION.
The Executive shall be entitled to at least 20 paid vacation days
(being at least 4 weeks) per calendar year which shall accrue and otherwise be
subject to the Company's vacation policy.
11. 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 the Company shall pay or
provide, as applicable, or shall cause to be paid or to be provided, as
applicable, to the Executive's estate and/or his beneficiaries, as the case may
be, the following:
(1) Base Salary earned but not paid prior to the date of the
Executive's death;
(2) all annual incentive compensation awards which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional amount equal to the sum of (i) the Base Salary
in effect on the date of the Executive's death and (ii) the
annual incentive compensation award paid or payable with
respect to the year immediately preceding the year in which
the Executive's death occurs, 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) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(5) 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 DUE 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 Company shall pay
or provide, as applicable, or shall cause to be paid or provided, as applicable,
to the Executive the following:
(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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional 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
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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) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(5) 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 24 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 Company shall pay or provide, as
applicable, or shall cause to be paid or provided, as applicable, to the
Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(4) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
If the event constituting Cause is not curable by the Executive, the Company may
terminate the Executive's employment for Cause effective on the date that the
Company notifies the Executive in writing in accordance with Section 24 below
that his employment is so terminated. If the event constituting Cause is
curable, the Company shall notify the Executive in writing in accordance with
Section 24 below that it intends to terminate his employment for Cause effective
at the end of the 60-day period following the date that the Company so notifies
the Executive (the "Cause Notification Date"), such notice to state in detail
the particular event that constitutes Cause. If the event constituting Cause is
curable, the Executive shall have a reasonable opportunity to cure the event
constituting Cause following the Cause Notification Date; PROVIDED, HOWEVER,
that if the Executive has not cured such event to the reasonable satisfaction of
the Company (and the Company has not waived in writing the Executive's failure
to cure) during the 30-day period following the Cause Notification Date (the
"Cause Curing Period"), the Company
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may terminate the Executive's employment effective following the end of the
Cause Curing Period; PROVIDED FURTHER, HOWEVER, that the Company may not
terminate the Executive's employment for Cause after the end of the 90-day
period following the date the Board first learns that the event constituting
Cause has occurred.
(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 Company shall pay or
provide, as applicable, or shall cause to be paid or provided, as applicable, to
the Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional amount equal to (x) the sum of (i) the Base
Salary with respect to the year in which the termination of
the Executive's employment occurs 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, multiplied
by (y) a fraction the numerator of which is the number of
full months that would have been remaining in the Term of
Employment assuming for this purpose that the Company had
made a Section 2 Notification on the date of the termination
of the Executive's employment and the denominator of which
is 12 (the "Section 11(d) Severance Benefit"). The Section
11(d) Severance Benefit shall be payable over a period of
time beginning on the date of the termination of the
Executive's employment and ending on the date that the Term
of Employment would have ended assuming for this purpose
that the Company had made a Section 2 Notification on the
date of the termination of the Executive's employment (the
"Section 11(d) Severance Period") in equal installments in
accordance with the Company's regular payroll practice;
(4) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement;
(5) continued participation for the Executive, his spouse and
his eligible dependents, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization
and life insurance plans, programs and/or arrangements in
which he was participating on the date of the termination of
his employment until the earlier of:
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(A) the end of the Section 11(d) Severance Period; or
(B) the date, or dates, the Executive receives equivalent
medical, dental, hospitalization and life insurance
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 11(d)(5)(A) above,
or if the Executive's spouse and/or eligible dependents
are precluded from coverage under any employee benefit
plan, program or arrangement as provided in Section
11(d)(5)(A) above due to the fact that the Executive is
no longer an employee of the Company, he shall be
provided with the after-tax economic equivalent of the
benefits to be provided under the plan, program or
arrangement in which he, his spouse and/or his eligible
dependents are unable to participate for the period
specified in this Section 11(d)(5);
(Y) the economic equivalent of any benefit not provided
shall be deemed to be the lowest cost that would be
incurred by the Executive in obtaining a comparable
benefit himself on a non-group basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(e) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE ON OR
AFTER A SECTION 2 NOTIFICATION DATE. If, on or after the date on which the
Company has made a Section 2 Notification, 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 Company shall pay or provide, as applicable, or
shall cause to be paid or provided, as applicable, to the Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
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(3) an additional amount equal to (x) the sum of (i) the Base
Salary with respect to the year in which the termination of
the Executive's employment occurs 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, multiplied
by (y) a fraction the numerator of which is the number of
full months remaining in the Term of Employment and the
denominator of which is 12 (the "Section 11(e) Severance
Benefit"). The Section 11(e) Severance Benefit shall be
payable over a period of time beginning on the date of the
termination of the Executive's employment and ending on the
date that the Term of Employment was otherwise scheduled to
end (the "Section 11(e) Severance Period") in equal
installments in accordance with the Company's regular
payroll practice;
(4) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement;
(5) continued participation for the Executive, his spouse and
his eligible dependents, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization
and life insurance plans, programs and/or arrangements in
which he was participating on the date of the termination of
his employment until the earlier of:
(A) the end of the Section 11(e) Severance Period; or
(B) the date, or dates, the Executive receives equivalent
medical, dental, hospitalization and life insurance
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 11(e)(5)(A) above,
or if the Executive's spouse and/or eligible dependents
are precluded from coverage under any employee benefit
plan, program or arrangement as provided in Section
11(e)(5)(A) above due to the fact that the Executive is
no longer an employee of the Company, he shall be
provided with the after-tax economic equivalent of the
benefits to be provided under the plan, program or
arrangement in which he, his spouse and/or his eligible
dependents are unable to participate for the period
specified in this Section 11(e)(5);
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(Y) the economic equivalent of any benefit not provided
shall be deemed to be the lowest cost that would be
incurred by the Executive in obtaining a comparable
benefit himself on a non-group basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(f) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON. The
Executive may terminate his employment for Good Reason effective at the end of
the 60-day period following the date that the Executive notifies the Company in
writing in accordance with Section 24 below that he intends to terminate his
employment for Good Reason (the "Good Reason 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 Executive (and the Executive has not waived the
Company's failure to cure) during the 30-day period following the Good Reason
Notification Date (the "Good Reason Curing Period"), the Executive may terminate
his employment effective following the end of the Good Reason Curing Period;
PROVIDED FURTHER, HOWEVER, that the Executive may not terminate his employment
for Good Reason after the end of the 90-day period following the date the
Executive first learns that the event constituting Good Reason has occurred.
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 11(d) ("Termination of Employment by the Company Without
Cause Prior to a Section 2 Notification Date") above or Section 11(e)
("Termination of Employment by the Company Without Cause On or After a Section 2
Notification Date") above, as the case may be; PROVIDED, HOWEVER, that if the
Executive terminates his employment for Good Reason based on a reduction in Base
Salary under Section 1(i)(1) above, then the Base Salary to be used in
determining the amount payable in accordance with Section 11(d)(3) or 11(e)(3)
above, as the case may be, shall be the Base Salary in effect immediately prior
to such reduction.
