<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the year ended December 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period
from __________ to ____________
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of Registrant as specified in its charter)
UNITED STATIONERS INC.: DELAWARE UNITED STATIONERS INC.: 36-3141189
UNITED STATIONERS SUPPLY CO.: ILLINOIS UNITED STATIONERS SUPPLY CO.: 36-2431718
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(847) 699-5000
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrants' Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
NONE N/A
--------------------- -----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
United Stationers Inc.: Common Stock $0.10 par value
(Title of Class)
INDICATE BY CHECK MARK WHETHER EACH REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
UNITED STATIONERS INC.: YES ( X ) NO ( )
UNITED STATIONERS SUPPLY CO.: YES ( X ) NO ( )
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENT
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( X )
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES OF UNITED
STATIONERS INC. AS OF MARCH 6, 1998, BASED ON THE LAST SALE PRICE OF THE COMMON
STOCK AS QUOTED BY THE NASDAQ NATIONAL MARKET SYSTEM ON SUCH DATE: $746,141,914
UNITED STATIONERS SUPPLY CO. HAS NO SHARES OF COMMON STOCK OUTSTANDING HELD BY
NON-AFFILIATES.
ON MARCH 6, 1998, UNITED STATIONERS INC. HAD OUTSTANDING 16,024,019 SHARES OF
COMMON STOCK, PAR VALUE $0.10 PER SHARE. ON MARCH 6, 1998, UNITED STATIONERS
SUPPLY CO. HAD 880,000 SHARES OF COMMON STOCK, $1.00 PAR VALUE PER SHARE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K
- -----------------
Part III Portions of United Stationers Inc.'s definitive Proxy Statement
relating to the 1998 Annual Meeting of Stockholders of United
Stationers Inc., to be filed within 120 days of the year end of
United Stationers Inc.
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNITED STATIONERS SUPPLY CO.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
CONTENTS AND CROSS REFERENCE SHEET
FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K
<TABLE>
<CAPTION>
FORM 10-K FORM 10-K FORM 10-K
PART NO. ITEM NO. DESCRIPTION PAGE NO.
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<C> <C> <S> <C>
I Explanatory Note 1
1 Business 1
General 1
Products 1-2
Customers 2
Marketing and Customer Support 3
Distribution 3-4
Purchasing and Merchandising 4
Competition 4
Employees 4
2 Properties 5
3 Legal Proceedings 5
4 Submission of Matters to a Vote of Security Holders 5
II 5 Market for Registrant's Common Equity
and Related Stockholder Matters 6
Quarterly Stock Price Data 6-7
6 Selected Consolidated Financial Data 7-11
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
8 Financial Statements and Supplementary Data 19-42
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 42
III 10 Directors and Executive Officers of the Registrant 43-45
11 Executive Compensation 45
12 Security Ownership of Certain Beneficial
Owners and Management 45
13 Certain Relationships and Related Transactions 45
IV 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 46-49
Signatures 50
</TABLE>
<PAGE>
PART I
EXPLANATORY NOTE
THIS INTEGRATED FORM 10-K IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC., A DELAWARE CORPORATION,
AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO., AN ILLINOIS
CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED STATIONERS INC. IS A HOLDING
COMPANY WITH NO OPERATIONS SEPARATE FROM ITS OPERATING SUBSIDIARY, UNITED
STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL INFORMATION
FOR UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES HAS BEEN PROVIDED HEREIN
BECAUSE MANAGEMENT FOR THE COMPANY BELIEVES SUCH INFORMATION WOULD NOT BE
MEANINGFUL BECAUSE (i) UNITED STATIONERS SUPPLY CO. IS THE ONLY DIRECT
SUBSIDIARY OF UNITED STATIONERS INC., WHICH HAS NO OPERATIONS OTHER THAN THOSE
OF UNITED STATIONERS SUPPLY CO. AND (ii) ALL ASSETS AND LIABILITIES OF UNITED
STATIONERS INC. ARE RECORDED ON THE BOOKS OF UNITED STATIONERS SUPPLY CO. THERE
IS NO MATERIAL DIFFERENCE BETWEEN UNITED STATIONERS INC. AND UNITED STATIONERS
SUPPLY CO. FOR THE DISCLOSURES REQUIRED BY THE INSTRUCTIONS TO FORM 10-K AND
THEREFORE, UNLESS OTHERWISE INDICATED, THE RESPONSES SET FORTH HEREIN APPLY TO
EACH OF UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO.
ITEM 1. BUSINESS
GENERAL
On March 30, 1995, Associated Holdings, Inc., ( "Associated" ), was merged with
and into United Stationers Inc., ( "United" ), with United surviving (the
"Merger"). Immediately thereafter, Associated Stationers, Inc. ("ASI"), the
wholly owned subsidiary of Associated, was merged with and into United
Stationers Supply Co. ("USSC"), the wholly owned subsidiary of United, with USSC
surviving. 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 terms "Associated" and "United" will be used to refer to either the
respective pre-Merger corporations or specific aspects of the post-Merger
Company's business. United is the parent company of its direct wholly owned
subsidiary, USSC. Except where the context clearly indicates otherwise,
including references to the capital structure of United Stationers Inc., the
term "Company" hereinafter used includes United Stationers Inc. together with
its subsidiary.
On October 31, 1996, USSC acquired all of the capital stock of Lagasse Bros.,
Inc. ("Lagasse"), an $80 million wholesaler of janitorial and sanitary supplies.
Lagasse operates as a subsidiary of USSC.
The Company is the largest general line business products wholesaler in the
United States with 1997 net sales of $2.6 billion. The Company sells its
products through a single national distribution network to more than 15,000
resellers, who in turn sell directly to end users. These products are
distributed through a computer-based network of warehouse facilities and truck
fleets radiating from 41 distribution centers and 16 Lagasse distribution
centers.
PRODUCTS
The Company's current product offerings, comprised of more than 30,000
stockkeeping units (SKUs), may be divided into five primary categories:
<PAGE>
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 22% of the
Company's 1997 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 4,000 furniture items from 50 different
manufacturers. Office furniture constituted approximately 15% of the
Company's 1997 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 16
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).
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. Of its 15,000 customers, no single reseller
accounted for more than 6% of the Company's net sales in 1997.
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 also had 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.
<PAGE>
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 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 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, www.unitedstationers.com.
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 1997, it received approximately 90% of its orders electronically.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 140 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.
DISTRIBUTION
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 16
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 400 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.
<PAGE>
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
contribute to the Company's high order fill rate and efficient levels of
inventory balances.
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.
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 1997, no
supplier accounted for more than 14% of the Company's aggregate purchases. As a
centralized corporate function, the Company's merchandising department
interviews and selects suppliers and products for inclusion in the catalogs.
Selection is based upon end-user acceptance and demand for the product and the
manufacturer's total service, price and product quality offering.
COMPETITION
The Company competes with office products manufacturers and with other national,
regional and specialty wholesalers of office products, office furniture,
computers and related items, and facility management supplies. 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. Manufacturers
typically sell their products through a variety of distribution channels,
including wholesalers and resellers.
Competition between the Company and other wholesalers is based primarily on
breadth of product lines, availability of products, speed of delivery to
resellers, order fill rates, net pricing to resellers and the 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 December 31, 1997, the Company employed approximately 5,500 persons.
The Company considers its relations with employees to be good. Approximately
1,000 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.
<PAGE>
ITEM 2. PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
EXECUTIVE OFFICES. The Company's office facility in Des Plaines, Illinois has
approximately 135,800 square feet of office and storage space. In addition,
approximately 47,000 square feet of office space located in Mt. Prospect,
Illinois is leased by the Company. This lease expires in September of 1999 with
an option to renew for two five-year terms.
USSC REGIONAL DISTRIBUTION CENTERS. The Company presently operates 41
distribution centers in 25 states. These centers represent, in total,
approximately 7.3 million square feet, of which approximately 4.3 million is
owned and the balance is leased.
LOCAL DISTRIBUTION POINTS. The Company also operates 24 local distribution
points. Two are leased by the Company; the other local distribution points are
operated through cross-docking arrangements with third party distribution
companies.
LAGASSE DISTRIBUTION CENTERS. Lagasse operates 16 leased distribution centers,
specifically serving janitorial and sanitary supply distributors. These centers
represent, in total, approximately 589,000 square feet. Its New Orleans
distribution center also includes 22,000 square feet of executive office space.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course of
its business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 5, 1997, the Company issued notice and proxy statements for action
to be taken by written consent, expiring on October 6, 1997, in lieu of a
special meeting of stockholders for the purpose of considering approval of the
amendments to the Company's Management Equity Plan.
The tabulation of the votes was as follows:
<TABLE>
<CAPTION>
For Against Abstain Not Voted
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<S> <C> <C> <C>
10,356,381 341,809 6,335 915,230
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THE COMPANY
<TABLE>
<CAPTION>
Income (Loss)
Income (Loss) Per Share
Before Net Before Net Income
Year Ended Net Gross Extraordinary Income Extraordinary (Loss)
December 31, 1997 Sales Profit (1) Item (Loss) Item (2) Per Share (2)
- ----------------- ----------- ---------- ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 635,021 $108,742 $ 10,009 $ 10,009 $0.65 $0.65
Second Quarter 610,041 104,734 9,870 9,870 0.64 0.64
Third Quarter 650,912 114,442 11,867 11,867 0.74 0.74
Fourth Quarter (3) 662,161 118,013 (23,558) (29,442) (1.52)(4) (1.90)(4)
---------- -------- -------- --------
Totals (3) $2,558,135 $445,931 $ 8,188 $ 2,304 0.43 0.05
---------- -------- -------- --------
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Year Ended
December 31, 1996
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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
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
(1) Gross profit is net of delivery and occupancy costs. See Note 3
(Reclassification) to the Consolidated Financial Statements of the Company
included elsewhere herein.
(2) As a result of changes in the number of common and common equivalent shares
during the year, the sum of quarterly earnings per share will not equal
earnings per share for the total year.
(3) The fourth quarter and year ended December 31, 1997 reflect a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a cash charge of $5.3 million ($3.2 million net of tax
benefit of $2.1 million) related to the vesting of stock options and the
termination of certain management advisory service agreements. In addition,
during the fourth quarter of 1997, the Company recorded an extraordinary
loss of $9.8 million ($5.9 million net of tax benefit of $3.9 million)
related to the early retirement of debt. See Note 1 to the Consolidated
Financial Statements of the Company included elsewhere herein.
(4) Net loss per common share during the fourth quarter of 1997 is calculated
using only the weighted average number of common shares outstanding.
QUARTERLY STOCK PRICE DATA
The Common Stock is quoted through the NASDAQ National Market System 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 System.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1996
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First Quarter $30 1/4 $21 1/2
Second Quarter $24 1/2 $19 1/2
Third Quarter $24 1/2 $17 1/2
Fourth Quarter $23 $19 1/2
1997
--------------
First Quarter $21 3/4 $18 3/4
Second Quarter $27 1/2 $19
Third Quarter $38 1/4 $23 7/8
Fourth Quarter $48 5/8 $37 1/4
</TABLE>
<PAGE>
On February 25, 1998, there were approximately 1,095 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 United 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
is subject to certain restrictions imposed by the Company's debt agreements.
See Note 6 to the Consolidated Financial Statements of the Company included
elsewhere herein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is the selected historical consolidated financial data for the
Company. Although United was the surviving corporation in the Merger, the
Acquisition was treated as a reverse acquisition for accounting purposes, with
Associated as the acquiring corporation. Therefore, the income statement,
operating, 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. The balance sheet data at December 31, 1997, 1996 and 1995 reflects the
consolidated balances of the Company, including various Merger-related
adjustments. Income statement data for all periods presented reflect a
reclassification of delivery and occupancy costs to cost of goods sold from
operating expenses.
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." For further discussion, see Note 3 (New Accounting Pronouncements) to
the Consolidated Financial Statements of the Company, included elsewhere herein.
THE COMPANY/ASSOCIATED
The selected consolidated financial data for the years ended December 31, 1993
and 1994 has been derived from the Consolidated Financial Statements of
Associated which have been audited by Arthur Andersen LLP, independent public
accountants. The selected consolidated financial data of the Company for the
years ended December 31, 1997, 1996 and 1995 (which for Income Statement,
Operating, and Other Data includes Associated only for the three months ended
March 30, 1995 and the results of the Company for the nine months ended December
31, 1995) have been derived from the Consolidated Financial Statements of the
Company which have been audited by Ernst & Young LLP, independent auditors. All
selected consolidated financial data set forth below should be read in
conjunction with, and is qualified in its entirety by, "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Historical
Results of Operations of the Company/Associated," "Liquidity and Capital
Resources of the Company/Associated" and the Consolidated Financial Statements
of the Company included elsewhere in this Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
The Company
----------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Net sales $2,558,135 $2,298,170 $1,751,462 $470,185 $455,731
Cost of goods sold 2,112,204 1,907,209 1,446,949 382,299 375,226
---------- ---------- ---------- -------- --------
Gross profit 445,931 390,961 304,513 87,886 80,505
Operating expenses:
Warehousing, marketing and
administrative expenses 311,002 277,957 246,956(2) 69,765 69,527
Non-recurring charges 64,698(1) - - - - - - - -
---------- ---------- ---------- -------- --------
Total operating expenses 375,700 277,957 246,956(2) 69,765 69,527
---------- ---------- ---------- -------- --------
Income from operations 70,231 113,004 57,557 18,121 10,978
Interest expense, net 53,511 57,456 46,186 7,725 7,235
---------- ---------- ---------- -------- --------
Income before income taxes
and extraordinary item 16,720 55,548 11,371 10,396 3,743
Income taxes 8,532 23,555 5,128 3,993 781
---------- ---------- ---------- -------- --------
Income before extraordinary
item 8,188 31,993 6,243 6,403 2,962
Extraordinary item - loss on
early retirement of debt, net of
tax benefit of $3,956 in 1997
and $967 in 1995 (5,884) - - (1,449) - - - -
---------- ---------- ---------- -------- --------
Net income $ 2,304 $ 31,993 $ 4,794 $ 6,403 $ 2,962
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Net income attributable to
common stockholders $ 776 $ 30,249 $ 2,796 $ 4,210 $ 915
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Net income per common
share - assuming dilution
Income before extraordinary item $0.43 $2.03 $0.33 $0.51 $0.11
Extraordinary item (0.38) - - (0.11) - - - -
---------- ---------- ---------- -------- --------
Net income $0.05 $2.03 $0.22 $0.51 $0.11
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Cash dividends declared per
common share - - - - - - - - - -
Operating and Other Data:
- -------------------------
EBITDA (3) $ 96,272 $ 139,046 $ 81,241 $ 23,505 $ 16,481
EBITDA margin (4) 3.8%(5) 6.1% 4.6%(6) 5.0% 3.6%
Depreciation and
amortization (7) $ 26,041 $ 26,042 $ 23,684 $ 5,384 $ 5,503
Capital expenditures 12,991 (2,886)(8) 8,017 554 3,273
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Company
----------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------
1997(9) 1996 1995(10) 1994 1993
---------- ---------- ---------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Results Before Charges: (9)(10)
- ---------------------------------
Income from operations $134,929 $113,004 $67,316 $18,121 $10,978
Net income attributable to
common stockholders 45,364 30,249 10,081 4,210 915
Net income per common
share - assuming dilution 2.95 2.03 0.79 0.51 0.11
EBITDA 160,970 139,046 91,000 23,505 16,481
EBITDA margin 6.3% 6.1% 5.2% 5.0% 3.6%
</TABLE>
<TABLE>
<CAPTION>
The Company
----------------------------------------------------------------------
As of December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
- -------------------
Working capital $ 451,449 $ 404,973 $ 355,465 $ 56,454 $ 57,302
Total assets 1,148,021 1,109,867 1,001,383 192,479 190,979
Total debt and capital lease (11) 537,135 600,002 551,990 64,623 86,350
Redeemable preferred stock - - 19,785 18,041 23,189 20,996
Redeemable warrants - - 23,812 39,692 1,650 1,435
Total stockholders' equity 223,308 75,820 30,024 24,775 11,422
</TABLE>
(1) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting
of stock options and the termination of certain management advisory
service agreements.