(g) VOLUNTARY TERMINATION OF EMPLOYMENT BY THE EXECUTIVE WITHOUT GOOD
REASON OR FOLLOWING A CHANGE IN CONTROL OF SUPPLY. 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 11(c) ("Termination of
Employment by the Company for Cause") above. If the Executive makes a Section 2
Notification, and the Executive terminates his employment as of the end of the
Term of Employment (as determined in accordance with Section 2 above), the
termination of the Executive's employment under this Section 11(g) shall not be
deemed a breach of this Agreement by the Executive. Notwithstanding anything
contained herein to the contrary, if the Executive voluntarily terminates his
employment without Good Reason, other than a termination of his employment due
to death or Disability, during the period beginning on the 180th day following
the date of a Change in Control of Supply and ending on the 3rd anniversary of
the date of such Change in Control of Supply, the Executive shall be entitled to
the same payments and benefits as provided in Section 11(f) ("Termination of
Employment by the Executive for Good Reason") above.
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(h) RETIREMENT. The Executive agrees that, in any event, his
employment hereunder shall terminate automatically on his 65th birthday. If his
employment is terminated pursuant to this Section 11(h), the Executive shall be
entitled to any amounts earned, accrued or owing to the Executive but not yet
paid under Section 4, 5, 6, 7, 8, 9 and/or 10 above in accordance with the terms
of the applicable plan, program or arrangement. In addition, the Executive, his
spouse and his eligible dependents shall be entitled to participate in any
Company health plan then in effect for retirees in accordance with the terms of
such plan.
(i) REDUCTION OF PARACHUTE PAYMENTS TO ACHIEVE MAXIMUM PAYMENT TO
EXECUTIVE. 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, would be 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. For example, assume the
Executive's "base amount" was $100 and the aggregate payment to be made was
$301. If the resulting after-tax payment would be (i) $110 treating the $301
payment as a "parachute payment" and (ii) $150 if the $301 payment were reduced
to $299, then the $301 payment would be reduced to $299. On the other hand,
assuming the Executive's "base amount" was $100 and the aggregate payment to be
made was $400, if the resulting after-tax payment would be (x) $160 treating the
$400 payment as a "parachute payment" and (y) $150 if the $400 payment were
reduced to $299, then the $400 payment would NOT be reduced to $299. The
determinations to be made with respect to this Section 11(i) 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 2 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 select 1 such accounting firm and those 2
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 of Supply is required by
this Section 11(i), 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.
(j) CONTINUED HEALTH-CARE COVERAGE TO AGE 65. In the event of any
termination of the Executive's employment under Sections 11(a), 11(b), 11(d),
11(e) or 11(f), or if the Executive voluntarily terminates his employment
without Good Reason, other than a termination of his employment due to death or
Disability, during the period beginning on the 180th day following the date of a
Change in Control of Supply and ending on the 3rd anniversary of the date of
such Change in Control of Supply, the Company shall provide continued coverage
for the Executive and/or 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
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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 11(d)(5) or 11(e)(5) above, the Executive,
his spouse or his eligible dependents, as applicable, 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.
(k) NO MITIGATION; NO OFFSET. In the event of any termination of the
Executive's employment under this Section 11, the Executive shall be under no
obligation to seek other employment; PROVIDED, HOWEVER, that there shall be an
offset against the benefit payable under Section 11(b)(3) above, the Section
11(d) Severance Benefit payable under Section 11(d)(3) above or the Section
11(e) Severance Benefit payable under Section 11(e)(3) above (collectively, the
"Benefits Subject To Offset") by the amount of any remuneration (whether in
cash, property, services or otherwise) paid or provided to or on behalf of the
Executive with respect to any services performed by the Executive (whether as an
employee, a consultant or otherwise) for a party other than the Company or any
of its Subsidiaries during the period that the Benefits Subject To Offset are
payable ("Services"). The Executive agrees that if he performs or will perform
Services then he shall promptly notify the Company in accordance with Section 24
below that he has or will perform such Services. The Company agrees that it
shall not offset any other payments or benefits it is obligated to make or
provide under this Agreement other than the Benefits Subject To Offset specified
in this Section 11(k).
12. 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 12 and
Section 13 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 or with Associated Stationers, Inc.) (collectively,
"Confidential Information"). Confidential Information includes, but is not
limited to, the following especially sensitive types of information:
(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;
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(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 (other than application software which is
generally commercially available), 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's 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 all other ideas, developments, processes, techniques,
designs and other information which may be of benefit to the Company, which the
Executive conceives, makes or develops during his employment with the Company
(whether or not during working hours or with use or assistance of Company
facilities, materials or personnel, and which either (i) relate to or arise out
of any part of the Company's business in which the Executive participates, or
(ii) incorporate or make use of Confidential Information or Proprietary
Materials) (all items referred to in this Section 12 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, instruments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
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(d) CONFIDENTIALITY DUTIES OF EXECUTIVE. The Executive shall, except
as may be required by law, during the Term of Employment and thereafter for the
longest time period permitted by applicable law:
(1) comply with all of the Company's instructions (whether oral
or written) for preserving the confidentiality of
Confidential Information and Proprietary Materials;
(2) use Confidential Information and Proprietary Materials only
in furtherance of the Company's business, and pursuant to
the Company's directions;
(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, except as
the Company directs;
(5) not sell, give, loan or otherwise transfer any copy of all
or any part of Proprietary Materials to any person who is
not an employee of the Company, except as the Company
directs;
(6) not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company
directs, all or any part of Confidential Information or
Proprietary Materials; 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 11 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 all Company property,
including but not limited to, 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 and
other such things, lawfully possessed by the Executive which relate solely to
taxes payable by the Executive, rights or benefits due to the Executive or the
terms of the Executive's employment with the Company, shall not be deemed
Company property or Proprietary Materials for purposes of this Section 12.
13. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that during the Term of
Employment and during the longer of (i) the 2-year period following the end of
the Term of Employment, (ii) the Section 11(d) Severance Period, or (iii) the
Section 11(e) Severance Period, 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
be connected with or directly or indirectly own or have any other interest in or
right with respect to (other than through ownership
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of not more than 1 percent of the outstanding shares of a corporation's stock
which is listed on a national securities exchange) any enterprise (other than
for the Company or for the benefit of the Company) which is a wholesale
distributor of office products (whether or not such enterprise is a wholesale
distributor of other products) and has annual sales with respect to the
wholesale distribution of office products in excess of $1,000,000.
(b) Notwithstanding Section 13(a) above, if the Executive's
employment hereunder is terminated during the Term of Employment, the Executive
may be engaged in the business of selling office products at retail and the
Executive may be engaged by any company whose principal business is the
manufacture of office products; PROVIDED, HOWEVER, that the Executive shall
comply in all other respects with Section 13(a) above.
(c) The Executive covenants and agrees that during the Term of
Employment and during the longer of (i) the 2-year period following the end of
the Term of Employment, (ii) the Section 11(d) Severance Period, or (iii) the
Section 11(e) Severance Period, the Executive shall not at any time, directly or
indirectly, solicit (x) any client or customer of the Company or any of its
subsidiaries with respect to a competitive activity which violates Section 13(a)
above or (y) 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.
(d) 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.
(e) The Parties acknowledge that in the event of a breach or
threatened breach of Section 13(a) and/or Section 13(c) above, the Company shall
not have an adequate remedy at law. Accordingly, in the event of any breach or
threatened breach of Section 13(a) and/or Section 13(c) 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 13(a) and/or Section 13(c) 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 13(a) and/or Section 13(c) above, including the
recovery of damages.
(f) 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.
14. 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;
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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 transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law.
15. 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.
16. 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, including but not
limited to the employment agreement between the Executive and Associated
Stationers, Inc. dated January 31, 1992 and the Old Agreement.
17. 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.
18. 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.
19. 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.
20. 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.
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21. BENEFICIARIES/REFERENCES.
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.
22. 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.
23. 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, and all other costs, fees and expenses, including, without
limitation, attorneys' fees of each Party, shall be assessed and awarded by the
arbitrator in favor of the Party prevailing as to such dispute and against the
other Party.
24. 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 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
Attention: Stewart Reifler, Esq.
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If to the Executive: Mr. Steven R. Schwarz
810 Andover Court
Prospect Heights, Illinois 60070
and a copy to: Levin & Ginsburg Ltd.
180 North LaSalle Street, 22nd Floor
Chicago, Illinois 60601-2794
Attention: Robert S. Levin, Esq. (#328001)
25. 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
construction of any provision of this Agreement.
26. 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:/s/ Frederick B. Hegi, Jr.
---------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
UNITED STATIONERS SUPPLY CO.
By:/s/ Randall W. Larrimore
---------------------------
Randall W. Larrimore
President and Chief Executive Officer
/s/ Steven R. Schwarz
---------------------------
Steven R. Schwarz
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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. Disability Insurance in accordance with insurance policy
15. Club and Association Dues - in accordance with Company Policy
16. Financial and Tax Consulting - and tax return preparations, in
accordance with Company Policy
17. 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
18. Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
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EMPLOYMENT AGREEMENT
AGREEMENT (this "Agreement"), made and entered into as of the 1st day of
June, 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 Michael D. Rowsey (the "Executive").
W I T N E S S E T H
WHEREAS, Supply and the Executive have entered into an employment agreement
dated October 1, 1995 and which is still in effect as of the date written above
(the "Old Agreement");
WHEREAS, the Supply and the Executive desire to hereby amend and restate
the Old Agreement in its entirety; and
WHEREAS, the Parent desires to be a party to 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 annual Base Salary as
defined in 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) gross negligence or willful misconduct in the performance of
his duties; or
<PAGE>
(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 of Supply" shall mean the first to occur of
the following events:
(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 (i) 40 percent or more of the Voting
Stock of the Parent or (ii) 60 percent or more of the Voting
Stock of Supply;
(2) the majority of the Board consists of individuals other than
Incumbent Directors;
(3) Supply adopts any plan of liquidation providing for the
distribution of all or substantially all of the assets of
Supply 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 Supply 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 Supply; or
(5) the merger or consolidation of Supply 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 United Stationers Inc.
(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
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exists on the date the disability first occurs, then a "disability" as defined
under Code Section 22(e)(3).
(h) "Effective Date" shall mean June 1, 1997.
(i) "Good Reason" shall mean the occurrence of any of the following
without the Executive's prior written consent:
(1) the reduction of the Executive's Base Salary as determined
in accordance with 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/or 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 -- PROVIDED, HOWEVER, that any
change in the office or officer to whom the Executive
reports, or in the Executive's duties or title which does
not diminish the Executive's status within the Company,
shall not be deemed "Good Reason";
(5) any relocation of the Company's headquarters or the
Executive's principal place of employment outside of the
Chicago metropolitan area; or
(6) the breach by the Company of any of its covenants or
obligations under this Agreement.
(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" shall mean a notification as specified
in Section 2.
(l) "Section 2 Notification Date" shall mean the date of a Section 2
Notification as specified in Section 2.
(m) "Subsidiary" shall mean any corporation of which the Company
owns, directly or indirectly, more than 50 percent of the Voting Stock or any
other business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent.
(n) "Term of Employment" shall mean the period as specified under
Section 2 below.
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(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.
(a) The Company hereby continues to employ the Executive, and the
Executive hereby accepts such continued employment, for the Term of Employment,
which shall begin on the Effective Date and shall end following the giving of a
notice by the Executive or the Company pursuant to Section 24 below. If the
Executive gives such notice, the Term of Employment shall end at the end of the
90-day period following the date on which the Executive notifies the Company in
writing in accordance with Section 24 below that he wants the Term of Employment
to so end. If the Company gives such notice, the Term of Employment shall end
on the later of (i) the 2nd anniversary of the date on which the Company
notifies the Executive in writing in accordance with Section 24 below that it
wants the Term of Employment to so end or (ii) the 3rd anniversary of the
Effective Date. A notification by the Executive or the Company to the other
Party under this Section 2 shall be referred to herein as a "Section 2
Notification," and the date that the Section 2 Notification occurs shall be
referred to herein as a "Section 2 Notification Date."
(b) Notwithstanding anything contained herein to the contrary,
following the date that a Change in Control of Supply occurs:
(1) if the Executive makes a Section 2 Notification during the
period beginning on the date of such Change in Control of
Supply and ending on the 3rd anniversary of the date of such
Change in Control of Supply, the Term of Employment shall
end at the end of the 15-day period following such Section 2
Notification Date (in lieu of the 90-day period provided in
Section 2(a) above);
(2) if the Executive makes a Section 2 Notification on or after
the 3rd anniversary of the date of such Change in Control of
Supply, the Term of Employment shall end at the end of the
90-day period (in accordance with Section 2(a) above)
following such Section 2 Notification Date; and
(3) if the Company makes a Section 2 Notification at any time
following the date of such Change in Control of Supply, the
Term of Employment shall end on the later of (i) the 2nd
anniversary of such Section 2 Notification Date or (y) the
3rd anniversary of the date of the Change in Control of
Supply.
(c) Notwithstanding anything contained herein to the contrary, the
Term of Employment is subject to earlier termination in accordance with Section
11 below.
3. POSITION, DUTIES AND RESPONSIBILITIES.
On the Effective Date and continuing for the remainder of the Term of
Employment, the Executive shall be employed as an Executive Vice President of
the Company and in accordance with the authority and direction of the Board
shall render such administrative, sales and other related services to the
Company and its Subsidiaries and affiliates as may be required, or as the Board
may from time to time direct, commensurate with such position and title.
4
<PAGE>
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 reasonably prevented by sickness, accident 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 Chief Executive Officer of the Company.
4. BASE SALARY.
The Executive shall be paid an annual base salary at no less than an
annual rate of $265,000 (the "Base Salary"), 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 as determined by the Company in
its sole discretion.