(2) Includes a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) for the year ended December 31, 1995.
(3) EBITDA for 1997 would have been $161.0 million excluding the non-recurring
charges. EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and extraordinary item and is presented because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service and incur debt. EBITDA should not be
considered in isolation, from or as a substitute for, net income, cash
flows from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(4) EBITDA margin represents EBITDA as a percent of net sales.
(5) EBITDA margin would have been 6.3% excluding the non-recurring charges.
(6) EBITDA margin would have been 5.2% excluding the restructuring charge.
(7) Excludes $4.3 million of amortization related to deferred financing costs,
which is a component of interest expense.
(8) Includes $11.1 million of proceeds from the sale of property, plant and
equipment.
<PAGE>
(9) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting
of stock options and the termination of certain management advisory
service agreements. In addition, during the fourth quarter of 1997 the
Company recorded an extraordinary loss of $9.8 million ($5.9 million net
of tax benefit of $3.9 million) related to early retirement of debt.
(10) During 1995, the Company recorded a restructuring charge of $9.8 million
($5.9 million net of tax benefit of $3.9 million) and an extraordinary loss
of $2.4 million ($1.4 million net of tax benefit of $1.0 million) related
to early retirement of debt.
(11) Total debt and capital lease include current maturities.
UNITED
The selected consolidated financial data of United (a predecessor of the
Company) set forth below for the seven months ended March 30, 1995 (at which
time United and Associated merged to create the Company) have been derived from
the Consolidated Financial Statements of United which have been audited by Ernst
& Young LLP, independent auditors. The selected financial data at and for the
seven-month period ended March 31, 1994 are unaudited and in the opinion of
management reflects all adjustments considered necessary for a fair presentation
of such data. The selected consolidated financial data of United for each of the
two fiscal years ended August 31, 1994 and 1993 have been derived from the
Consolidated Financial Statements of United which have been audited by Arthur
Andersen LLP, independent public accountants.
All selected consolidated financial data set forth below should be read in
conjunction with, and is qualified in its entirety by, "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Historical
Results of Operations of United," included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
UNITED
-----------------------------------------------------
SEVEN MONTHS ENDED YEARS ENDED AUGUST 31,
------------------------ -------------------------
MARCH 30, MARCH 31,
1995 1994 1994 1993
-------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $980,575 $871,585 $1,473,024 $1,470,115
Cost of sales 814,780 717,546 1,220,245 1,197,664
-------- -------- ---------- ----------
Gross profit on sales 165,795 154,039 252,779 272,451
Operating expenses 133,098 128,594 216,485 226,337
Merger-related costs 27,780(1) - - - - - -
-------- -------- ---------- ----------
Income from operations 4,917 25,445 36,294 46,114
Interest expense, net 7,500 5,837 10,461 9,550
Other income, net 41 117 225 355
-------- -------- ---------- ----------
Income (loss) before income taxes (2,542) 19,725 26,058 36,919
Income taxes 4,692 8,185 10,309 15,559
-------- -------- ---------- ----------
Net income (loss) $ (7,234) $ 11,540 $ 15,749 $ 21,360
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Net income (loss) per common
share - assuming dilution $ (0.39) $ 0.62 $ 0.85 $ 1.15
Cash dividends declared per share 0.30 0.30 0.40 0.40
OPERATING AND OTHER DATA:
EBITDA(2) 17,553 37,665 57,755 67,712
EBITDA margin(3) 1.8% 4.3% 3.9% 4.6%
Depreciation and amortization $ 12,595 $ 12,103 $ 21,236 $ 21,243
Net capital expenditures 7,764 4,287 10,499 29,958
BALANCE SHEET DATA (AT PERIOD END):
Working capital 257,600 297,099 239,827 216,074
Total assets 711,839 608,728 618,550 634,786
Total debt and capital leases(4) 233,406 227,626 155,803 150,251
Stockholders' investment 233,125 243,636 246,010 237,697
</TABLE>
(1) In connection with the Merger, United incurred approximately $27.8 million
of Merger-related costs, consisting of severance payments under employment
contracts ($9.6 million); insurance benefits under employment contracts
($7.4 million); legal, accounting and other professional services fees
($5.2 million); retirement of stock options ($3.0 million); and fees for
letters of credit related to employment contracts and other costs ($2.6
million).
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation, from or as a
substitute, for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Total debt and capital leases include current maturities.
<PAGE>
ITEM 7. 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 appearing elsewhere in this Form 10-K.
Certain information presented in this Form 10-K 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 reduce operating expenses as a
percent of net sales, changing end-user demands, changes in manufacturers'
pricing, service interruptions and availability of liquidity and capital
resources.
OVERVIEW
On October 10, 1997, the Company completed a 2.0 million share primary offering
of Common Stock and a 3.4 million share secondary offering of Common Stock
("Equity Offering"). The shares were priced at $38.00 per share, before
underwriting discounts and a commission of $1.90 per share. The aggregate net
proceeds to the Company from this Equity Offering of $72.2 million (before
deducting expenses) and proceeds of $0.1 million resulting from the conversion
of 1,119,038 warrants into common stock were used to (i) redeem $50.0 million of
the Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium
thereon of $6.4 million, (ii) pay fees related to the Equity Offering, and (iii)
reduce the indebtedness under the Term Loan Facilities by $15.5 million. The
repayment of indebtedness resulted in an extraordinary loss of $9.8 million
($5.9 million net of tax benefit of $3.9 million) and caused a permanent
reduction of the amount borrowable under the Term Loan Facilities.
On March 30, 1995, Associated merged with and into United. 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. Therefore, the results of operations for the year ended December
31, 1995 reflects the financial information of Associated only for the three
months ended March 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 the pro forma results of operations for the Company for the
year ended December 31, 1995. The pro forma results of operations do not purport
to be indicative of the results that would have been obtained had such
transactions been completed for the periods presented or that may be obtained in
the future.
GENERAL INFORMATION
EMPLOYEE STOCK OPTIONS. The Management Equity Plan (the "Plan"), as amended, is
administered by the Board of Directors, although the Plan allows the Board of
Directors of the Company to designate an option committee to administer the
Plan. The Plan provides for the issuance of shares of Common Stock through the
exercise of options, to key officers and management employees of the Company,
either as incentive stock options or as non-qualified stock options.
In October 1997, the Company's stockholders approved an amendment to the Plan
which provided for the issuance of approximately 1.5 million additional options
to key management employees and directors of the Company. During 1997,
approximately 0.3 million options were granted to management employees and
directors at fair market value.
<PAGE>
In September 1995, the Company's Board of Directors approved an amendment to the
Plan which provided for the issuance of options in connection with the Merger
("Merger Incentive 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 increased by
$0.625 on a quarterly basis effective April 1, 1996.
These Merger Incentive Options were granted in order to provide incentives to
management with respect to the successful development of ASI and the integration
of ASI with the Company. All Merger Incentive Options were vested and became
exercisable with the completion of the Equity Offering in October 1997. All
Common Stock issued from the exercise of Merger Incentive Options is subject to
a six month holding period which expires on April 10, 1998. In the fourth
quarter of 1997 the Company was required to recognize compensation expense based
upon the difference between the fair market value of the Common Stock and the
exercise prices. Based on the closing stock price on October 10, 1997 of
$39.125 and options outstanding as of October 10, 1997, the Company recognized a
non-recurring non-cash charge of $59.4 million ($35.5 million net of tax benefit
of $23.9 million).
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). 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 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,
1997, five of the six redundant pre-Merger Associated distribution centers
had been closed with $5.5 million charged against the reserve and $2.0
million related to stockkeeping unit reduction costs had also been charged
against the reserve. As of December 31, 1997, the Company's consolidation
plan had been substantially completed. Seven of the eight redundant
distribution centers had been closed. The restructuring reserve balance at
December 31, 1997 of $0.3 million is adequate to cover the remaining
estimated expenditures related to integration and transition costs. See Note
5 to the Consolidated Financial Statements of the Company included elsewhere
herein.
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 are more easily compared to that of other companies in the
wholesale industry where the LIFO method is common. In 1995, this change
resulted in the reduction of pre-tax income of the Company of approximately $8.8
million ($5.3 million net of tax benefit of $3.5 million). See Note 3
(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 the presentation used by others in the business
products industry. See Note 3 (Reclassification) to the Consolidated Financial
Statements included elsewhere herein.
<PAGE>
ACTUAL AND PRO FORMA RESULTS OF OPERATIONS
The following table of summary actual and pro forma (see Note 5 to the
Consolidated Financial Statements of the Company included elsewhere herein) is
intended for informational purposes only and is not necessarily indicative of
either financial position or results of operations in the future, or that would
have occurred had the events described in the second paragraph under "Overview"
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.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
Pro Forma
1997 1996 1995
------------------ ------------------ ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,558,135 100.0% $2,298,170 100.0% $2,201,860 100.0%
Gross profit 445,931 17.4 390,961 17.0 381,270 17.3
Operating expenses 311,002 12.2 277,957 12.1 299,861 13.6
Non-recurring charges 64,698 2.5 - - - - - - - -
Income from operations 70,231 2.7 113,004 4.9 81,409 3.7
</TABLE>
HISTORICAL RESULTS OF OPERATIONS OF THE COMPANY/ASSOCIATED
COMPARISON OF ACTUAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Net sales increased 11.8%, on equivalent workdays, to $2.6 billion
for 1997 compared with $2.3 billion for 1996. This increase represents strength
in all geographic regions. Also, the Company's janitorial and sanitation
products, office furniture and traditional office supplies experienced strong
growth throughout the year.
Net sales for 1997 include ten months of incremental sales related to the
October 1996 acquisition of Lagasse Bros., Inc. Excluding the Lagasse
acquisition, sales growth for 1997 was 8.8%.
GROSS MARGIN. Gross margin increased to 17.4% in 1997 from 17.0% in 1996. This
increase reflects higher vendor rebates obtained by meeting higher purchase
volume hurdles. In addition, the Company continued to see a shift in product
mix toward higher margin items. Lower margin computer hardware declined as a
percent of total sales.
OPERATING EXPENSES. Operating expenses as a percent of net sales, before
non-recurring charges, remained nearly flat at 12.2% in 1997 compared with
12.1% in 1996. Non-recurring charges recorded in the fourth quarter of 1997
were $59.4 million (non-cash) and $5.3 million (cash) related to the vesting
of stock options and the termination of certain management advisory service
agreements. During 1997, the Company accelerated certain discretionary
expenditures that represent investments in the future, specifically,
preparation for the Year 2000 computer system issues and investments related
to strategic planning. In addition, the Company continues to improve
warehouse and systems efficiencies to produce high levels of customer and
consumer satisfaction. Operating expenses as a percent of net sales,
including the aforementioned non-recurring charges, was 14.7% in 1997.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales,
before non-recurring charges, increased to 5.2% from 4.9% in 1996. Including
non-recurring charges, income from operations as a percent of net sales was 2.7%
in 1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.1% compared
with 2.5% in 1996. This reduction reflects the continued leveraging of fixed
interest costs against higher sales.
<PAGE>
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes and extraordinary item as a percent of net sales, excluding the impact
of non-recurring charges, increased to 3.1% from 2.4% in 1996. Including
non-recurring charges, income before income taxes and extraordinary item as a
percent of net sales was 0.6% in 1997.
NET INCOME. Net income in 1997 includes an extraordinary item, loss on the
early retirement of debt of $9.8 million ($5.9 million net of tax benefit of
$3.9 million) or .2% of net sales. Net income as a percent of net sales,
excluding the impact of non-recurring charges and early retirement of debt,
increased to 1.8% in 1997 from 1.4% in 1996. Including non-recurring charges
and extraordinary item, net income as a percent of net sales was 0.1% in 1997.
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 1997, the Company recorded a favorable net income
adjustment of approximately $2.9 million relating to the refinement of estimates
recorded in the prior three quarters.
In the fourth quarter of 1997, the Company recognized the following charges (i)
pre-tax non-recurring charges of $59.4 million (non-cash) and $5.3 million
(cash) related to the vesting of stock options and the termination of certain
management advisory service agreements (see Note 10 to the Consolidated
Financial Statements of the Company included elsewhere herein), and (ii) an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of $3.9
million) related to the early retirement of debt (see Note 6 to the Consolidated
Financial Statements of the Company included elsewhere herein).
COMPARISON OF ACTUAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased 31.2% to $2.3 billion for 1996 from $1.8 billion
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 reflects a shift in our product mix, the continuing consolidation of
our dealer base and deflation across our product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent 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 percent of net sales
increased to 4.9% in 1996 from 3.3% in 1995.
INTEREST EXPENSE. Interest expense as a percent 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 Bros., Inc. (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 percent of net sales increased to 2.4% in 1996 from
0.7% in 1995.
NET INCOME. Net income as a percent 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.
<PAGE>
COMPARISON OF ACTUAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND PRO FORMA
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 4.4% to $2.3 billion for 1996 from $2.2 billion
for 1995. This increase is primarily the result of higher unit sales in all
product categories. In addition, our Micro United division continues 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. The Company's core strengths, coupled with the strategic
initiatives already under way, position it to deliver continued growth in both
sales and earnings.
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.3% in 1995. This
decrease reflects a shift in our product mix, the continuing consolidation of
our dealer base and deflation across our product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales to
12.1% in 1996, compared with 13.6% in 1995. This decrease is primarily due to
the realization of merger synergies, cost containment, productivity improvements
and leveraging of fixed expenses. The Company's operating efficiency allows it
to join forces with its customers to produce high levels of customer and
consumer satisfaction. The Company's management believes there is further room
for improvement, primarily through warehouse and systems efficiencies.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.7% in 1995.
HISTORICAL RESULTS OF OPERATIONS OF UNITED
COMPARISON OF THE SEVEN MONTHS ENDED MARCH 30, 1995 AND 1994
NET SALES. Net sales were $980.6 million in the seven months ended March 30,
1995, a 12.5% increase from net sales of $871.6 million in the comparable period
in 1994. The primary reason for the increase is growth in unit volume.
GROSS PROFIT ON SALES. Gross profit as a percent of net sales was 16.9% for
the seven months ended March 30, 1995, compared with 17.7% in the comparable
period in 1994. This lower gross profit margin is primarily the result of a
shift in the sale of computer related products that have lower gross profit
margins and is consistent with the gross profit margins achieved in the latter
half of United's fiscal year ended August 31, 1994.
OPERATING EXPENSES. Operating expenses as a percent of net sales increased to
16.4% in the seven-month period ended March 30, 1995 from 14.8% in the
comparable period in 1994. The increase is primarily attributable to $27.8
million ($18.5 million net of tax benefit of $9.3 million) of non-recurring
Merger-related costs consisting of severance payments under employment
contracts; insurance benefits under employment contracts; legal, accounting and
other professional services fees; the repurchase of stock options; and fees for
letters of credit related to employment contracts and other costs. Operating
expenses as a percent of net sales prior to the Merger-related costs were 13.6%
for the seven-month period ended March 30, 1995. This decline from the
comparable period in 1994 is due to a reduction in payroll expense.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales was
0.5% in the seven-month period ended March 30, 1995, compared with 2.9% in the
comparable period in 1994. The decrease was attributable to the Merger-related
costs discussed under "Operating Expenses" above. Income from operations as a
percent of net sales was 3.3% in the seven-month period ended March 30, 1995,
excluding the Merger-related costs.