6. LONG-TERM INCENTIVE COMPENSATION PROGRAMS.
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.
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.
8. 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.
9. PERQUISITES.
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.
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<PAGE>
10. VACATION.
The Executive shall be entitled to at least 20 paid vacation days
(being at least 4 weeks) per calendar year which shall accrue and otherwise be
subject to the Company's vacation policy.
11. 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 the Company shall pay or
provide, as applicable, or shall cause to be paid or to be provided, as
applicable, to the Executive's estate and/or his beneficiaries, as the case may
be, the following:
(1) Base Salary earned but not paid prior to the date of the
Executive's death;
(2) all annual incentive compensation awards which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional amount equal to the sum of (i) the Base Salary
in effect on the date of the Executive's death and (ii) the
annual incentive compensation award paid or payable with
respect to the year immediately preceding the year in which
the Executive's death occurs, 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) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(5) 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 DUE 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 Company shall pay
or provide, as applicable, or shall cause to be paid or provided, as applicable,
to the Executive the following:
(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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional 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
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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) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(5) 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 24 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 Company shall pay or provide, as
applicable, or shall cause to be paid or provided, as applicable, to the
Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement; and
(4) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
If the event constituting Cause is not curable by the Executive, the Company may
terminate the Executive's employment for Cause effective on the date that the
Company notifies the Executive in writing in accordance with Section 24 below
that his employment is so terminated. If the event constituting Cause is
curable, the Company shall notify the Executive in writing in accordance with
Section 24 below that it intends to terminate his employment for Cause effective
at the end of the 60-day period following the date that the Company so notifies
the Executive (the "Cause Notification Date"), such notice to state in detail
the particular event that constitutes Cause. If the event constituting Cause is
curable, the Executive shall have a reasonable opportunity to cure the event
constituting Cause following the Cause Notification Date; PROVIDED, HOWEVER,
that if the Executive has not cured such event to the reasonable satisfaction of
the Company (and the Company has not waived in writing the Executive's failure
to cure) during the 30-day period following the Cause Notification Date (the
"Cause Curing Period"), the Company
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<PAGE>
may terminate the Executive's employment effective following the end of the
Cause Curing Period; PROVIDED FURTHER, HOWEVER, that the Company may not
terminate the Executive's employment for Cause after the end of the 90-day
period following the date the Board first learns that the event constituting
Cause has occurred.
(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 Company shall pay or
provide, as applicable, or shall cause to be paid or provided, as applicable, to
the Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
(3) an additional amount equal to (x) the sum of (i) the Base
Salary with respect to the year in which the termination of
the Executive's employment occurs 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, multiplied
by (y) a fraction the numerator of which is the number of
full months that would have been remaining in the Term of
Employment assuming for this purpose that the Company had
made a Section 2 Notification on the date of the termination
of the Executive's employment and the denominator of which
is 12 (the "Section 11(d) Severance Benefit"). The Section
11(d) Severance Benefit shall be payable over a period of
time beginning on the date of the termination of the
Executive's employment and ending on the date that the Term
of Employment would have ended assuming for this purpose
that the Company had made a Section 2 Notification on the
date of the termination of the Executive's employment (the
"Section 11(d) Severance Period") in equal installments in
accordance with the Company's regular payroll practice;
(4) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement;
(5) continued participation for the Executive, his spouse and
his eligible dependents, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization
and life insurance plans, programs and/or arrangements in
which he was participating on the date of the termination of
his employment until the earlier of:
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(A) the end of the Section 11(d) Severance Period; or
(B) the date, or dates, the Executive receives equivalent
medical, dental, hospitalization and life insurance
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 11(d)(5)(A) above,
or if the Executive's spouse and/or eligible dependents
are precluded from coverage under any employee benefit
plan, program or arrangement as provided in Section
11(d)(5)(A) above due to the fact that the Executive is
no longer an employee of the Company, he shall be
provided with the after-tax economic equivalent of the
benefits to be provided under the plan, program or
arrangement in which he, his spouse and/or his eligible
dependents are unable to participate for the period
specified in this Section 11(d)(5);
(Y) the economic equivalent of any benefit not provided
shall be deemed to be the lowest cost that would be
incurred by the Executive in obtaining a comparable
benefit himself on a non-group basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(e) TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE ON OR
AFTER A SECTION 2 NOTIFICATION DATE. If, on or after the date on which the
Company has made a Section 2 Notification, 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 Company shall pay or provide, as applicable, or
shall cause to be paid or provided, as applicable, to the Executive 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 which have been
earned but not paid in accordance with the terms of the
applicable annual incentive compensation plan, program or
arrangement;
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(3) an additional amount equal to (x) the sum of (i) the Base
Salary with respect to the year in which the termination of
the Executive's employment occurs 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, multiplied
by (y) a fraction the numerator of which is the number of
full months remaining in the Term of Employment and the
denominator of which is 12 (the "Section 11(e) Severance
Benefit"). The Section 11(e) Severance Benefit shall be
payable over a period of time beginning on the date of the
termination of the Executive's employment and ending on the
date that the Term of Employment was otherwise scheduled to
end (the "Section 11(e) Severance Period") in equal
installments in accordance with the Company's regular
payroll practice;
(4) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 7, 8, 9 and/or 10 above in
accordance with the terms of the applicable plan, program or
arrangement;
(5) continued participation for the Executive, his spouse and
his eligible dependents, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization
and life insurance plans, programs and/or arrangements in
which he was participating on the date of the termination of
his employment until the earlier of:
(A) the end of the Section 11(e) Severance Period; or
(B) the date, or dates, the Executive receives equivalent
medical, dental, hospitalization and life insurance
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 11(e)(5)(A) above,
or if the Executive's spouse and/or eligible dependents
are precluded from coverage under any employee benefit
plan, program or arrangement as provided in Section
11(e)(5)(A) above due to the fact that the Executive is
no longer an employee of the Company, he shall be
provided with the after-tax economic equivalent of the
benefits to be provided under the plan, program or
arrangement in which he, his spouse and/or his eligible
dependents are unable to participate for the period
specified in this Section 11(e)(5);
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(Y) the economic equivalent of any benefit not provided
shall be deemed to be the lowest cost that would be
incurred by the Executive in obtaining a comparable
benefit himself on a non-group basis; and
(Z) payment of such after-tax economic equivalent shall be
made quarterly in advance; and
(6) such other or additional benefits, if any, as are provided
under applicable plans, programs and/or arrangements of the
Company.
(f) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON. The
Executive may terminate his employment for Good Reason effective at the end of
the 60-day period following the date that the Executive notifies the Company in
writing in accordance with Section 24 below that he intends to terminate his
employment for Good Reason (the "Good Reason 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 Executive (and the Executive has not waived the
Company's failure to cure) during the 30-day period following the Good Reason
Notification Date (the "Good Reason Curing Period"), the Executive may terminate
his employment effective following the end of the Good Reason Curing Period;
PROVIDED FURTHER, HOWEVER, that the Executive may not terminate his employment
for Good Reason after the end of the 90-day period following the date the
Executive first learns that the event constituting Good Reason has occurred.