INTEREST EXPENSE. Interest expense was $7.6 million for the seven-month period
ended March 30, 1995, compared with $6.1 million for the same period in 1994.
The increase was due to higher interest expense from increased debt to meet
working capital and other capital expenditure needs and higher interest rates on
borrowings.
INCOME (LOSS) BEFORE INCOME TAXES. Income (loss) before income taxes as a
percent of net sales was a loss of 0.3% in the seven-month period ended March
30, 1995, compared to income of 2.3% in the comparable period of 1994. The
decrease in income before income taxes was attributable to the factors stated
above.
<PAGE>
INCOME TAXES. The effective tax rate for the seven-month period ended
March 30, 1995 was (184.6%), compared with 41.5% for the seven-month period
ended March 31, 1994. The increase is primarily due to non-deductible
Merger-related costs and non-deductible amortization of goodwill.
NET INCOME (Loss). Net income (loss) was a loss of $7.2 million for the
seven-month period ended March 30, 1995, compared with income of $11.5
million for the same period in 1994. The loss was primarily due to $27.8
million ($18.5 million net of tax benefit of $9.3 million) of non-recurring
Merger-related costs discussed under "Operating Expenses" above. Net income
(loss) per share was a loss of $0.39 in the seven-month period ended March
30, 1995, compared with income of $0.62 for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
As of December 31, 1997, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $148.8 million of term
loan borrowings (the "Term Loan Facilities"), and up to $325.0 million of
revolving loan borrowings (the "Revolving Credit Facility"). In the fourth
quarter of 1997, the Company redeemed $50.0 million of Notes (as defined) with
net proceeds from the Equity Offering and as a result the Company recognized an
extraordinary loss on early retirement of debt of $9.8 million ($5.9 million net
of tax benefit of $3.9 million). Therefore, the Company has $100.0 million of
borrowings remaining under the 12 3/4% Senior Subordinated Notes due 2005 (the
"Notes").
The Term Loan Facilities consist of a $97.5 million Tranche A term loan facility
(the "Tranche A Facility") and a $51.3 million Tranche B term loan facility
(the "Tranche B Facility"). Quarterly payments under the Tranche A facility
range from $5.03 million at December 31, 1997 to $6.25 million at September 30,
2001. Quarterly payments under the Tranche B Facility range from $0.20 million
at December 31, 1997 to $5.00 million at September 30, 2003. On March 31, 1998,
principal payments of $15.8 million and $8.7 million are required to be paid
from Excess Cash Flow (as defined in the Credit Agreement) at December 31, 1997
for the Tranche A and Tranche B Facilities, respectively. During October 1997,
Tranche A and Tranche B Facilities were paid down by $10.3 million and $5.2
million, respectively, from net proceeds received from the Equity Offering in
October 1997.
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 year, the Company must repay revolving loans so that for a
period of 30 consecutive days in each 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 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 (excluding any undrawn amounts under any letters of
credit) to EBITDA (as defined in the Credit Agreement). 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, the London Interbank Offering Rate ("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, 1997 the Company was in compliance with all covenants
contained in the Credit Agreement.
<PAGE>
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, 1997, the Company had agreements which
collar $200.0 million of the Company's borrowings under the Credit Facilities at
LIBOR rates between 6.0% and 8.0%, which expire in April 1998. From April 1998
through October 1999, the Company has interest rate collar agreements on $200.0
million of borrowings at LIBOR rates between 5.2% and 8.0%. For the years ended
December 31, 1997 and 1996, the Company recorded $0.6 million and $0.9 million,
respectively, to interest expense resulting from LIBOR rate fluctuations below
the floor rate specified in the collar agreements.
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 $23.0 million to $26.0 million in 1998.
The Credit Agreement permits capital expenditures for the Company of up to $36.3
million for the year ended December 31, 1998, which includes (i) the annual
allowance of $15.0 million, (ii) $2.0 million of unused capital expenditures
from the year ended December 31, 1997, (iii) $8.2 million of unused Excess Cash
Flow (as defined in the Credit Agreement) from the year ended December 31, 1997
and (iv) $11.1 million of proceeds from the disposition of certain property,
plant and equipment from the years ended December 31, 1997, 1996 and 1995.
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.
The Company has announced that it has signed a definitive purchase agreement
with Abitibi-Consolidated Inc. to acquire the U.S. and Mexican operations of
its Office Products Division. In connection therewith, the Company is
negotiating significant changes to its Revolving Credit Facility and Term
Loan Facilities to accomplish this acquisition.
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 governing the
Notes contain restrictions on the ability of USSC to transfer cash to United.
The statements of cash flows for the Company for the periods indicated is
summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1996 1995
--------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Net cash provided by operating activities $ 41,768 $ 1,609 $ 26,329
Net cash used in investing activities (12,991) (49,871) (266,291)
Net cash (used in) provided by financing activities (27,029) 47,221 249,773
</TABLE>
Net cash provided by operating activities for 1997 increased to $41.8 million
from $1.6 million in 1996. This change was due to slower inventory growth of
$23.0 million, higher net income (before non-recurring charge) and an increase
in accrued liabilities of $35.2 million partially offset by a $21.4 million
decline in deferred tax expense and a $38.0 million decline in accounts payable.
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.
Net cash used in investing activities during 1997 was $13.0 million compared
with $49.9 million in 1996. The decrease was due to the acquisition of Lagasse
Bros., Inc. on October 31, 1996 offset by the collection of $11.1 million in
1996 from the successful sale of closed facilities and related equipment. The
decrease in net cash used in investing activities of $49.9 million in 1996 from
$266.3 million in 1995 was primarily the result of the Merger.
<PAGE>
Net cash used in financing activities in 1997 was $27.0 million compared with
net cash provided of $47.2 million in 1996. The decrease was due to a $50.0
million partial redemption of the Company's Senior Subordinated Notes, a
reduction of indebtedness under the Term Loan Facilities of $15.5 million,
redemption of Series A and C Preferred Stock of $21.2 million and a $8.5 million
payment related to employee income tax withholding for stock option exercises
offset by proceeds of $72.2 million (before deducting expenses) related to the
issuance of 2.0 million shares of Common Stock (as defined) and additional
borrowings under the revolver of $49.0 million during 1997 compared with
additional borrowings of $22.0 million in 1996. 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 Bros., Inc.
INFLATION/DEFLATION AND CHANGING PRICES
Inflation can have an impact on the Company's earnings. During inflationary
times, the Company generally seeks to increase prices to its customers creating
incremental gross profit resulting from the sale of inventory purchased at lower
prices. Alternatively, significant deflation may adversely affect the Company's
profitability.
YEAR 2000 MODIFICATIONS
The Company recognizes the potential business impacts related to the Year 2000
computer system issue. The issue is one where computer systems may recognize
the designation "00" as 1900 when it means 2000, resulting in system failure or
miscalculations. The Company began to address the Year 2000 issue in 1996, and
continues to implement measures to ensure its business operations are not
disrupted. The Company's plan requires that all modifications necessary to make
its computer systems year 2000 compliant must be completed during 1999. In
1997, the Company incurred approximately $1.4 million related to this issue and
expects to incur an additional $2.6 million to $3.3 million over the next two
years.
SEASONALITY
Although the Company's sales are generally relatively level throughout the year,
the Company's sales vary to the extent of seasonal differences in the buying
patterns of end-users who purchase office products. In particular, the Company's
sales are generally higher than average during January 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. See comments
regarding a pending acquisition in Liquidity and Capital Resources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Set forth on the following pages are the consolidated statements of income,
changes in stockholders' equity and cash flows of the Company for the years
ended December 31, 1997, 1996 and 1995, and the consolidated balance sheets of
the Company as of December 31, 1997 and 1996. Although United was the surviving
corporation in the Merger, the Acquisition was treated as a reverse acquisition
for accounting purposes, with Associated as the acquiring corporation.
Therefore, the statements of income and cash flows for the year ended December
31, 1995 reflect the results 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.
<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, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ERNST & YOUNG LLP
Chicago, Illinois
January 27, 1998
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $2,558,135 $2,298,170 $1,751,462
COST OF GOODS SOLD 2,112,204 1,907,209 1,446,949
---------- ---------- ----------
Gross profit 445,931 390,961 304,513
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 311,002 277,957 237,197
Non-recurring charges 64,698 - - - -
Restructuring charge - - - - 9,759
---------- ---------- ----------
Total operating expenses 375,700 277,957 246,956
---------- ---------- ----------
Income from operations 70,231 113,004 57,557
INTEREST EXPENSE 53,511 57,456 46,186
---------- ---------- ----------
Income before income taxes
and extraordinary item 16,720 55,548 11,371
INCOME TAXES 8,532 23,555 5,128
---------- ---------- ----------
Income before extraordinary item 8,188 31,993 6,243
EXTRAORDINARY ITEM - LOSS ON EARLY RETIREMENT
OF DEBT, NET OF TAX BENEFIT OF $3,956 IN
1997 AND $967 IN 1995 (5,884) - - (1,449)
---------- ---------- ----------
NET INCOME 2,304 31,993 4,794
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 1,528 1,744 1,998
---------- ---------- ----------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 776 $ 30,249 $ 2,796
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE:
Income before extraordinary item $ 0.51 $ 2.48 $ 0.39
Extraordinary item (0.45) - - (0.13)
---------- ---------- ----------
Net income per common share $ 0.06 $ 2.48 $ 0.26
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares (in thousands) 13,064 12,205 10,747
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE - ASSUMING DILUTION:
Income before extraordinary item $ 0.43 $ 2.03 $ 0.33
Extraordinary item (0.38) - - (0.11)
---------- ---------- ----------
Net income per common share $ 0.05 $ 2.03 $ 0.22
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares (in thousands) 15,380 14,923 12,809
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,367 $ 10,619
Accounts receivable, less allowance for doubtful
accounts of $7,071 in 1997 and $6,318 in 1996 311,920 291,401
Inventories 511,555 463,239
Other 14,845 25,221
---------- ----------
TOTAL CURRENT ASSETS 850,687 790,480
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 21,857 21,878
Buildings 101,322 100,031
Fixtures and equipment 113,037 102,092
Leasehold improvements 1,026 1,040
---------- ----------
Total property, plant and equipment 237,242 225,041
Less - accumulated depreciation and amortization 72,699 51,266
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 164,543 173,775
GOODWILL 111,852 115,449
OTHER 20,939 30,163
---------- ----------
TOTAL ASSETS $1,148,021 $1,109,867
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 44,267 $ 46,923
Accounts payable 236,475 238,124
Accrued expenses 107,935 93,789
Accrued income taxes 10,561 6,671
---------- ----------
TOTAL CURRENT LIABILITIES 399,238 385,507
DEFERRED INCOME TAXES 19,383 36,828
LONG-TERM DEBT 492,868 552,613
OTHER LONG-TERM LIABILITIES 13,224 15,502
REDEEMABLE PREFERRED STOCK
Preferred Stock Series A, $0.01 par value;
0 and 15,000, respectively, authorized;
0 and 5,000, respectively, issued and
outstanding; 0 and 3,086, respectively,
accrued - - 8,086
Preferred Stock Series C, $0.01 par value;
0 and 15,000, respectively, authorized;
0 and 11,699, respectively, issued and
outstanding - - 11,699
---------- ----------
TOTAL REDEEMABLE PREFERRED STOCK - - 19,785
REDEEMABLE WARRANTS - - 23,812
STOCKHOLDERS' EQUITY
Common Stock (voting), $0.10 par value;
40,000,000 authorized; 15,905,273 and
11,446,306, respectively, issued and
outstanding 1,591 1,145
Common Stock (nonvoting), $0.01 par value;
5,000,000 authorized; 0 and 758,994,
respectively, issued and outstanding - - 8
Capital in excess of par value 213,042 44,418
Retained earnings 8,675 30,249
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 223,308 75,820
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,148,021 $1,109,867
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Number of Number of
Redeemable Preferred Stock Common Common Common Common
--------------------------------- Redeemable Shares Stock Shares Stock
A B C Total Warrants (Voting) (Voting) (Nonvoting) (Nonvoting)
------ ------- ------- ------- ---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 $6,788 $ 6,560 $ 9,841 $23,189 $ 1,650 960,346 $ 10 - - $- -
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) (11) 139,474 1
Increase in value of stock
option grants - - - - - - - - - - - - - - - - - -
Common stock issued:
Acquisition - - - - - - - - - - 4,831,873 563 215,614 3
Exercise of warrants - - - - - - - - (1,673) 58,977 6 - - - -
100% stock dividend - - - - - - - - - - 5,683,463 575 403,906 4
Stock option exercises - - - - - - - - - - 20,806 2 - - - -
Other - - - - - - - - - - - - - - - - - -
------ ------- ------- ------- -------- ---------- ------ ------- ----
DECEMBER 31, 1995 7,437 - - 10,604 18,041 39,692 11,446,306 1,145 758,994 8
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 $1,145 758,994 $ 8
------ ------- ------- ------- -------- ---------- ------ ------- ----
------ ------- ------- ------- -------- ---------- ------ ------- ----
<CAPTION>
Total
Capital in Stock-
Excess Retained holders'
of Par Earnings Equity
---------- -------- --------
<S> <C> <C> <C>
DECEMBER 31, 1994 $ 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 2,749 - - 2,739
Increase in value of stock
option grants 2,407 - - 2,407
Common stock issued:
Acquisition 35,223 - - 35,789
Exercise of warrants 1,673 - - 1,679
100% stock dividend - - (579) - -
Stock option exercises 28 - - 30
Other 90 (106) (16)
-------- ------- --------
DECEMBER 31, 1995 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 $44,418 $30,249 $75,820
-------- ------- --------
-------- ------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Number of Number of
Redeemable Preferred Stock Common Common Common Common
----------------------------------- Redeemable Shares Stock Shares Stock
A B C Total Warrants (Voting) (Voting) (Nonvoting) (Nonvoting)
------- ------ -------- -------- --------- ---------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 $ 8,086 $ - - $ 11,699 $ 19,785 $ 23,812 11,446,306 $1,145 758,994 $ 8
Net income - - - - - - - - - - - - - - - - - -
Stock dividends issued 489 - - 898 1,387 - - - - - - - - - -
Redemption of Series A and
Series C preferred stock (8,575) - - (12,597) (21,172) - - - - - - - - - -
Accretion of lender warrants
to fair market value - - - - - - - - 23,254 - - - - - - - -
Increase in value of stock
option grants - - - - - - - - - - - - - - - - - -
Compensation associated
with stock options - - - - - - - - - - - - - - - - - -
Conversions of redeemable
warrants into common stock - - - - - - - - (47,066) 1,408,398 141 - - - -
Issuance of common stock,
net of offering expenses - - - - - - - - - - 2,000,000 200 - - - -
Stock options exercised - - - - - - - - - - 299,889 30 - - - -
Conversion of nonvoting common
stock into common stock - - - - - - - - - - 758,994 76 (758,994) (8)
Cancellation of common stock - - - - - - - - - - (8,314) (1) - - - -
Other - - - - - - - - - - - - - - - - - -
------- ------ -------- -------- -------- ---------- ------ -------- ----
DECEMBER 31, 1997 $ - - $ - - $ - - $ - - $ - - 15,905,273 $1,591 - - $- -
------- ------ -------- -------- -------- ---------- ------ -------- ----
------- ------ -------- -------- -------- ---------- ------ -------- ----
<CAPTION>
Total
Capital in Stock-
Excess Retained holders'
of Par Earnings Equity
---------- -------- --------
<S> <C> <C> <C>
DECEMBER 31, 1996 $ 44,418 $ 30,249 $ 75,820
Net income - - 2,304 2,304
Stock dividends issued - - (1,528) (1,528)
Redemption of Series A and
Series C preferred stock - - - - - -
Accretion of lender warrants
to fair market value (915) (22,339) (23,254)
Increase in value of stock
option grants 380 - - 380
Compensation associated
with stock options 59,398 - - 59,398
Conversions of redeemable
warrants into common stock 47,074 - - 47,215
Issuance of common stock,
net of offering expenses 71,254 - - 71,454
Stock options exercised (8,270) - - (8,240)
Conversion of nonvoting common
stock into common stock (68) - - - -
Cancellation of common stock 1 - - - -
Other (230) (11) (241)
-------- -------- --------
DECEMBER 31, 1997 $213,042 $ 8,675 $223,308
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,304 $ 31,993 $ 4,794
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 21,963 22,766 19,708
Amortization 4,078 3,276 3,976
Amortization of capitalized financing costs 4,323 5,333 4,172
Extraordinary item - early retirement of debt 9,840 - - 2,416
Deferred income taxes (16,091) 5,299 (163)
Compensation expense on stock option grants 60,041 (339) 2,407
Other 51 1,584 301
Changes in operating assets and liabilities,
net of acquisitions in 1996 and 1995:
Increase in accounts receivable (20,519) (15,379) (32,330)
(Increase) decrease in inventory (48,316) (71,282) 31,656
Decrease in other assets 9,985 1,814 2,765
(Decrease) increase in accounts payable (1,649) 36,352 (5,104)
Increase (decrease) in accrued liabilities 18,036 (17,185) (3,474)
Decrease in other liabilities (2,278) (2,623) (4,795)
--------- -------- ---------
Net cash provided by operating activities 41,768 1,609 26,329
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 (13,036) (8,190) (8,086)
Proceeds from disposition of property, plant & equipment 45 11,076 69
Other - - (861) 164
--------- -------- ---------
Net cash used in investing activities (12,991) (49,871) (266,291)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolver 49,000 22,000 (3,608)
Retirements and principal payments of debt (117,776) (30,861) (412,342)
Borrowings under financing agreements - - 57,933 686,854
Financing costs - - (1,851) (25,290)
Issuance of common stock 71,606 - - 12,006
Payment of employee withholding tax related to stock
option exercises (8,546) - - - -
Redemption of Series A and Series C Preferred Stock (21,172) - - - -
Redemption of Series B Preferred Stock - - - - (6,892)
Cash dividend (141) - - (254)
Other - - - - (701)
--------- -------- ---------
Net cash (used in) provided by financing activities (27,029) 47,221 249,773
--------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,748 (1,041) 9,811
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,619 11,660 1,849
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,367 $ 10,619 $ 11,660
--------- -------- ---------
--------- -------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<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. All common and common
equivalent shares have been adjusted to reflect the 100% stock dividend
effective November 9, 1995.
The Acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was 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 was 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>
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, all of which were converted into voting
Common Stock in the fourth quarter of 1997.
<PAGE>
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.
On October 9, 1997, the Company completed a 2.0 million share primary offering
of Common Stock and a 3.4 million share secondary offering of Common Stock
("Equity Offering"). The shares were priced at $38.00 per share, before
underwriting discounts and a commission of $1.90 per share. The aggregate net
proceeds to the Company from this Equity Offering of $72.2 million (before
deducting expenses) and proceeds of $0.1 million resulting from the conversion
of 1,119,038 warrants into Common Stock were used to (i) redeem $50.0 million of
the Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium
thereon of $6.4 million, (ii) pay fees related to the Equity Offering, and (iii)
reduce by $15.5 million the indebtedness under the Term Loan Facilities. The
repayment of indebtedness resulted in an extraordinary loss of $9.8 million
($5.9 million net of tax benefit of $3.9 million) and caused a permanent
reduction of the amount borrowable under the Term Loan Facilities.
As a result of the Equity Offering, the Company recognized the following charges
in the fourth quarter of 1997 (i) pre-tax non-recurring non-cash charge of $59.4
million ($35.5 million net of tax benefit of $23.9 million) and a non-recurring
cash charge of $5.3 million ($3.2 million net of tax benefit of $2.1 million)
related to the vesting of stock options and the termination of certain
management advisory service agreements (see Note 10), and (ii) an extraordinary
loss of $9.8 million ($5.9 million net of tax benefit of $3.9 million) related
to the early retirement of debt (see Note 6), (collectively "Charges").
Net income attributable to common stockholders for the year ended December 31,
1997, before Charges, was $45.4 million, up 50.3%, compared with $30.2 million
in 1996. Diluted earnings per share, before Charges, for 1997 was $2.95 on 15.4
million weighted average shares outstanding, up 45.3%, compared with $2.03 on
14.9 million weighted average shares outstanding for the prior year.
2. OPERATIONS
The Company operates in a single segment as 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 office products dealers, buying
groups, office furniture dealers, super stores and mass merchandisers, mail
order houses, computer products resellers, sanitary supply distributors and
warehouse clubs. 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 16 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.
<PAGE>
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 91% and 92% of total inventories at
December 31, 1997 and 1996, respectively, 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 $0.41 per
common and common equivalent share) for the year ended December 31, 1995.
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 $4.3 million and $4.8
million higher than reported at December 31, 1997 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 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, 1997 and
1996 is $7.6 million and $4.0 million, 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.
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
because these earnings are intended to be permanently invested.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local
currency.
<PAGE>
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 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 Years Ended December 31,
--------------------------------
1996 1995(1)
----------- -----------
<S> <C> <C>
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification 21.0% 21.8%
Gross margin as reported 17.0% 17.4%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to
reclassification 16.1% 17.9%(2)
Operating expense ratio as reported 12.1% 13.5%(2)
</TABLE>
(1) 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.
(2) 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 Consolidated Financial Statements and
accompanying notes. Actual results could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share ("EPS").
These new standards simplify the calculation of EPS presently contained in
Accounting Principles Board Opinion No. 15, "Earnings Per Share," and various
other pronouncements, and makes them comparable to international standards.
SFAS No. 128 replaces the presentation of primary and fully diluted EPS with
basic and diluted EPS. The Company currently has a complex capital structure;
as a result, the Company is required to (i) present both basic and diluted EPS
on the face of the consolidated statement of income and (ii) present a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS calculation. The earnings per
share amounts prior to 1997 have been restated as required to comply with SFAS
No. 128.
During 1996, the Company adopted the supplemental disclosure requirement of
Statement of Financial Accounting Standards 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
Stock 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 Statement of Financial Accounting Standards 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.
<PAGE>
4. EARNINGS PER SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated 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.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1997
Before
1997 Charges(1) 1996 1995
---------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item $ 8,188 $ 46,892 $ 31,993 $ 6,243
Preferred stock dividends 1,528 1,528 1,744 1,998
---------- ----------- ---------- ---------
Numerator for basic and diluted earnings
per share - income available to common
stockholders before extraordinary item $ 6,660 $ 45,364 $ 30,249 $ 4,245
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Denominator:
Denominator for basic earnings per
share - weighted average shares 13,064 13,064 12,205 10,747
Effect of dilutive securities:
Employee stock options 1,258 1,258 1,315 601
Warrants 1,058 1,058 1,403 1,461
---------- ---------- ---------- ---------
Dilutive potential common shares 2,316 2,316 2,718 2,062
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 15,380 15,380 14,923 12,809
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Basic earnings per share $ 0.51 $ 3.47 $ 2.48 $ 0.39
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Diluted earnings per share $ 0.43 $ 2.95 $ 2.03 $ 0.33
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
(1) In the fourth quarter of 1997, the Company recognized the following
charges (i) pre-tax non-recurring charges of $59.4 million (non-cash)
and $5.3 million (cash) related to the vesting of stock options and the
termination of certain management advisory service agreements (see
Note 10), and (ii) an extraordinary loss of $9.8 million ($5.9 million
net of tax benefit of $3.9 million) related to the early retirement
of debt (see Note 6).
5. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
The following summarized unaudited pro forma operating data for the year
ended December 31, 1995 are presented giving effect to the Acquisition as if
it had been consummated at the beginning of the period 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 date indicated, or
which may result in the future. The pro forma results exclude one-time
non-recurring charges or credits directly attributable to the transaction
(dollars in thousands, except per share data):
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Twelve Months
Ended December 31,
1995
-----------------------
<S> <C>
Net sales $2,201,860
Income before income taxes 22,737
Net income 13,063
Net income per diluted common
and common equivalent share $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.
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 had 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, 1997,
five of the six redundant pre-Merger Associated distribution centers had been
closed with $5.5 million charged against the reserve and $2.0 million related to
stockkeeping unit reduction costs had also been charged against the reserve. As
of December 31, 1997, the Company's consolidation plan had been completed.
Seven of the eight redundant distribution centers had been closed.
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.
6. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Revolver $256,000 $207,000
Term Loans
Tranche A, due in installments until September 30, 2001 97,524 144,374
Tranche B, due in installments until September 30, 2003 51,275 64,750
Senior Subordinated Notes 100,000 150,000
Mortgage at 9.4%, due in installments until 1999 1,957 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 78% of prime,
maturing at various dates through 2004 15,500 15,500
Other long-term debt 579 1,541
--------- ---------
537,135 599,536
Less - current maturities (44,267) (46,923)
--------- ---------
Total $492,868 $552,613
--------- ---------
--------- ---------
</TABLE>
The prevailing prime interest rate at the end of 1997 and 1996 was 8.50% and
8.25%, respectively.
<PAGE>
As of December 31, 1997, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $148.8 million of term
loan borrowings (the "Term Loan Facilities"), and up to $325.0 million of
revolving loan borrowings (the "Revolving Credit Facility"). In the fourth
quarter of 1997, the Company redeemed $50.0 million of Notes (as defined)
with net proceeds from the Equity Offering and as a result the Company
recognized an extraordinary loss on the early retirement of debt of $9.8
million ($5.9 million net of tax benefit of $3.9 million). Therefore, the
Company has $100.0 million of borrowings remaining under the 12 3/4% Senior
Subordinated Notes due 2005 (the "Notes").
The Term Loan Facilities consist of a $97.5 million Tranche A term loan facility
(the "Tranche A Facility") and a $51.3 million Tranche B term loan facility (the
"Tranche B Facility"). Quarterly payments under the Tranche A facility range
from $5.03 million at December 31, 1997 to $6.25 million at September 30, 2001.
Quarterly payments under the Tranche B Facility range from $0.20 million at
December 31, 1997 to $5.00 million at September 30, 2003. On March 31, 1998,
principal payments of $15.8 million and $8.7 million are required to be paid
from Excess Cash Flow (as defined in the Credit Agreement) at December 31, 1997
for the Tranche A and Tranche B Facilities, respectively. During October 1997,
Tranche A and Tranche B Facilities were paid down by $10.3 million and $5.2
million, respectively, from net proceeds received from the Equity Offering in
October 1997.
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 year, the Company must repay revolving loans so that for a
period of 30 consecutive days in each 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 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, the London Interbank Offering Rate ("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, 1997, 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, 1997, the Company had agreements which
collar $200.0 million of the Company's borrowings under the Credit Facilities at
LIBOR rates between 6.0% and 8.0%, which expire in April 1998. From April 1998
through October 1999, the Company has interest rate collar agreements on $200.0
million of borrowings at LIBOR rates between 5.2% and 8.0%. For the years ended
December 31, 1997, 1996 and 1995, the Company recorded $0.6 million, $0.9
million and $0.1 million, respectively, to interest expense resulting from LIBOR
rate fluctuations below the floor rate 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.
<PAGE>
Debt maturities for the years subsequent to December 31, 1997 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Amount
- ----------- ----------
<S> <C>
1998 $ 44,267
1999 25,684
2000 26,722
2001 282,555
2002 31,304
Later years 126,603
---------
Total $537,135
---------
---------
</TABLE>
At December 31, 1997 and 1996, the Company had available letters of credit of
$52.9 million and $55.3 million, respectively, of which $49.8 million and $52.8
million, respectively, were outstanding.
7. LEASES
The Company has entered into several non-cancelable long-term leases for certain
property and equipment. Future minimum rental payments under operating leases
in effect at December 31, 1997 having initial or remaining non-cancelable lease
terms in excess of one year are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Operating
Year Leases (1)
- --------- -----------
<S> <C>
1998 $19,108
1999 15,675
2000 12,811
2001 10,467
2002 7,235
Later years 15,455
--------
Total minimum lease payments $80,751
--------
--------
</TABLE>
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $20.5 million, $18.8
million and $14.2 million in 1997, 1996 and 1995, respectively.
8. 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.
<PAGE>
The following table sets forth the plans' funded status at December 31, 1997 and
1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation
Vested benefits $22,611 $19,015
Non-vested benefits 2,092 1,431
------- -------
Accumulated benefit obligation 24,703 20,446
Effect of projected future compensation levels 4,070 3,110
------- -------
Projected benefit obligation 28,773 23,556
Plan assets at fair value 33,562 28,373
------- -------
Plan assets in excess of projected benefit obligation 4,789 4,817
Unrecognized prior service cost 888 720
Unrecognized net gain due to past
experience different from assumptions (6,020) (4,348)
------- -------
Prepaid pension (liability) asset recognized
in the Consolidated Balance Sheets $ (343) $ 1,189
------- -------
------- -------
</TABLE>
The plans' assets consist of corporate and government debt securities and equity
securities. Net periodic pension cost for 1997, 1996 and 1995 for pension and
supplemental benefit plans includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefit earned during the period $ 2,333 $ 1,884 $ 1,142
Interest cost on projected benefit obligation 1,833 1,652 1,157
Actual return on assets (5,496) (3,468) (2,711)
Net amortization and deferral 3,375 1,495 1,382
------- ------- -------
Net periodic pension cost $ 2,045 $ 1,563 $ 970
------- ------- -------
------- ------- -------
</TABLE>
The assumptions used in accounting for the Company's defined benefit plans for
the three years presented are set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Assumed discount rate 7.25% 7.5% 7.25%
Rates of compensation increase 5.5% 5.5% 5.5%
Expected long-term rate of return on plan assets 7.5% 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 matching employees salary deferral contributions, at the
discretion of the Board of Directors. In addition, the Board of Directors
approved a special contribution in 1997 of approximately $1.0 million to the
United Stationers 401(k) Savings Plan on behalf of certain non-highly
compensated employees who are eligible for participation in the plan. Company
contributions for matching of employees contributions were approximately $1.0
million, $0.9 million and $0.6 million in 1997, 1996 and 1995, respectively.
9. POSTRETIREMENT BENEFITS
The Company maintains 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.