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 11(d) ("Termination of Employment by the Company Without
Cause Prior to a Section 2 Notification Date") above or Section 11(e)
("Termination of Employment by the Company Without Cause On or After a Section 2
Notification Date") above, as the case may be; PROVIDED, HOWEVER, that if the
Executive terminates his employment for Good Reason based on a reduction in Base
Salary under Section 1(i)(1) above, then the Base Salary to be used in
determining the amount payable in accordance with Section 11(d)(3) or 11(e)(3)
above, as the case may be, shall be the Base Salary in effect immediately prior
to such reduction.
(g) VOLUNTARY TERMINATION OF EMPLOYMENT BY THE EXECUTIVE WITHOUT GOOD
REASON OR FOLLOWING A CHANGE IN CONTROL OF SUPPLY. 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 11(c) ("Termination of
Employment by the Company for Cause") above. If the Executive makes a Section 2
Notification, and the Executive terminates his employment as of the end of the
Term of Employment (as determined in accordance with Section 2 above), the
termination of the Executive's employment under this Section 11(g) shall not be
deemed a breach of this Agreement by the Executive. Notwithstanding anything
contained herein to the contrary, if the Executive voluntarily terminates his
employment without Good Reason, other than a termination of his employment due
to death or Disability, during the period beginning on the 180th day following
the date of a Change in Control of Supply and ending on the 3rd anniversary of
the date of such Change in Control of Supply, the Executive shall be entitled to
the same payments and benefits as provided in Section 11(f) ("Termination of
Employment by the Executive for Good Reason") above.
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(h) RETIREMENT. The Executive agrees that, in any event, his
employment hereunder shall terminate automatically on his 65th birthday. If his
employment is terminated pursuant to this Section 11(h), the Executive shall be
entitled to any amounts earned, accrued or owing to the Executive but not yet
paid under Section 4, 5, 6, 7, 8, 9 and/or 10 above in accordance with the terms
of the applicable plan, program or arrangement. In addition, the Executive, his
spouse and his eligible dependents shall be entitled to participate in any
Company health plan then in effect for retirees in accordance with the terms of
such plan.
(i) REDUCTION OF PARACHUTE PAYMENTS TO ACHIEVE MAXIMUM PAYMENT TO
EXECUTIVE. 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, would be 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. For example, assume the
Executive's "base amount" was $100 and the aggregate payment to be made was
$301. If the resulting after-tax payment would be (i) $110 treating the $301
payment as a "parachute payment" and (ii) $150 if the $301 payment were reduced
to $299, then the $301 payment would be reduced to $299. On the other hand,
assuming the Executive's "base amount" was $100 and the aggregate payment to be
made was $400, if the resulting after-tax payment would be (x) $160 treating the
$400 payment as a "parachute payment" and (y) $150 if the $400 payment were
reduced to $299, then the $400 payment would NOT be reduced to $299. The
determinations to be made with respect to this Section 11(i) 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 2 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 select 1 such accounting firm and those 2
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 of Supply is required by
this Section 11(i), 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.
(j) CONTINUED HEALTH-CARE COVERAGE TO AGE 65. In the event of any
termination of the Executive's employment under Sections 11(a), 11(b), 11(d),
11(e) or 11(f), or if the Executive voluntarily terminates his employment
without Good Reason, other than a termination of his employment due to death or
Disability, during the period beginning on the 180th day following the date of a
Change in Control of Supply and ending on the 3rd anniversary of the date of
such Change in Control of Supply, the Company shall provide continued coverage
for the Executive and/or 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
12
<PAGE>
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 11(d)(5) or 11(e)(5) above, the Executive,
his spouse or his eligible dependents, as applicable, 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.
(k) NO MITIGATION; NO OFFSET. In the event of any termination of the
Executive's employment under this Section 11, the Executive shall be under no
obligation to seek other employment; PROVIDED, HOWEVER, that there shall be an
offset against the benefit payable under Section 11(b)(3) above, the Section
11(d) Severance Benefit payable under Section 11(d)(3) above or the Section
11(e) Severance Benefit payable under Section 11(e)(3) above (collectively, the
"Benefits Subject To Offset") by the amount of any remuneration (whether in
cash, property, services or otherwise) paid or provided to or on behalf of the
Executive with respect to any services performed by the Executive (whether as an
employee, a consultant or otherwise) for a party other than the Company or any
of its Subsidiaries during the period that the Benefits Subject To Offset are
payable ("Services"). The Executive agrees that if he performs or will perform
Services then he shall promptly notify the Company in accordance with Section 24
below that he has or will perform such Services. The Company agrees that it
shall not offset any other payments or benefits it is obligated to make or
provide under this Agreement other than the Benefits Subject To Offset specified
in this Section 11(k).
12. 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 12 and
Section 13 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 or with Associated Stationers, Inc.) (collectively,
"Confidential Information"). Confidential Information includes, but is not
limited to, the following especially sensitive types of information:
(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;
13
<PAGE>
(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 (other than application software which is
generally commercially available), 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's 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 all other ideas, developments, processes, techniques,
designs and other information which may be of benefit to the Company, which the
Executive conceives, makes or develops during his employment with the Company
(whether or not during working hours or with use or assistance of Company
facilities, materials or personnel, and which either (i) relate to or arise out
of any part of the Company's business in which the Executive participates, or
(ii) incorporate or make use of Confidential Information or Proprietary
Materials) (all items referred to in this Section 12 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, instruments or other documents, and
perform or cause to be performed such other lawful acts, and give such
testimony, as the Company deems necessary or desirable to protect the Company's
ownership rights and Intellectual Property.
14
<PAGE>
(d) CONFIDENTIALITY DUTIES OF EXECUTIVE. The Executive shall, except
as may be required by law, during the Term of Employment and thereafter for the
longest time period permitted by applicable law:
(1) comply with all of the Company's instructions (whether oral
or written) for preserving the confidentiality of
Confidential Information and Proprietary Materials;
(2) use Confidential Information and Proprietary Materials only
in furtherance of the Company's business, and pursuant to
the Company's directions;
(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, except as
the Company directs;
(5) not sell, give, loan or otherwise transfer any copy of all
or any part of Proprietary Materials to any person who is
not an employee of the Company, except as the Company
directs;
(6) not publish, lecture on or otherwise disclose to any person
who is not an employee of the Company, except as the Company
directs, all or any part of Confidential Information or
Proprietary Materials; 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 11 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 all Company property,
including but not limited to, 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 and
other such things, lawfully possessed by the Executive which relate solely to
taxes payable by the Executive, rights or benefits due to the Executive or the
terms of the Executive's employment with the Company, shall not be deemed
Company property or Proprietary Materials for purposes of this Section 12.
13. NONCOMPETITION; NONSOLICITATION.
(a) The Executive covenants and agrees that during the Term of
Employment and during the longer of (i) the 2-year period following the end of
the Term of Employment, (ii) the Section 11(d) Severance Period, or (iii) the
Section 11(e) Severance Period, 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
be connected with or directly or indirectly own or have any other interest in or
right with respect to (other than through ownership
15
<PAGE>
of not more than 1 percent of the outstanding shares of a corporation's stock
which is listed on a national securities exchange) any enterprise (other than
for the Company or for the benefit of the Company) which is a wholesale
distributor of office products (whether or not such enterprise is a wholesale
distributor of other products) and has annual sales with respect to the
wholesale distribution of office products in excess of $1,000,000.
(b) Notwithstanding Section 13(a) above, if the Executive's
employment hereunder is terminated during the Term of Employment, the Executive
may be engaged in the business of selling office products at retail and the
Executive may be engaged by any company whose principal business is the
manufacture of office products; PROVIDED, HOWEVER, that the Executive shall
comply in all other respects with Section 13(a) above.
(c) The Executive covenants and agrees that during the Term of
Employment and during the longer of (i) the 2-year period following the end of
the Term of Employment, (ii) the Section 11(d) Severance Period, or (iii) the
Section 11(e) Severance Period, the Executive shall not at any time, directly or
indirectly, solicit (x) any client or customer of the Company or any of its
subsidiaries with respect to a competitive activity which violates Section 13(a)
above or (y) 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.
(d) 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.
(e) The Parties acknowledge that in the event of a breach or
threatened breach of Section 13(a) and/or Section 13(c) above, the Company shall
not have an adequate remedy at law. Accordingly, in the event of any breach or
threatened breach of Section 13(a) and/or Section 13(c) 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 13(a) and/or Section 13(c) 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 13(a) and/or Section 13(c) above, including the
recovery of damages.
(f) 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.
14. 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;
16
<PAGE>
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 transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law.
15. 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.
16. 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, including but not
limited to the employment agreement between the Executive and Associated
Stationers, Inc. dated January 31, 1992 and the Old Agreement.
17. 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.
18. 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.
19. 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.
20. 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.
17
<PAGE>
21. BENEFICIARIES/REFERENCES.
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.
22. 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.
23. 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, and all other costs, fees and expenses, including, without
limitation, attorneys' fees of each Party, shall be assessed and awarded by the
arbitrator in favor of the Party prevailing as to such dispute and against the
other Party.
24. 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 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
Attention: Stewart Reifler, Esq.
18
<PAGE>
If to the Executive: Mr. Michael D. Rowsey
2987 Norwalk Court
Aurora, Illinois 60504
and a copy to: Levin & Ginsburg Ltd.
180 North LaSalle Street, 22nd Floor
Chicago, Illinois 60601-2794
Attention: Robert S. Levin, Esq. (#328001)
25. 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
construction of any provision of this Agreement.
26. 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:/s/ Frederick B. Hegi, Jr.
---------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
UNITED STATIONERS SUPPLY CO.
By:/s/ Randall W. Larrimore
---------------------------
Randall W. Larrimore
President and Chief Executive Officer
/s/ Michael D. Rowsey
---------------------------
Michael D. Rowsey
19
<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. Disability Insurance in accordance with insurance policy
15. Club and Association Dues - in accordance with Company Policy
16. Financial and Tax Consulting - and tax return preparations, in
accordance with Company Policy
17. 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
18. Other - Vacations in accordance with Company Policy; other benefits
that may from time to time be made available to employees generally
20
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Michael D. Rowsey
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated January 31, 1992, as amended on March 30, 1995 and on September
29, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 33,558.28 shares (as adjusted) of the Company's common
stock, $.10 par value, ("Common Stock") and an option to purchase up to an
additional 12,476.28 shares (as adjusted) of Common Stock (subject to certain
conditions) under the United Stationers Inc. Management Equity Plan (the "Plan")
at an exercise price of $1.45 per share (as adjusted) in accordance with the
terms of the Stock Option Agreement (the "Option");
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Section 3 is hereby amended in its entirety to read as follows:
3. TERMINATION OF EMPLOYMENT. Upon termination of employment:
(a) If termination for good cause, as defined in the Plan, all
unexercised Options will immediately terminate; notwithstanding
the preceding clause and as provided in Section 6(g) of the Plan,
during the period that the employment agreement by and among you,
the Company, and United Stationers Supply Co. made and entered
into as
<PAGE>
of June 1, 1997 (the "Employment Agreement") is in effect, the
definition of good cause under this Section 3(a) shall be the same
definition as the definition of Cause under the Employment Agreement.
(b) If termination is the result of voluntary termination,
death, permanent disability, retirement, or at the election of
the Company, before the Event, the nonvested shares will
terminate as provided in Section 2(d) above. Notwithstanding the
preceding sentence and as provided in Section 6(g) of the Plan,
during the period that the Employment Agreement is in effect, if
your employment is terminated pursuant to Section 11(d), 11(e) or
11(f) of the Employment Agreement, or if you voluntarily
terminate your employment without Good Reason (as defined in the
Employment Agreement), other than a termination of your
employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
Option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period or the Section 11(e) Severance
Period (each as defined in the Employment Agreement), as
applicable, or (ii) upon expiration of the Option as provided in
Section 2(d) above.
2. Section 5 of the Stock Option Agreement is hereby deleted in its
entirety.
3. Section 8 of the Stock Option Agreement is hereby amended by adding a
new Section 8(c) to read as follows:
(c) The Company intends that all shares received by you upon the
exercise of the Option shall be subject to an effective Form S-8
under the Securities Act.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Michael D. Rowsey
---------------------------------------
Michael D. Rowsey
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Michael D. Rowsey
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated October 2, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 15,000 shares (as adjusted) of the Company's common stock,
$.10 par value, under the United Stationers Inc. Management Equity Plan (the
"Plan") at an exercise price of $5.12 per share (as adjusted) in accordance with
the terms of the Stock Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (5)(a) is hereby amended by adding a new clause after the
first clause of paragraph (5)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Paragraph (5)(a) shall be the same definition as the definition
of Cause under the Employment Agreement.
<PAGE>
2. Paragraph (5)(d) is hereby amended by adding a new sentence after the
first sentence of paragraph (5)(d) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period (as defined in the Employment
Agreement) or the Section 11(e) Severance Period (as defined in
the Employment Agreement), as applicable, or (ii) upon expiration
of this option as provided in paragraph (4) above.
3. Paragraph (13) of the Stock Option Agreement is hereby amended by
adding a new paragraph 13(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Michael D. Rowsey
---------------------------------------
Michael D. Rowsey
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Michael D. Rowsey
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated October 2, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 105,000 shares (as adjusted) of the Company's common
stock, $.10 par value, under the United Stationers Inc. Management Equity Plan
(the "Plan") at an exercise price of $12.50 per share (as adjusted) subject to
increase by $.625 per share (as adjusted) on April 1, 1996 and on the first day
of each calendar quarter thereafter in accordance with the terms of the Stock
Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (5)(a) is hereby amended by adding a new clause after the
first clause of paragraph (5)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Paragraph (5)(a)
<PAGE>
shall be the same definition as the definition of Cause under the
Employment Agreement.