<PAGE>
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheets as of December 31, 1997 and 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Retirees $ 618 $ 877
Other fully eligible plan participants 632 632
Other active plan participants 1,795 1,588
------- ------
Total accumulated postretirement benefit obligation 3,045 3,097
Unrecognized net gain 415 1
------- ------
Accrued postretirement benefit obligation $3,460 $3,098
------- ------
------- ------
</TABLE>
The cost of postretirement health care benefits for the years ended December 31,
1997, 1996 and 1995 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost $268 $239 $161
Interest on accumulated
benefit obligation 190 204 109
Unrecognized net gain (15) -- --
-------- -------- --------
Net postretirement benefit cost $443 $443 $270
-------- -------- --------
-------- -------- --------
</TABLE>
The assumptions used in accounting for the Company's postretirement plan for the
three years presented are set forth below (dollars in thousands). Because the
Company's annual medical cost increases for current and future retirees and
their dependents are capped at 3% per year, which is the assumed health care
trend rate used in calculating the accumulated benefit obligation, an increase
in the medical trend rate above 3% has no effect on the accumulated
postretirement benefit obligation.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Assumed average heath care cost trend rate 3.0% 3.0% 3.0%
Assumed discount rate 7.25% 7.5% 7.5%
</TABLE>
10. STOCK OPTION PLAN
The Management Equity Plan (the "Plan"), as amended, is administered by the
Board of Directors, although the Plan allows the Board of Directors of the
Company to designate an option committee to administer the Plan. The Plan
provides for the issuance of shares of Common Stock through the exercise of
options, to key officers and management employees of the Company, either as
incentive stock options or as non-qualified stock options.
In October 1997, the Company's stockholders approved an amendment to the Plan
which provided for the issuance of approximately 1.5 million additional options
to key management employees and directors of the Company. During 1997,
approximately 0.3 million options were granted to management employees and
directors at fair market value.
In September 1995, the Company's Board of Directors approved an amendment to the
Plan which provided for the issuance of options in connection with the Merger
("Merger Incentive 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.
These Merger Incentive Options were granted in order to provide incentives to
management with respect to the successful development of ASI and the integration
of ASI with the Company. All Merger Incentive Options were vested and became
exercisable with the completion of the Equity Offering in October 1997. All
Common Stock issued from the exercise of Merger Incentive Options is subject to
a six month holding period which expires on April 10, 1998. In the fourth
quarter of 1997, the Company was required to recognize compensation expense
based upon the difference between the fair market value of the Common Stock and
the exercise prices. Based on the closing stock price on October 10, 1997 of
$39.125 and options outstanding as of October 10, 1997, the Company recognized a
non-recurring non-cash charge of $59.4 million ($35.5 million net of tax benefit
of $23.9 million).
<PAGE>
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 mature shares of Common Stock already owned by such
optionee (including shares to be received upon exercise of the option) and
having a fair market value at least equal to the exercise price or (iii) in
any combination of the foregoing. The Company may require the optionee to
satisfy federal tax withholding obligations with respect to the exercise of
options by (i) additional withholding from the employee's salary, (ii)
requiring the optionee to pay in cash or (iii) reducing the number of shares
of Common Stock to be issued (except in the case of incentive options).
The following table summarizes the transactions of the Plan for the last three
years:
<TABLE>
<CAPTION>
Management Equity Plan Weighted Average Weighted Average Weighted Average
(excluding restricted stock) 1997 Exercise Prices 1996 Exercise Prices 1995 Exercise Prices
- ---------------------------- ---------- ------------------ ---------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the period 2,497,768 $11.61 2,030,996 $10.73 217,309 $ 1.45
Granted 269,000 22.87 650,772 7.95 1,854,649 11.65
Exercised (846,871) 15.41 -- -- (20,804) 1.45
Canceled (121,000) 14.76 (184,000) 7.64 (20,158) 1.45
--------- --------- ----------
Options outstanding at
end of the period 1,798,897 $13.77 2,497,768 $ 11.61 2,030,996 $10.73
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information concerning outstanding options of the
Plan at December 31, 1997:
<TABLE>
<CAPTION>
Remaining
Exercise Number Contractual
Prices Outstanding Life (years)
--------- ----------- -------------
<S> <C> <C>
$ 1.45 378,183 4.09
5.12 116,250 4.74
16.88 1,037,464 4.74
20.25 2,000 4.74
21.63 250,000 9.00
44.25 15,000 9.87
---------
Total 1,798,897
---------
---------
</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 Merger Incentive Options granted under the Plan were considered "all
or nothing" awards because the options did not vest to the employee until the
occurrence of a Vesting Event. The fair value of "all or nothing" awards were
measured at the grant date; however, amortization of compensation expense began
when it was probable that the awards were vested. The October 1997 Equity
Offering constituted a Vesting Event; as a result, all Merger Incentive Options
vested and became exercisable by the optionees.
<PAGE>
Options granted under the Plan during 1997 did not require compensation cost to
be recognized in the income statement; however, they are subject to the
supplemental disclosure requirements of SFAS No. 123. Net income and earnings
per share, before charges (see (1) and (2) below), for 1997 and 1995 represent
the Company's results excluding one-time charges and the pro forma adjustments
required by SFAS No. 123. Had compensation cost been determined on the basis of
SFAS No. 123 for options granted during 1997, 1996 and 1995, net income and
earnings per share would have been adjusted as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Net income attributable to common
stockholders
As reported $ 776 $30,249 $ 2,796
Before charges 45,364(1) 30,249 10,081(2)
Pro forma 18,396 30,249 2,796
Net income per common share - basic
As reported $ 0.06 $ 2.48 $ 0.26
Before charges 3.47(1) 2.48 0.94(2)
Pro forma 1.41 2.48 0.26
Weighted average shares outstanding 13,064 12,205 10,747
Net income per common share - diluted
As reported $ 0.05 $ 2.03 $ 0.22
Before Charges 2.95(1) 2.03 0.79(2)
Pro forma 1.20 2.03 0.22
Weighted average shares outstanding
and assumed conversions 15,380 14,923 12,809
</TABLE>
(1) The year ended December 31, 1997 reflects non-recurring charges of $59.4
million (non-cash) and $5.3 million (cash) related to the vesting of stock
options and the termination of certain management advisory service
agreements. In addition, during the fourth quarter of 1997 the Company
recorded an extraordinary loss of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) related to early retirement of debt.
(2) During 1995, the Company recorded a restructuring charge of $9.8 million
and an extraordinary loss of $2.4 million ($1.4 million net of tax benefit
of $1.0 million) related to early retirement of debt.
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 1997, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Fair value of options granted $13.69 $17.67 $ 9.33
Exercise price $22.87 $ 8.59 $ 11.65
Expected stock price volatility 64.7% 80.7% 102.2%
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 6.4% 5.2% 5.9%
Expected life of options 5 years 2 years 3 years
</TABLE>
<PAGE>
11. REDEEMABLE PREFERRED STOCK
At December 31, 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 C preferred stock,
and 1,470,000 shares remained undesignated. Series C preferred stock was
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 September 2, 1997, the
Company completed the redemption of all Series A and Series C preferred stock
issued and outstanding for $8.6 million and $12.7 million, respectively,
including accrued and unpaid dividends thereon. On July 28, 1995, the Company
repurchased all Series B preferred stock issued and outstanding for $7.0
million, including accrued and unpaid dividends thereon. Upon redemption,
each series of preferred stock resumed the status of undesignated preferred
stock. The Company does not have any preferred stock outstanding as of
December 31, 1997.
During the year ended December 31, 1996, 649 shares of Series A preferred stock
were accrued but not issued. As of December 31, 1996, 3,086 shares of Series A
preferred stock have been accrued as dividends but not issued. Also, noncash
dividends were declared and issued for Series C preferred stock in the amount of
1,095 shares during 1996.
12. REDEEMABLE WARRANTS
The Company had 1,227,438 warrants ("Lender Warrants") outstanding at December
31, 1996, which allowed holders thereof to buy shares of Common Stock at an
exercise price of $0.10 per share. During 1997, 1,227,438 warrants were
exercised into Common Stock resulting in proceeds of $122,744, which was used to
repay indebtedness under the Term Loan Facilities. Outstanding Lender Warrants
as of December 31, 1996 were valued at $19.50 per warrant. During 1996,
203,030 warrants were contributed back to the Company and terminated in
connection with anti-dilution agreements.
13. TRANSACTIONS WITH RELATED PARTIES
The Company had management advisory service agreements with three investor
groups. These investor groups provided certain advisory services to the Company
in connection with the Acquisition.
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 $513,540, $725,000 and
$603,000 with respect to each of the years ended 1997, 1996 and 1995,
respectively, for such oversight and monitoring services. Under the agreement,
the Company was 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.
Pursuant to an agreement, Cumberland Capital Corporation ("Cumberland") had
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. 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 $97,400, $137,000
and $129,000 with respect to the years ended 1997, 1996 and 1995, respectively,
for such oversight and monitoring services. The Company was also obligated to
reimburse Cumberland for its out-of-pocket expenses and indemnify Cumberland and
its affiliates from loss in connection with these services.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") had 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. 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
$97,400, $137,500 and $129,000 with respect to the years ended 1997, 1996 and
1995, respectively, for such oversight and monitoring services. The Company was
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.
<PAGE>
In the fourth quarter of 1997, the Company terminated the management advisory
service agreements for one-time payments of approximately $2.4 million, $400,000
and $400,000 to Wingate Partners, Cumberland and Good Capital, respectively. As
indicated in Note 1, these one-time payments were included as non-recurring
charges on the Consolidated Statements of Income.
14. INCOME TAXES
The provision for (benefit from) income taxes consists of the following (dollars
in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Currently payable -
Federal $ 19,812 $14,724 $4,172
State 4,811 3,532 1,119
-------- ------- --------
Total currently payable 24,623 18,256 5,291
Deferred, net -
Federal (12,889) 4,614 (142)
State (3,202) 685 (21)
-------- ------- --------
Total deferred, net (16,091) 5,299 (163)
-------- ------- --------
Provision for income taxes $ 8,532 $23,555 $5,128
-------- ------- --------
-------- ------- --------
</TABLE>
The Company's effective income tax rates for the years ended December 31, 1997,
1996 and 1995 varied from the statutory Federal income tax rate as set forth in
the following table (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1997 1996 1995
--------------- ---------------- ----------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on the
federal statutory rate $5,852 35.0% $19,442 35.0% $3,980 35.0%
State and local income taxes -
net of federal income tax
benefit 1,053 6.3 3,000 5.4 705 6.2
Non-deductible and other 1,627 9.7 1,113 2.0 443 3.9
------ ------- ------ ------ ------- ------
Provision for income taxes $8,532 51.0% $23,555 42.4% $5,128 45.1%
------ ------- ------ ------ ------- ------
------ ------- ------ ------ ------- ------
</TABLE>
The deferred tax assets and liabilities result from timing differences in the
recognition of certain income and expense items for financial and tax accounting
purposes. The sources of these differences and the related tax effects were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1996
---------------------- ----------------------
Assets Liabilities Assets Liabilities
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Accrued expenses $18,280 $ -- $17,882 $ --
Allowance for doubtful accounts 8,632 -- 11,036 --
Inventory reserves and adjustments -- 16,852 - - 13,795
Depreciation and amortization -- 41,588 - - 43,798
Reserve for stock option compensation 16,792 - - - - --
Other 5,720 - - 6,915 --
------- ----------- ------- -----------
Total $49,424 $58,440 $35,833 $57,593
------- ----------- ------- -----------
------- ----------- ------- -----------
</TABLE>
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.
<PAGE>
15. 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, 1997, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $49,279 $52,871 $36,120
Income taxes 13,663 17,482 8,171
</TABLE>
The following are supplemental disclosures of noncash investing and financing
activities for the years ended December 31, 1997, 1996 and 1995 (dollars in
thousands):
- On May 3, 1995, the Company issued stock valued at $2,406 in exchange
for services related to the issuance of the Notes.
- On March 30, 1995, the Company issued stock valued at $2,162 in
exchange for services related to financing the Acquisition.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 12,367 $ 12,367 $ 10,619 $ 10,619
Current maturities of long-term
obligations and capital lease 44,267 44,267 46,923 46,923
Long-term debt and capital lease:
Notes 100,000 114,750 150,000 168,000
All other 392,868 392,868 403,079 403,079
Interest rate collar -- 387 -- 1,200
</TABLE>
The fair value of the Notes and interest rate collar are based on quoted market
prices and quotes from counterparties, respectively.
17. SUBSEQUENT EVENT
The Company announced on February 10, 1998 that its subsidiary, USSC, signed a
definitive purchase agreement with Abitibi-Consolidated Inc. to acquire the U.S.
and Mexican operations of its Office Products Division, a specialty wholesale
division of computer consumables, peripherals and accessories. The purchase
price is anticipated to be approximately $110 million. The proposed
transaction involves three of the five business units of the Office Products
Division, including: Azerty (U.S. and Mexico); Positive ID (which distributes
bar-code scanning products); and AP Support Services (which provides outsourcing
services in telemarketing, direct response marketing, logistics and data
management services). The Company has filed for antitrust (Hart-Scott-Rodino)
clearance and expects to close the transaction in late March 1998 subject to
obtaining the necessary approvals and the completion of due diligence.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant had no disagreements on accounting and financial disclosure of
the type referred to in Item 304 of Regulation S-K.
<PAGE>
PART III
ITEM 10. 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 on February 1, 1998:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------
<S> <C> <C>
Frederick B Hegi, Jr.. . . 54 Chairman of the Board
Randall W. Larrimore . . . 50 Director, President and Chief Executive Officer
Michael D. Rowsey. . . . . 45 Director and Executive Vice President
Daniel J. Good . . . . . . 57 Director
James A. Johnson . . . . . 43 Director
Gary G. Miller . . . . . . 47 Director and Assistant Secretary
Benson P. Shapiro. . . . . 56 Director
Joel D. Spungin. . . . . . 60 Director
Daniel H. Bushell. . . . . 46 Executive Vice President, Chief Financial Officer and
Assistant Secretary
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
Tom Helton . . . . . . . . 50 Vice President, Human Resources
James A. Pribel. . . . . . 44 Treasurer
Albert H. Shaw . . . . . . 48 Vice President, Operations
Ergin Uskup. . . . . . . . 60 Vice President, Management Information Systems
and Chief Information Officer
</TABLE>
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There is no family relationship between any
directors or executive officers of the Company. Officers of the Company are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
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 thatmanufactures 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 and subsidiaries in 1988. Before joining Beatrice in 1983,
Mr. Larrimore was with Richardson-Vicks, McKinsey & Company and then with
PepsiCo International. Mr. Larrimore serves as a director of Olin Corporation
and St. Francis Hospital.
<PAGE>
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.
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.
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 car
seats and other juvenile products.
GARY G. MILLER was elected to the Board of Directors upon consummation of the
Merger. 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.
BENSON P. SHAPIRO was elected to the Board of Directors in November 1997.
Professor Shapiro has served on the faculty of Harvard University for 27 years
and until July 1997 was THE MALCOLM P. MCNAIR PROFESSOR OF MARKETING at the
Harvard Business School. He continues to teach a variety of Harvard's executive
programs and spends much of his time on research, writing and consulting.
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.
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.
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.
<PAGE>
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.
TOM HELTON became Vice President of Human Resources in February 1998. Prior to
joining United, Mr. Helton spent 11 years, from 1986 to 1997, at Whirlpool
Corporation where he held a variety of management and executive positions within
the human resource function. Most recently, he was Vice President of Human
Resources for Whirlpool Asia. From 1980 to 1986, Mr. Helton was with Kaiser
Aluminum and Chemical working in personnel and labor relations.
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.
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, Rowsey and Miller and Class III
(having terms expiring in 1998)--Messrs. Larrimore, Shapiro and Spungin.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1998, to be filed within 120 days
after the end of the Registrant's year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1998, to be filed within 120 days
after the end of the Registrant's year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1998, to be filed within 120 days
after the end of the Registrant's year.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements, schedules and exhibits are filed as
part of this report:
PAGE NO.
--------
(1) Financial Statements of the Company
Report of Independent Auditors............................... 20
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995........................... 21
Consolidated Balance Sheets as of December 31, 1997 and 1996. 22-23
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995....... 24-25
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995........................... 26
Notes to Consolidated Financial Statements................... 27-41
(2) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Restated Certificate of Incorporation, as amended(5).
4.2 Certificate of Ownership and Merger merging Associated into United(2).
4.3 Restated Bylaws(1).
10.1 Registration Rights Agreement, dated as of January 31, 1992,
between the Company and CMIHI (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 CMIHI(1).
10.5 Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992,
among the Company, USSC, CMIHI 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, CMIHI
and the other parties thereto(4).
10.7 Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995,
among the Company, USSC, CMIHI and the other parties thereto(1).
10.8 Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995,
among the Company, USSC, CMIHI 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(5).
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).
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 Termination Agreements, dated as of October 31, 1997, terminating
the Investment Banking Fee and Management Agreements among the
Company, USSC and each of Wingate Partners, Cumberland and Good
Capital Co., Inc.*
10.17 Amendment No. 4 to Management Equity Plan, dated as of August 19,
1997(5).
10.18 United Stationers Inc. Management Equity Plan, as amended through
August 19, 1997(5).
<PAGE>
10.19 Letter Agreements, dated as of 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).
10.20 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).
10.21 Forms of Stock Option Agreements, dated October 2, 1995, granting
options to certain management employees(4).
10.22 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).
10.23 Stock Option Agreements, dated as of January 1, 1996, between the
Company and Thomas W. Sturgess, granting options(4).
10.24 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).
10.25 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).
10.26 Management Incentive Plan for 1996(4).
10.27 Management Incentive Plan for 1997 (Exhibit 10.39 to the 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 United Stationers 401(k) Savings Plan, restated as of March 1, 1996
(Exhibit 10.45.1 to the Company's Report on Form 10-K dated
March 26, 1997)(3).
10.30 United Stationers Supply Co. Pension Plan as amended (See the
Company's Reports on Form 10-K for the fiscal years ended August 31,
1985, 1986, 1987, and 1989)(3).
10.31 Amendment to Pension Plan adopted February 10, 1995(2).
10.32 One Time Merger Integration Bonus Plan(4).
10.33 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).
10.34 Amendment dated February 13, 1995 to the Amended and Restated
Employment and Consulting Agreement among the Company, USSC and
Joel D. Spungin(2).
10.35 Severance Agreement between the Company, USSC and James A. Pribel
dated February 13, 1995(2).
10.36 Letter Agreement dated February 13, 1995 between the Company and
Ergin Uskup(2).
10.37 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).
10.38 Employment Agreement dated November 1, 1995 between USSC and Otis
H. Halleen(4).
10.39 Employment Agreement dated as of January 1, 1996 between the
Company, USSC and Thomas W. Sturgess(4).
10.40 Deferred Compensation Plan. (Exhibit 10(f) to the Company's Annual
Report on Form 10-K dated October 6, 1994)(3).
10.41 Letter Agreement dated November 29, 1995 granting shares of
restricted stock to Joel D. Spungin(4).
10.42 Lease Agreement dated as of March 4, 1988 between Crow-Alameda
Limited Partnership and Stationers Distributing Company, Inc., as
amended(1).
10.43 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).
10.44 Standard Industrial Lease, dated as of March 15, 1991, between
Shelly B. and Barbara Detrik and Lynn Edwards Corp.(1).
10.45 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).
10.46 Lease dated as of February 1, 1993, between CMD Florida Four
Limited Partnership and United Stationers Supply Co., as amended(1).
10.47 Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
10.48 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.)(5).
10.49 Lease, dated March 22, 1973, between National Boulevard Bank of
Chicago, a trustee under Trust Agreement dated March 15, 1973 and
known as Trust No. 4722, and USSC, as amended(1).
<PAGE>
10.50 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).
10.51 Lease Agreement, dated as of December 20, 1988, between Corporate
Property Associates 8, L.P., and Stationers Distributing Company,
Inc., as amended(1).
10.52 Industrial Lease, dated as of February 22, 1988, between Northtown
Devco and Stationers Distributing Company, as amended(1).
10.53 Lease, dated as of April 17, 1989, between Isaac Heller and USSC,
as amended(1).
10.54 Lease Agreement, dated as of May 10, 1984, between Westbelt
Business Park Joint Venture and Boise Cascade Corporation, as
amended(1).
10.55 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(5).
10.56 Lease effective March 1, 1997 between Davis Partnership and USSCO*.
10.57 Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.58 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).
10.59 Lease Agreement, dated November 7, 1988, between Dalware II
Associates and Stationers Distributing Company, Inc., as amended(1).
10.60 Lease Agreement, dated November 7, 1988, between Central East
Dallas Development Limited Partnership and Stationers Distributing
Company, Inc., as amended(1).
10.61 Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing
Company, Inc., as amended(1).
10.62 Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1)
10.63 Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
10.64 Lease Agreement, dated as of July, 1994, between Bettilyon Mortgage
Loan Company and USSC(1).
10.65 Agreement of Lease, dated as of January 5, 1994 between the Estate
of James Campbell, deceased, and USSC(1).
10.66 Amendment No. 2 to Agreement of Lease dated February 1, 1997
between the Estate of James Campbell, deceased, and USSC.*
10.67 Lease Agreement dated January 5, 1996, between Robinson Properties,
L.P. and USSC(4).
10.68 Agreement for Data Processing Services, dated January 31, 1992,
between USSC (as successor-in-interest to ASI) and Affiliated
Computer Services, Inc.(1)
10.69 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).
10.70 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)
10.71 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).
10.72 USI Employee Benefits Trust Agreement dated March 21, 1995 between
the Company and American National Bank and Trust Company of Chicago
as Trustee(2).
10.73 Certificate of Insurance covering directors' and officers'
liability insurance effective March 30, 1996 through April 1, 1997.*
10.74 Certificate of Insurance covering directors' and officers'
liability insurance effective April 1, 1997 through April 1,
1998(5).
10.75 Amendment to Medical Plan Document for the Company(2).
10.76 The Company Severance Plan, adopted February 10, 1995(2).
10.77 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).
10.78 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).
10.79 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).
10.80 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).
10.81 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).
<PAGE>
10.82 Employment Agreement dated as of May 23, 1997 between the Company,
USSC and Randall W. Larrimore(5).
10.83 Employment Agreements dated as of June 1, 1997 between USSC and
each of Daniel H. Bushell, Michael D. Rowsey and Steven R.
Schwarz(5).
10.84 Lease dated as of October 20, 1997 between Ozburn-Hessey Storage
Co. and USSC.*
10.85 United Stationers Inc. Non-employee Directors' Deferred Stock
Compensation Plan.*
21 Subsidiaries of the issuer.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.*
27.1 Financial Data Schedule for the Company (EDGAR filing only)*.
27.2 Financial Data Schedule for USSC (EDGAR filing only)*.
- ----------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the Company's Form S-1 (No. 33-59811),
as amended, initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated
February 21, 1995.
(3) Incorporated by reference to other prior filings of the Company as
indicated.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-01089)
as filed with the Commission on February 20, 1996.
(5) Incorporated by reference to the Company's Form S-2 (No. 333-34937)
as filed with the Commission on October 3, 1997.
(B) Reports on Form 8-K were filed by the Registrant on November 14, 1997.
For the purpose of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statement on Form
S-8 No. 33337665 (filed October 10, 1997).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jursidiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED STATIONERS INC.
BY: /s/Daniel H. Bushell
--------------------------------
Daniel H. Bushell
Executive Vice President,
Chief Financial Officer and
Assistant Secretary
(principal accounting officer)
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/Frederick B. Hegi, Jr. Chairman of the Board of Directors March 6, 1998
---------------------------
Frederick B. Hegi, Jr.
/s/Randall W. Larrimore President and Chief Executive Officer March 6, 1998
--------------------------- and a Director
Randall W. Larrimore
/s/Michael D. Rowsey Executive Vice President March 6, 1998
--------------------------- and a Director
Michael D. Rowsey
/s/Daniel J. Good Director March 6, 1998
---------------------------
Daniel J. Good
/s/James A. Johnson Director March 6, 1998
---------------------------
James A. Johnson
/s/Gary G. Miller Director March 6, 1998
---------------------------
Gary G. Miller
/s/Benson P. Shapiro Director March 6, 1998
---------------------------
Benson P. Shapiro
/s/Joel D. Spungin Director March 6, 1998
---------------------------
Joel D. Spungin
</TABLE>
<PAGE>
EXHIBIT 10.16
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Termination Agreement") is made and
entered into as of October 31,1997, among United Stationers Inc. (successor-in-
interest to Associated Holdings, Inc.), a Delaware corporation (the "Company"),
United Stationers Supply Co. (successor-in-interest to Associated Stationers,
Inc.), an Illinois corporation ("USSC"), and Wingate Partners, L.P., a Delaware
limited partnership ("Wingate").
WHEREAS, the Company, USSC and Wingate are parties to that certain
Investment Banking Fee and Management Agreement, dated as of January 31, 1992,
as amended by Amendment No.1 to Investment Banking Fee and Management Agreement,
dated as of March 30, 1995 (the "Management Agreement");
WHEREAS, the Company, USSC and Wingate desire hereby to terminate the
Management Agreement in accordance with the terms of this Termination Agreement;
and
WHEREAS, concurrently herewith, the Company and USSC are entering into
termination agreements with each of Good Capital Co. Inc. and Cumberland Capital
Corporation with respect to the Investment Banking Fee and Management Agreements
among each of them upon substantially the same terms and conditions as set forth
in this Termination Agreement;
NOW, THEREFORE in consideration of the mutual covenants herein contained
and other good and valuable consideration, the Company, USSC and Wingate hereby
agree as follows:
1. TERMINATION. Upon the receipt by Wingate (or its designees) of
the Termination Fee (as hereinafter defined), the parties hereto agree that the
Management Agreement shall be terminated and shall be of no further force and
effect except as specifically set forth in this Termination Agreement; PROVIDED,
that Wingate shall be entitled to all regular accrued and unpaid fees and
expenses to which Wingate is entitled under the Management Agreement through the
date of this Termination Agreement, which amount shall be calculated solely on
the base Monitoring Fee set forth in the Management Agreement and shall not
include any management fee annual bonus or portion thereof for the fiscal year
ended December 31, 1997; and PROVIDED, FURTHER, that notwithstanding the
termination of The Management Agreement, the terms and provisions of EXHIBIT A
to the Management Agreement shall remain in full force and effect and shall be
jointly and severally binding upon the Company, USSC and their respective
successors and assigns.
<PAGE>
2. PAYMENT OF TERMINATION FEE. As consideration of Wingate's
willingness to enter into this Termination Agreement, the Company hereby
irrevocably agrees to pay to the following designees of Wingate: (i) to Wingate
Management Corporation, a cash payment of $1,129,446.12, and (ii) to Wingate
Partners II, L.P., a cash payment of $1,294,042.03 (the aggregate cash payments
set forth in clauses (i) and (ii) of this Section 2 being referred to herein
collectively as the "Termination Fee").
3. GOVERNING LAW. This Termination Agreement shall be construed,
interpreted, and enforced in accordance with the laws of the State of Illinois,
excluding any choice-of-law provisions thereof.
4. ASSIGNMENT. This Termination Agreement and all provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
5. COUNTERPARTS. This Termination Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument, and the signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
6. OTHER UNDERSTANDINGS. All discussions, understandings, and
agreements theretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Termination Agreement, which alone
fully and completely expresses the agreement of the parties hereto.
[The remainder of this page is intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Termination Agreement to be duly executed as of the day and year first
above written.
UNITED STATIONERS INC.
By:
Name:
Title:
UNITED STATIONERS SUPPLY CO.
By:
Name:
Title:
WINGATE PARTNERS, L.P.
By: WINGATE MANAGEMENT COMPANY, L.P.,
its General Partner
By:
Frederick B. Hegi, Jr.
General Partner
ACCEPTED AND AGREED:
WINGATE PARTNERS II, L P.
By: WINGATE MANAGEMENT COMPANY II, L.P.,
its general partner
By: WINGATE MANAGEMENT LIMITED, L L.C.,
its general partner
By:
Frederick B. Hegi, Jr.
Principal
<PAGE>
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Termination Agreement") is made and
entered into as of October 31,1997, among United Stationers Inc. (successor-in-
interest to Associated Holdings, Inc.), a Delaware corporation (the "Company"),
United Stationers Supply Co. (successor-in-interest to Associated Stationers,
Inc.), an Illinois corporation ("USSC"), and Cumberland Capital Corporation, a
Delaware corporation ("Cumberland").
WHEREAS, the Company, USSC and Cumberland are parties to that certain
Investment Banking Fee and Management Agreement, dated as of January 31, 1992,
as amended by Amendment No.1 to Investment Banking Fee and Management Agreement,
dated as of March 30, 1995 (the "Management Agreement");
WHEREAS, the Company, USSC and Cumberland desire hereby to terminate the
Management Agreement in accordance with the terms of this Termination Agreement;
and
WHEREAS, concurrently herewith, the Company and USSC are entering into
termination agreements with each of Good Capital Co., Inc. and Wingate Partners,
L.P. with respect to the Investment Banking Fee and Management Agreements among
each of them upon substantially the same terms and conditions as set forth in
this Termination Agreement;
NOW, THEREFORE in consideration of the mutual covenants herein contained
and other Cumberland and valuable consideration, the Company, USSC and
Cumberland hereby agree as follows:
1. TERMINATION. Upon the receipt by Cumberland of the Termination
Fee (as hereinafter defined), the parties hereto agree that the Management
Agreement shall be terminated and shall be of no further force and effect except
as specifically set forth in this Termination Agreement; PROVIDED, that
Cumberland shall be entitled to all regular accrued and unpaid fees and expenses
to which Cumberland is entitled under the Management Agreement through the date
of this Termination Agreement, which amount shall be calculated solely on the
base Monitoring Fee set forth in the Management Agreement and shall not include
any management fee annual bonus or portion thereof for the fiscal year ended
December 31, 1997; and PROVIDED, FURTHER, that notwithstanding the termination
of The Management Agreement, the terms and provisions of EXHIBIT A to the
Management Agreement shall remain in full force and effect and shall be jointly
and severally binding upon the Company, USSC and their respective successors and
assigns.
<PAGE>
2. PAYMENT OF TERMINATION FEE. As consideration of Cumberland's
willingness to enter into this Termination Agreement, the Company hereby
irrevocably agrees to pay to Cumberland a cash payment of $417,808.14 (the
"Termination Fee").
3. GOVERNING LAW. This Termination Agreement shall be construed,
interpreted, and enforced in accordance with the laws of the State of Illinois,
excluding any choice-of-law provisions thereof.
4. ASSIGNMENT. This Termination Agreement and all provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
5. COUNTERPARTS. This Termination Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument, and the signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
6. OTHER UNDERSTANDINGS. All discussions, understandings, and
agreements theretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Termination Agreement, which alone
fully and completely expresses the agreement of the parties hereto.
[The remainder of this page is intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Termination Agreement to be duly executed as of the day and year first
above written.
UNITED STATIONERS INC.
By:
Name:
Title:
UNITED STATIONERS SUPPLY CO.
By:
Name:
Title:
CUMBERLAND CAPITAL CORPORATION
By:
Gary G. Miller
President
<PAGE>
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (this "Termination Agreement") is made and
entered into as of October 31, 1997, among United Stationers Inc. (successor-in-
interest to Associated Holdings, Inc.), a Delaware corporation (the "Company"),
United Stationers Supply Co. (successor-in-interest to Associated Stationers,
Inc.), an Illinois corporation ("USSC"), and Good Capital Co., Inc., a Delaware
corporation ("Good").