2. Paragraph (5)(d) is hereby amended by adding a new sentence after the
first sentence of paragraph (5)(d) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period (as defined in the Employment
Agreement) or the Section 11(e) Severance Period (as defined in
the Employment Agreement), as applicable, or (ii) upon expiration
of this option as provided in paragraph (4) above.
3. Paragraph (13) of the Stock Option Agreement is hereby amended by
adding a new paragraph 13(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Michael D. Rowsey
---------------------------------------
Michael D. Rowsey
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Michael D. Rowsey
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated January 31, 1996 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 50,000 shares of the Company's common stock, $.10 par
value, under the United Stationers Inc. Management Equity Plan (the "Plan") at
an exercise price of $1.45 per share in accordance with the terms of the Stock
Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (3)(c) is hereby amended by replacing the first sentence of
paragraph (3)(c) with the following sentence to read as follows:
Notwithstanding the provisions of paragraphs (3)(a) and (3)(b)
above, on the occurrence of a transaction or group of
transactions (an "Event") that cause the Sponsor Holders (as
defined below) to realize a return of Liquid Proceeds (as defined
below) at least equal to their Common Stock Investment (as
defined below), 100 percent of the 50,000 Option Shares under the
Option shall become Vested Shares without further action by the
Board of Directors (other than as described in this paragraph
(3)(c) below), and you may exercise the Option to purchase some
or all of the Option Shares (but not for fractional shares) at
any time or times after the occurrence of an Event.
<PAGE>
2. Paragraph (3)(c) is hereby amended by adding the words "timely and
promptly" after the word "shall" in the last sentence of paragraph (3)(c).
3. Paragraph (4)(a) is hereby amended by adding a new clause after the
first clause of paragraph (4)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Section 3(a) shall be the same definition as the definition of
Cause under the Employment Agreement.
4. Paragraph (4)(b) is hereby amended by replacing the phrase "as
provided in paragraph (4) above" with the phrase "as provided in paragraph (3)
above".
5. Paragraph (4)(b) is hereby amended by adding a new sentence after the
first sentence of paragraph (4)(b) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
Option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period or the Section 11(e) Severance
Period (each as defined in the Employment Agreement), as
applicable, or (ii) upon expiration of the Option as provided in
paragraph (3)(d) above.
6. Paragraph (6) of the Stock Option Agreement is hereby deleted in its
entirety.
7. Paragraph (11) of the Stock Option Agreement is hereby amended by
adding a new paragraph (11)(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the Option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
8. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
9. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Michael D. Rowsey
---------------------------------------
Michael D. Rowsey
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Daniel H. Bushell
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated November 20, 1992, as amended on March 30, 1995 and on September
29, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 32,750.9 shares (as adjusted) of the Company's common
stock, $.10 par value, ("Common Stock") and an option to purchase up to an
additional 6,405.8 shares (as adjusted) of Common Stock (subject to certain
conditions) under the United Stationers Inc. Management Equity Plan (the "Plan")
at an exercise price of $1.45 per share (as adjusted) in accordance with the
terms of the Stock Option Agreement (the "Option");
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Section 3 is hereby amended in its entirety to read as follows:
3. TERMINATION OF EMPLOYMENT. Upon termination of employment:
(a) If termination for good cause, as defined in the Plan, all
unexercised Options will immediately terminate; notwithstanding
the preceding clause and as provided in Section 6(g) of the Plan,
during the period that the employment agreement by and among you,
the Company, and United Stationers Supply Co. made and entered
into as
<PAGE>
of June 1, 1997 (the "Employment Agreement") is in effect, the
definition of good cause under this Section 3(a) shall be the same
definition as the definition of Cause under the Employment Agreement.
(b) If termination is the result of voluntary termination,
death, permanent disability, retirement, or at the election of
the Company, before the Event, the nonvested shares will
terminate as provided in Section 2(d) above. Notwithstanding the
preceding sentence and as provided in Section 6(g) of the Plan,
during the period that the Employment Agreement is in effect, if
your employment is terminated pursuant to Section 11(d), 11(e) or
11(f) of the Employment Agreement, or if you voluntarily
terminate your employment without Good Reason (as defined in the
Employment Agreement), other than a termination of your
employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
Option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period or the Section 11(e) Severance
Period (each as defined in the Employment Agreement), as
applicable, or (ii) upon expiration of the Option as provided in
Section 2(d) above.
2. Section 5 of the Stock Option Agreement is hereby deleted in its
entirety.
3. Section 8 of the Stock Option Agreement is hereby amended by adding a
new Section 8(c) to read as follows:
(c) The Company intends that all shares received by you upon the
exercise of the Option shall be subject to an effective Form S-8
under the Securities Act.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Daniel H. Bushell
---------------------------------------
Daniel H. Bushell
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Daniel H. Bushell
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated October 2, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 15,000 shares (as adjusted) of the Company's common stock,
$.10 par value, under the United Stationers Inc. Management Equity Plan (the
"Plan") at an exercise price of $5.12 per share (as adjusted) in accordance with
the terms of the Stock Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (5)(a) is hereby amended by adding a new clause after the
first clause of paragraph (5)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Paragraph (5)(a) shall be the same definition as the definition
of Cause under the Employment Agreement.
<PAGE>
2. Paragraph (5)(d) is hereby amended by adding a new sentence after the
first sentence of paragraph (5)(d) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period (as defined in the Employment
Agreement) or the Section 11(e) Severance Period (as defined in
the Employment Agreement), as applicable, or (ii) upon expiration
of this option as provided in paragraph (4) above.
3. Paragraph (13) of the Stock Option Agreement is hereby amended by
adding a new paragraph 13(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Daniel H. Bushell
---------------------------------------
Daniel H. Bushell
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Daniel H. Bushell
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated January 31, 1996 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 51,343 shares of the Company's common stock, $.10 par
value, under the United Stationers Inc. Management Equity Plan (the "Plan") at
an exercise price of $1.45 per share in accordance with the terms of the Stock
Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (3)(c) is hereby amended by replacing the first sentence of
paragraph (3)(c) with the following sentence to read as follows:
Notwithstanding the provisions of paragraphs (3)(a) and (3)(b)
above, on the occurrence of a transaction or group of
transactions (an "Event") that cause the Sponsor Holders (as
defined below) to realize a return of Liquid Proceeds (as defined
below) at least equal to their Common Stock Investment (as
defined below), 100 percent of the 51,343 Option Shares under the
Option shall become Vested Shares without further action by the
Board of Directors (other than as described in this paragraph
(3)(c) below), and you may exercise the Option to purchase some
or all of the Option Shares (but not for fractional shares) at
any time or times after the occurrence of an Event.
<PAGE>
2. Paragraph (3)(c) is hereby amended by adding the words "timely and
promptly" after the word "shall" in the last sentence of paragraph (3)(c).