WHEREAS, the Company, USSC and Good are parties to that certain Investment
Banking Fee and Management Agreement, dated as of January 31, 1992, as amended
by Amendment No.1 to Investment Banking Fee and Management Agreement, dated as
of March 30, 1995 (the "Management Agreement");
WHEREAS, the Company, USSC and Good desire hereby to terminate the
Management Agreement in accordance with the terms of this Termination Agreement;
and
WHEREAS, concurrently herewith, the Company and USSC are entering into
termination agreements with each of Wingate Partners, L.P. and Cumberland
Capital Corporation with respect to the Investment Banking Fee and Management
Agreements among each of them upon substantially the same terms and conditions
as set forth in this Termination Agreement;
NOW, THEREFORE in consideration of the mutual covenants herein contained
and other good and valuable consideration, the Company, USSC and Good hereby
agree as follows:
1. TERMINATION. As of the date hereof, the parties hereto agree
that the Management Agreement shall be terminated and shall be of no further
force and effect except as specifically set forth in this Termination Agreement;
PROVIDED, that Good shall be entitled to all regular accrued and unpaid fees and
expenses to which Good is entitled under the Management Agreement through the
date of this Termination Agreement, which amount shall be calculated solely on
the base Monitoring Fee set forth in the Management Agreement and shall not
include any management fee annual bonus or portion thereof for the fiscal year
ended December 31, 1997; and PROVIDED, FURTHER, that notwithstanding the
termination of The Management Agreement, the terms and provisions of EXHIBIT A
to the Management Agreement shall remain in full force and effect and shall be
jointly and severally binding upon the Company, USSC and their respective
successors and assigns.
<PAGE>
2. PAYMENT OF TERMINATION FEE. As consideration of Good's willingness
to enter into this Termination Agreement, the Company hereby irrevocably agrees
to pay to Good a cash payment of $417,808.14 (the "Termination Fee"). The
Termination Fee shall be paid by the Company on January 2, 1998 (the "Payment
Date") PROVIDED, that Good shall not be entitled to a interest on the
Termination Fee from the date of this Termination Agreement to the date such
Termination Fee is actually received by Good. Following the date of this
Termination Agreement, the payment by the Company of all accrued and unpaid fees
and expenses under the Management Agreement through the date hereof, and except
as otherwise set forth in this Termination Agreement, Good shall have no further
right, title or interest in the Management Agreement except the right to receive
the Termination Fee on the Payment Date without any interest thereon.
3. GOVERNING LAW. This Termination Agreement shall be construed,
interpreted, and enforced in accordance with the laws of the State of Illinois,
excluding any choice-of-law provisions thereof.
4. ASSIGNMENT. This Termination Agreement and all provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
5. COUNTERPARTS. This Termination Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument, and the signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
6. OTHER UNDERSTANDINGS. All discussions, understandings, and
agreements theretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Termination Agreement, which alone
fully and completely expresses the agreement of the parties hereto.
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2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Termination Agreement to be duly executed as of the day and year first
above written.
UNITED STATIONERS INC.
By:
Name:
Title:
UNITED STATIONERS SUPPLY CO.
By:
Name:
Title:
GOOD CAPITAL CO., INC.
By:
Daniel J. Good
Chairman
<PAGE>
EXHIBIT 10.56
LEASE
A. Lessor:
Name: Davis Partnership
Address: c/o Robert Davis
1244 North Shore Road
Lake Oswego, OR 97034
B. Lessee: United Stationers Supply Co.
an Illinois corporation qualified to do business in Oregon.
Address: United Stationers Supply Co.
2200 East Golf Road
Des Plaines, IL 60016-1267
C Date of execution of Lease September 20, 1996
D. Address of premises
4409 S.E. 24th Avenue, Portland, OR 97202
E. Legal description
Spantons Add TL3 of Lots 6-11 and 20-25 Block 6 Map 3432 plus
TL1 of Block 6 Map 3432 plus the south 35@ feet of Lot 18 Block 3
and the north 24 1/2 feet of Lot 19 Block 3 Map 3432, all per the
Multnomah County Assessor's tax maps for 1995-96.
F. Commencement date of Lease: March 1, 1997
G. Expiration date of Lease: February 28, 2002
H. Initial rental: $ 21,582.00 per month.
J. Lease deposit $ none
K. Rental adjustments: See First Addendum
L. Lessee's use of premises: Office and Warehouse
M. Additional provisions regarding repairs: See First Addendum
N. Liability insurance coverages to be provided by Lessee:
Injury to one person: $ 0ne Million
Injuries arising out of a single occurrence: $ Five Million
Property damage: $ Full Replacement Value
P. Term of payment for business interruption: 12 months at 100% occupancy
Q. Permitted period for display of Lessor's signs: 180 days
R. Liquidated damages for holding over: $ Double the latest rent, prorated
on a daily basis.
S. Additional terms and conditions: See First Addendum
Davis Partnership United Stationers Supply Co.
By: By:
Title: Title:
Lessor Lessee
<PAGE>
THIS AGREEMENT AND LEASE was made and entered into by and between the
"Lessor" identified at paragraph A. above and the "Lessee" identified at
Paragraph B. above on the date set forth at Paragraph C. above.
Lessor does hereby lease, demise and let unto Lessee the premises located
and described in Paragraphs D. and E. above for a term commencing at 12:01 a m
on the date set forth at Paragraph F. above and expiring at midnight on the date
set forth at Paragraph G. above.
1. TENANT'S ACCEPTANCE OF PROPERTY. The Lessee accepts the building,
improvements, and personalty on the leased premises (all of which are
hereinafter referred to as "the Leased Property") in their present state and
without any representation or warranty by the Lessor as to the condition of
such property or as to the use which may be made thereof, except as stated in
the first addendum. The lessee acknowledges that the Leased Property, the title
thereto, the streets, sidewalks, driveways, parking areas, curbs, utilities and
structures adjoining the same, any subsurface conditions thereof, and the
present use and non-uses thereof have been examined by the Tenant. The Lessor
shall not be responsible for any later defect or change of condition in the
Leased Property and the rent hereunder shall in no case be withheld or
diminished on account of any defect in the Leased Property and change in
conditions thereof, any damage occurring thereto, or the existence with respect
thereto of any violations of the laws or regulations of any government authority
except as may be otherwise specifically provided herein. The obligation of the
Lessee to pay the full rent herein reserved shall not be affected by any future
act of omission on the part of the Lessor with respect to the tenantability of
the Leased Property, or the building of which it is a part, except as otherwise
specifically provided herein. The taking of possession of the Leased Property
by the Lessee shall be conclusive evidence that the Lessee accepts the same "as
is" and that the Leased Property and the building and land of which the same
form a part were in good condition at the time possession was taken.
2. RENTAL. The initial rent to be paid by the Lessee to the Lessor is
the sum set forth at Paragraph H. above, said sum to be due and payable monthly
commencing on the commencement date set forth at Paragraph F. above and paid
monthly thereafter on the first day of each month during the term hereof.
3. LEASE DEPOSIT. Concurrently with the execution of this Lease, the
Lessee has deposited with the Lessor the sum set forth at Paragraph J. above as
security for the performance by the Lessee of all the conditions required to be
performed by the Lessee under this Lease.
4. RENT REVISION. At the time or times, and in accordance with the
terms et forth in Paragraph K. above, the rental set forth in Paragraph H.
above shall be adjusted for the remaining term of the Lease.
5. USE OF PREMISES.
(i) The Lessee shall use the Leased Property for the conduct of the
business described at Paragraph L. above and for no other purposes whatsoever
without the Lessor's prior written consent.
(ii) The Lessee will not make any unlawful, improper or offensive use of
the Leased Property; he will not suffer any strip or waste thereof; he will not
permit an objectionable noise or odor to escape or to be emitted from the Leased
Property or do anything or permit anything to be done upon or about the Leased
Property in any way tending to create a nuisance.
(iii) The Lessee will not allow the Leased Property at any time to fall
into such a state of repair or disorder as to increase the fire hazard
thereon; he shall not install any power machinery on the Leased Property
except under the supervision and with written consent of the Lessor; he shall
not store gasoline or other highly combustible materials on the Leased
Property in such a way or for such a purpose that the fire insurance rate on
the building in which the Leased Property is locates is thereby increased or
that would prevent the Lessor from taking advantage of any rulings of the
Insurance Rating Bureau of the state in which the Leased Property is situated
which would allow the Lessor to obtain reduced premium rates for long term
fire insurance policies.
(iv) The Lessee shall comply at the Lessee's own expense with all laws and
requiations of any municipal, county, state, federal or other public authority
respecting the use of the Leased Property, including the Americans With
Disabilities Act.
(v) The Lessee will not overload the floors of the Leased Property in
such a way as to cause any undue or serious stress or strain upon the building
in which the Leased Property is located, or any part thereof, and the Lessor
shall have the right, at any time, to call upon any competent engineer or
architect whom the Lessor may choose to decide whether or not the floors of the
Leased Property, or any part thereof, are being overloaded so as to cause any
undue or serious stress or strain on said building, or any part thereof, and
the decision of said engineer or architect shall be final and binding upon the
Lessee; and in the event that the engineer or architect so called upon shall
decide that in his opinion the stress or strain is such as to endanger or injure
said building, or any part thereof, then and in that event the Lessee agrees
immediately to relieve said stress or strain either by reinforcing the building
or by lightening the load which causes such stress or strain in a manner
satisfactory to the Lessor.
<PAGE>
6. UTILITIES. The Lessee shall pay for all heat, light, water, power,
garbage and other services of utilities used in the Leased Property during the
term of this Lease.
7. REPAIRS AND IMPROVEMENTS.
(i) The Lessor shall not be required to make any repairs, alterations,
additions or improvements to or upon the Leased Property during the term of his
Lease, except only those hereinafter specifically provided for; the Lessee
hereby agrees to maintain and keep the Leased Property including, but not
limited to, all interior and exterior doors, heating, ventilating and cooling
systems, interior wiring, plumbing and drain pipes to sewers or septic tank, in
good order and repair during the entire term of the Lease at the Lessee's own
cost and expense, and to replace all glass which may be broken or damaged during
the term hereof in the windows and doors of the Leased Property with glass of as
good or better quality as that now in use; the Lessee hereby agrees to keep and
maintain the sidewalks, driveways and parking areas immediately adjoining the
Leased Property in a safe and orderly condition.
(ii) Except as otherwise provided in Paragraph M. above, the lessor agrees
to maintain in good order and repair during the term of this Lease the exterior
walls, roof, gutters, downspouts and foundations of the building in which the
Leased Property is situated. It is understood and agreed that the Lessor
reserves and at any and all times shall have the right to alter, repair or
improve the building of which the Leased Property is a part, or to add thereto,
and for that purpose at any time may erect scaffolding and all other necessary
structures upon the Leased Property, and the Lessor and Lessor's
representatives, contractors and workmen for the aforedescribed purposes may,
upon reasonable advance notice, enter in or about the Leased Property with such
materials and equipment as Lessor may deem necessary therefore. Lessee waives
any claim to damages, including loss of business resulting therefrom.
8. RIGHT OF ENTRY. It shall be lawful for the Lessor, his agents and
representatives, at any reasonable time upon reasonable notice, except in the
case of emergency, to enter into or upon the Leased Property for the purpose of
examining into the condition thereof, or any other lawful purpose. If during the
last month of the term the Lessee shall have removed all, or substantially all,
of the Lessee's property from the Leased Property, the Lessor may immediately
enter and alter, renovate, and redecorate the Leased Property, without
elimination or abatement of rent without liability to the Lessee for any
compensation, and such acts shall have no effect upon this Lease.
9. RIGHTS OF ASSIGNMENT. The Lessee will not assign, transfer, pledge,
hypothecate, surrender or dispose of this Lease, or any interest herein, or
permit any other person or persons whomsoever to occupy the Leased Property
without the written consent of the Lessor being first obtained in writing. This
Lease is personal to the Lessee. Lessor interest, in whole or in part, cannot
be sold, assigned, transferred, seized or taken by operation at law, or under or
by virtue of any execution or legal process, attachment proceedings instituted
against Lessee, or under or by virtue of any bankruptcy or insolvency
proceedings had in regard to the Lease or in any other manner, except as above
mentioned. Subject to the foregoing, all rights, remedies and liabilities herein
given or imposed upon either of the parties hereto, shall extend to, inure to
the benefit of, and bind, as the circumstances may require, the heirs, personal
representative, successors and, so far as this Lease is assignable by the terms
hereof, the assigns of all parties.
10. LIENS. The Lessee will not permit any lien of any kind, type or
description to be placed or imposed upon the Leased Property or any part
thereof.
11. ICE, SNOW AND DEBRIS. If the Leased Property is located at street
level, then at all times Lessee shall keep the sidewalks, curbs, driveways, and
parking spaces immediately adjoining the building (whether or not they are
included herein as Leased Property), in front thereof free and clear of ice,
snow, rubbish, debris and obstructions and if the Lessee occupies the entire
building, he will not permit rubbish, debris, ice or snow to accumulate on the
roof of said building so as to stop up or obstruct gutter downspouts or cause
damage to said roof,
12. ADVERTISING SIGNS. The lessee will not use the outside walls of the
Leased Property, or allow signs or devices of any kind to be attached thereto or
suspend therefrom, for advertising or displaying the name or business of the
Lessee or for any purpose whatsoever without the written consent of the Lessor.
13. INSURANCE COVERAGES. The Lessee shall, at all times during the term
hereof, at his own expense, keep in effect, furnish and deliver to the Lessor
insurance policies (or certificates evidencing same,) in form and with an
insurer satisfactory to the Lessor insuring:
(i) Both the Lessor and Lessee against all liability for damage to
personal property in or about said Leased Property. The amount of said
liability insurance shall be not less than the amount set forth in Paragraph N.
above.
(ii) The Lessor against the damage or destruction of the Leased Property
by fire or other casualty under a standard fire insurance policy with standard
specific extended form coverage endorsement to 100% of the full, current
replacement value.
(iii) The Lessor against business interruption including the payment of
rental to the Lessor for the period set forth in Paragraph P. above.
The renewal forms of each such policy or certificate shall be delivered to
the Lessor not less than 30 days prior to the expiration of the current policy.
Each policy
<PAGE>
shall provide that it cannot be canceled as to the Lessor with less than 15
days' notice to it.
14. INDEMNIFICATION. The Lessee agrees to and shall indemnify and
hold the Lessor harmless against any and all claims and demands arising from,
(i) the negligence of the Lessee, his officers, agents, invitees and/or
employees; (ii) the failure by the Lessee to perform any covenant required to
be performed by the Lessee hereunder, (iii) accident, injury, or damage which
shall happen in or about the Leased Property or appurtenances, or on or under
the adjoining streets, sidewalks, driveways, parking areas, or curbs, or
resulting from the condition, maintenance, or operation of the Leased
Property or of the adjoining streets, sidewalks, driveways, parking areas or
curbs. Lessee's failure to comply with any requirements of any governmental
authority; and (iv) any mechanic's lien, or security agreement, filed against
the Leased Property as a result of the acts of the Lessee. The Lessee shall
at his own expense defend the Lessor against any and all suits or actions
arising out of the aforedescribed acts or acts, and all appeals therefrom and
shall satisfy and discharge any judgment which may be awarded against Lessor,
including but not limited to, the Lessor's attorney in any such suit or
action.