3. Paragraph (4)(a) is hereby amended by adding a new clause after the
first clause of paragraph (4)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Section 3(a) shall be the same definition as the definition of
Cause under the Employment Agreement.
4. Paragraph (4)(b) is hereby amended by replacing the phrase "as
provided in paragraph (4) above" with the phrase "as provided in paragraph (3)
above".
5. Paragraph (4)(b) is hereby amended by adding a new sentence after the
first sentence of paragraph (4)(b) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
Option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period or the Section 11(e) Severance
Period (each as defined in the Employment Agreement), as
applicable, or (ii) upon expiration of the Option as provided in
paragraph (3)(d) above.
6. Paragraph (6) of the Stock Option Agreement is hereby deleted in its
entirety.
7. Paragraph (11) of the Stock Option Agreement is hereby amended by
adding a new paragraph (11)(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the Option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
8. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
9. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Daniel H. Bushell
---------------------------------------
Daniel H. Bushell
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Daniel H. Bushell
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated October 2, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 105,000 shares (as adjusted) of the Company's common
stock, $.10 par value, under the United Stationers Inc. Management Equity Plan
(the "Plan") at an exercise price of $12.50 per share (as adjusted) subject to
increase by $.625 per share (as adjusted) on April 1, 1996 and on the first day
of each calendar quarter thereafter in accordance with the terms of the Stock
Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (5)(a) is hereby amended by adding a new clause after the
first clause of paragraph (5)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Paragraph (5)(a)
<PAGE>
shall be the same definition as the definition of Cause under the
Employment Agreement.
2. Paragraph (5)(d) is hereby amended by adding a new sentence after the
first sentence of paragraph (5)(d) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period (as defined in the Employment
Agreement) or the Section 11(e) Severance Period (as defined in
the Employment Agreement), as applicable, or (ii) upon expiration
of this option as provided in paragraph (4) above.
3. Paragraph (13) of the Stock Option Agreement is hereby amended by
adding a new paragraph 13(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Daniel H. Bushell
---------------------------------------
Daniel H. Bushell
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Steven R. Schwarz
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated October 2, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 15,000 shares (as adjusted) of the Company's common stock,
$.10 par value, under the United Stationers Inc. Management Equity Plan (the
"Plan") at an exercise price of $5.12 per share (as adjusted) in accordance with
the terms of the Stock Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (5)(a) is hereby amended by adding a new clause after the
first clause of paragraph (5)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Paragraph (5)(a)
<PAGE>
shall be the same definition as the definition of Cause under the
Employment Agreement.
2. Paragraph (5)(d) is hereby amended by adding a new sentence after the
first sentence of paragraph (5)(d) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period (as defined in the Employment
Agreement) or the Section 11(e) Severance Period (as defined in
the Employment Agreement), as applicable, or (ii) upon expiration
of this option as provided in paragraph (4) above.
3. Paragraph (13) of the Stock Option Agreement is hereby amended by
adding a new paragraph 13(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Steven R. Schwarz
---------------------------------------
Steven R. Schwarz
3
<PAGE>
UNITED STATIONERS INC.
MANAGEMENT EQUITY PLAN
AMENDMENT TO STOCK OPTION AGREEMENT
This amendment ("Amendment") to the Stock Option Agreement (as defined
below) is made and entered into as of the 1st day of June, 1997, between United
Stationers Inc., a Delaware corporation (the "Company"), and Steven R. Schwarz
(the "Optionee").
W I T N E S S E T H
WHEREAS, the Company and the Optionee entered into a stock option letter
agreement dated October 2, 1995 (the "Stock Option Agreement");
WHEREAS, under the Stock Option Agreement, the Company granted the Optionee
an option to purchase 105,000 shares (as adjusted) of the Company's common
stock, $.10 par value, under the United Stationers Inc. Management Equity Plan
(the "Plan") at an exercise price of $12.50 per share (as adjusted) subject to
increase by $.625 per share (as adjusted) on April 1, 1996 and on the first day
of each calendar quarter thereafter in accordance with the terms of the Stock
Option Agreement (the "Option");
WHEREAS, the Option was subject to the approval by the Company's
stockholders of amendments to the Plan and such amendments have been approved by
the Company's stockholders;
WHEREAS, the Company, United Stationers Supply Co. and the Optionee made
and entered into an employment agreement as of June 1, 1997 (the "Employment
Agreement"); and
WHEREAS, in connection with the Employment Agreement, the Company and the
Optionee have agreed to amend the Stock Option Agreement to reflect the
provisions of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows and effective as of the date first written above, the Stock Option
Agreement is hereby amended as follows:
1. Paragraph (5)(a) is hereby amended by adding a new clause after the
first clause of paragraph (5)(a) to read as follows:
notwithstanding the preceding clause and as provided in Section
6(g) of the Plan, during the period that the employment agreement
by and among you, the Company, and United Stationers Supply Co.
made and entered into as of June 1, 1997 (the "Employment
Agreement") is in effect, the definition of good cause under this
Paragraph (5)(a) shall be the same definition as the definition
of Cause under the Employment Agreement.
<PAGE>
2. Paragraph (5)(d) is hereby amended by adding a new sentence after the
first sentence of paragraph (5)(d) to read as follows:
Notwithstanding the preceding sentence and as provided in Section
6(g) of the Plan, during the period that the Employment Agreement
is in effect, if your employment is terminated pursuant to
Section 11(d), 11(e) or 11(f) of the Employment Agreement, or if
you voluntarily terminate your employment without Good Reason (as
defined in the Employment Agreement), other than a termination of
your employment due to death or Disability (as defined in the
Employment Agreement), during the period beginning on the 180th
day following the date of a Change in Control of Supply (as
defined in the Employment Agreement) and ending on the 3rd
anniversary of the date of such Change in Control of Supply, the
option will terminate at the earlier of (i) the end of the
Section 11(d) Severance Period (as defined in the Employment
Agreement) or the Section 11(e) Severance Period (as defined in
the Employment Agreement), as applicable, or (ii) upon expiration
of this option as provided in paragraph (4) above.
3. Paragraph (13) of the Stock Option Agreement is hereby amended by
adding a new paragraph 13(f) to read as follows:
(f) The Company intends that all shares received by you upon the
exercise of the option shall be subject to an effective Form S-8
under the Securities Act of 1933, as amended.
4. All other terms and conditions of the Stock Option Agreement shall
remain in full force and effect.
5. This Amendment may be executed in separate counterparts, and when so
executed such counterparts shall constitute one instrument.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment
to be made and executed as of the date first written above.
UNITED STATIONERS INC.:
By: /s/Frederick B. Hegi, Jr.
---------------------------------------
Frederick B. Hegi, Jr.
Chairman of the Board
/s/Steven R. Schwarz
---------------------------------------
Steven R. Schwarz
3
<PAGE>
EXHIBIT 15.1
September 30, 1997
The Board of Directors
United Stationers Inc.
We are aware of the incorporation by reference in Amendment No. 1 to 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 Amendment No. 1 to 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 30, 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.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 1, 1997