15. TAXES AND ASSESSMENTS. The Lessee shall pay all real property
taxes, assessments (general and special) and other public charges levied,
assessed or otherwise imposed upon the Leased Property, all promptly before the
same or any part thereof become past due; provided, however, that any municipal,
county or state assessment over $2,000.00 total which become or may become a
lien on the premises, may be bonded by the Lessee as provided by law, and the
Lessee shall pay all installment on principal and interest on such bonds
during his tenancy, but shall be released from all obligation for payment of
installments becoming due after the end of the lease herein reserved without
proration. The Lessee shall also pay promptly, when due, all taxes levied
against his own personal property and all taxes, assessments and public
charges whatsoever arising in respect to, and because of, the Lessee's
occupancy, use or possession of the leased property. Such real property
taxes for which the commencement and expiration of the term of this Lease
shall fall shall be appropriately pro-rated and adjusted between the Lessor
and the Lessee. The Lessee shall furnish to the Lessor, within 30 days after
the date any amount is payable by the Lessee, as provided in this Paragraph,
copies of official receipts of the appropriate taxing authority or other
proof satisfactory to the Lessor evidencing payment.
16. LESSEE'S ALTERATIONS AND IMPROVEMENTS. No alteration, addition, or
improvement to the Leased Property shall be made by the Lessee without the
written consent of the Lessor. Any alteration, addition, or improvement made by
the Lessee after such consent shall have been given, and any fixtures installed
as part thereof, (except Lessee movable trade fixtures), shall at the Lessor's
option, become the property of the Lessor upon the expiration or other sooner
termination of this Lease; provided, however, the Lessor shall have the right to
require the Lessee to remove such fixtures at the Lessee's cost upon such
termination of this Lease.
17. DAMAGE BY CASUALTY OR FIRE AND DUTY TO REPAIR. If all or any part
of the Leased Property is damaged or destroyed by fire or other casualty subject
to coverage under the standard fire insurance policy with standard special or
extended form coverage endorsement applicable to the Leased Property, the Lessor
shall, except as otherwise provided herein, repair and rebuild the Leased
Property with reasonable diligence. If there is a substantial interference with
the operation of the Lessee's business in the leased Property, the then
applicable rental shall be equitably apportioned for the duration of such
repairs. Notwithstanding the foregoing provisions, if at any time within
eighteen months prior to the end of the initial or any renewal term, and
provided the Lessee shall not have served upon the Lessor notice of renewal or
extension as herein provided, the Leased Property is completely destroyed or so
damaged by fire or other casualty covered by insurance as to render it unfit for
the use as set forth at Paragraph L. above, the Lessor may terminate this Lease
on 30 days' written notice to the Lessee. If all or any substantial part of the
Leased Property is damaged or destroyed by casualty which is not subject to
coverage under the standard fire insurance policy with standard special or
extended form coverage endorsement applicable to the Leased Property, or if
subject to such coverage, the loss is, in fact, not covered to within 100% of
replacement, the Lessor may terminate this Lease upon 30 days' written notice to
the Lessee. If the Lessor shall terminate this Lease as provided herein, all
rent shall be apportioned to the date of termination and all insurance proceeds
shall belong to the Lessor. Except to the extent provided for in the Paragraph,
neither the rent payable by the Lessee nor any of the Lessee's other obligations
under any provision of this Lease shall be affected by any damage to or
destruction of the Leased Property by any cause whatsoever, and the Lessee
hereby expressly waives any and all additional rights it might otherwise have
under any law or statute.
18. WAIVER OF SUBROGATION RIGHTS. Neither the Lessor nor the Lessee
shall be liable to the other for loss arising out of damage to, or destruction
of, the Leased Property or the contents thereof, when such loss is caused by any
of the perils which are or could be included within or insured against by a
standard fire insurance policy with standard extended or special form coverage
endorsement, including sprinkler leakage insurance and business interruption
insurance, if any. All such claims for any and all loss, however caused, hereby
are waived. Said absence of liability shall exist whether or
<PAGE>
not the damage or destruction is caused by the negligence of either Lessor or
Lessee or by any of their respective agents, servants or employees. Neither
the Lessor nor the Lessee shall have any interest or claim in the other's
insurance policy or policies or the proceeds thereof, unless specifically
covered therein as a joint assured and notwithstanding any provision hereof
requiring the Lessee to furnish such coverages on behalf of the Lessor. If
the Lessee, at any time, is unable to obtain inclusion of any of the matters
set forth above in any of its policies, the Lessee shall, at its own expense,
have the Lessor named in such policies as one of the insureds.
19. EMINENT DOMAIN.
(i) If the whole of the Leased Property shall be taken for any public or
any quasi-public use under any statute or by right of eminent domain, or by
private purchase in lieu thereof, then the Lease shall automatically terminate
as of the date that title shall be taken. If any part of the Leased Property
shall be so taken as to render the remainder thereof unusable for the purposes
for which the Leased Property was leased as set forth in Paragraph L., then the
Lessor and the Lessee shall each have the right to terminate this Lease on 30
days' notice to the other given not later than the date of such taking. In the
event that this Lease shall terminate or be terminated, the rental shall, if and
as necessary, be equitably adjusted.
(ii) If a part of the Leased Property shall be taken as provided in
Subparagraph (i) above, without so rendering the remainder of the Leased
Property unusable, then the Lessor shall rebuild and restore the Leased Property
with reasonable diligence, and if there is a substantial interference with the
operation of the Lessee's business in the Leased Property the then applicable
rental shall be equitably apportioned for the duration of such rebuilding and
restoration; provided, however, that the cost of such work shall not exceed the
proceeds of its condemnation award; and provided, further, that if such taking
occurs within 18 months prior to the end of the initial or any renewal term, the
Lessor may upon 30 days' notice given to the Lessee on or before the date of
such taking elect not to so rebuild or restore the Leased Property.
(iii) All compensation awarded or paid upon such a total or partial taking
of the Leased Property shall belong to and be the property of the Lessor without
any participation by the Lessee; provided, however, that nothing contained
herein shall be construed to preclude the Lessee from prosecuting any claim
directly against the condemning authority in such condemnation proceedings for
loss of business, or depreciation to damage to, or cost of removal of, or for
the value of stock, trade fixtures, furniture, and other personal property
belonging to he Lessee; provided, further, however, that no such claim shall
diminish or otherwise adversely affect the Lessor's award or the award of any
fee mortgagee.
20. LESSOR'S SIGNS. During the periods specified in Paragraph Q. above,
the Lessor may post on the Leased Property, including the windows thereof, signs
of moderate size notifying the public that the premises are "for sale" or "for
rent" or "for lease".
21. SURRENDER UPON TERMINATION. At the expiration of this term of the
Lease or upon any sooner termination hereof, the Lessee will quit and deliver up
said Leased Property and all future erections or additions to or upon the same,
broom clean, to the Lessor or those having Lessor's estate in the premises,
peaceably quiet, and in a good order and condition, reasonable use and wear
thereof, damage or loss excused pursuant to the terms hereof excepted, as the
same are now in or hereafter may be put in by the Lessor and Lessee.
22. LIQUIDATED DAMAGES. In the event that the Lessee shall fail to
deliver up the Leased Property as above agreed, he shall become liable for the
payment, at the option of the Lessor, of a sum for each and every day which
he holds possession and fails to deliver over possession in the amount set
forth at Paragraph R. above. The lessor by availing itself of the rights and
privileges granted by this provision and the acceptance of said liquidated
rental shall not be deemed to have waived any of the rights and privileges
granted in other parts of this Lease, but the rights granted under this
provision shall be considered, in any event, as in addition to, and not in
exclusion of, such rights and privileges.
23. HOLDING OVER. In the event the Lessee for any reason shall hold
over after the expiration of this Lease, such holding over shall not be deemed
to operate as a renewal or extension of this Lease, but shall only create a
tenancy from month-to-month which may be terminated at will at any time by the
Lessor.
24. ATTORNEY'S FEES AND COURT COSTS. In case suit, action, or
arbitration is instituted to enforce compliance with any of the terms, covenants
or conditions of this Lease, or to collect the rental which may become due
hereunder, or any portion thereof or to enforce any right of Lessor while Lessee
is holding over after expiration hereof, the losing party agrees to pay such sum
as the trial court or arbitrators may adjudge reasonable as attorney's fees to
be allowed the prevailing party in such suit, action, or arbitration and in the
event any appeal is taken from any judgment or decree in such suit or action,
the losing party agrees to pay such further sum as the appellate court shall
adjudge reasonable as prevailing party's attorney's fees on such appeal.
25. WAIVER. Any waiver by either party of any breach of any covenant
herein contained to be kept and performed by the other party shall not be deemed
or considered as a continuing waiver, and shall not operate to bar or prevent
the party from declaring as forfeiture for any succeeding breach, either of the
same condition or covenant or otherwise.
<PAGE>
26. NOTICES. Any notice required by the terms of this Lease to be given
by one party to the other or desired so to be given, shall be sufficient if in
writing contained in a sealed envelope, deposited in the U.S. Registered or
Certified Mails with postage fully prepaid, and if intended for the Lessor, then
if addressed to said Lessor at the address set forth in Paragraph A. above and
if intended for the Lessee, then if addressed to the Lessee at the address set
forth for it in Paragraph B. above.
27. DELAY OF POSSESSION. If the Lessor for any reason cannot deliver
possession of the Leased Property to the Lessee at the commencement of the Lease
term, this Lease shall not be void or voidable, nor shall the Lessor be liable
to the Lessee for any loss or damage resulting therefrom, but there shall be an
abatement of rent for the period between the commencement of the Lease term and
the time when the Lessor does deliver possession.
28. QUIET ENJOYMENT. The Lessee, upon the payment of the rent herein
reserved and upon the performance of, and subject to the provisions of this
Lease, shall at all times during the Lease term and during any extension or
renewal term peaceably and quietly enjoy the Leased Property without any
disturbance from the Lessor or from any other person claiming through the
Lessor.
29. PERFORMANCE OF LESSEE'S OBLIGATIONS. If the Lessee shall be in
default hereunder, the lessor may cure such default on behalf of the Lessee, in
which event the Lessee shall reimburse the Lessor for all sums paid to effect
such cure, together with interest at the highest legal rate. In order to
collect such reimbursement the Lessor shall have all the remedies available
under this Lease for a default in the payment of rent.
30. ARBITRATION. In the event of any controversy between the parties
over the application of Paragraphs 17., 19., or 27. hereof, the same shall be
settled by arbitration at Portland, Oregon in accordance with the then existing
rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
31. DEFAULT.
(i) The Lessor may give the Lessee five days' notice of intention to
terminate this lease in any of the following circumstances:
1. If the Lessee shall be in default in the performance of any
covenant of the lease (other than the covenants for the payment of basic rent or
additional rent) and such is not cured within 15 days after written notice
thereof given by the Lessor; or, if such default shall be of such nature that it
cannot be cured completely within such 15-day period, if the Lessee shall not
have promptly commenced the cure within such 15-day period or shall not
thereafter proceed with reasonable diligence and in good faith to remedy such
default.
2. If the Lessee shall be adjudicated a bankrupt, make a general
assignment for the benefit of creditors, or the benefit of any insolvency act,
or if a permanent receiver or trustee in bankruptcy shall be appointed for the
Lessee's property and such appointment is not vacated within 90 days. For these
purposes the "Lessee" shall mean the tenant then in possession of the Leased
Property.
3. If the Leased Property becomes abandoned for a period of 30 days.
4. If this Lease shall be assigned or the Leased Property sublet other
than in accordance with the terms of this Lease and such default is not cured
within 15 days after notice.
(ii) The Lessor may give the Lessee 10 days written notice of intention to
terminate this Lease if the Lessee shall be in default in the payment of the
initial rent or any additional rent.
(iii) If the Lessor shall give the notice of intention to terminate
provided above, then at the expiration of such period this Lease shall terminate
as completely as if that were the date herein definitely fixed for the
expiration of the term of this Lease, and the Lessee shall then surrender the
Leased Property to the Lessor. If this Lease shall so terminate, it shall be
lawful for the Lessor, at its option, without formal demand or notice of any
kind, to re-enter the Leased Property by a forcible entry and detainer action or
by any other means, including force, and to remove the Lessee and his
possessions therefrom without being liable for any damages therefor. Upon the
termination of this Lease, as herein provided, the Lessor shall have the right,
at its election, to terminate any sublease then in effect, without the consent
of the sublessee concerned.
(iv) The Lessee shall remain liable for all its obligations under this
Lease despite the Lessor's re-entry, and the Lessor may re-rent or use the
Leased Property as agent for the Lessee, if the Lessor so elects. The Lessee
waives any legal requirement for notice of intention to re-enter and any right
of redemption.
(v) If this Lease shall terminate as provided in this Paragraph the
Lessor shall have the right, at its election at any time, to recover from the
Lessee the amount by which the rent and charges equivalent to rent reserved
herein for the balance of the term shall exceed the reasonable rental value of
the Leased Property for the same period.
32. ESTOPPEL CERTIFICATE. Each party, within ten (10) days after notice
from the other party, shall execute and deliver to the other party, in
recordable form a certificate stating that this Lease is unmodified and in full
force and effect, or in full force and effect as modified, and stating the
modifications. The certificate shall also state the day on which the term of the
Lease commenced, the date of expiration of
<PAGE>
the initial term of the Lease, the amount of the minimum monthly rent, the
dates to which the rent has been paid in advance, and that the Lease
represents the entire agreement between the parties, that there are no
defaults by the party to whom the certificate is given not any defenses or
offsets against such party, that all amounts due as rental under the Lease
have been paid through and including a date specified in the certificate, and
the amount of any security deposit or prepaid rent. Failure to deliver the
certificate within such ten (10) days shall be conclusive upon the party
failing to deliver the certificate for the benefit of the party requesting
the certificate that this Lease is in full force and effect, that it has not
been modified except as may be requested by the party requesting the
certificate, and that there are no defaults by or offsets or defenses against
the party requesting the certificate.
33. SUBORDINATION.
(a) This Lease , at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust or other security now or hereafter placed upon
the real property of which the premises are a party and to any and all advances
made on the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessee
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease and shall give written notice thereof to Lessee, this Lease
shall be deemed prior to such mortgage, deed of trust or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder.
34. MISCELLANEOUS PROVISIONS.
(i) Time is of the essence of this Lease with respect of performance by
each party of his obligations hereunder.
(ii) In construing this Lease, masculine or feminine pronouns shall be
substituted for those neuter in form and vice versa, and plural terms shall be
substituted for singular and singular for plural in any place in which the
context requires.
(iii) If there is more than one party tenant, the covenants of the Lessee
shall be the joint and several obligations of each such party, and, if the
Lessee is a partnership the covenants of the Lessee shall be the joint and
several obligations of each of the partners and the obligations of the firm.
(iv) The parties agree to execute and deliver any instruments in writing
necessary to carry out any agreement, term, conditions, or assurance in this
Lease whenever occasion shall arise and request for such instruments shall be
made.
(v) The specified remedies to which the Lessor may resort under the
terms of this Lease are cumulative and are not intended to be exclusive of any
other remedies or means of redress, as provided herein or by law, to which the
Lessor may be lawfully entitled in case of any breach or threatened breach by
theLessee of any provision or provisions of this Lease.
(vi) The captions of this Lease are inserted only as a matter of
convenience and for reference and in no way define, limit, or describe the scope
or intent of the Lease, nor in any way affect this Lease.
(vii) This Lease, together with any written agreements which shall have
been executed simultaneously herewith, contains the entire agreement and
understanding between the parties. There are no oral understandings, terms, or
conditions, and neither party has relied upon any representation, express or
implied, not contained in the Lease or the simultaneous writings heretofore
referred to. All prior understandings, terms, or conditions are deemed merged
in this Lease. This Lease cannot be changed or supplemented orally.
(viii) If any provision of this Lease shall be declared invalid or
unenforceable, the remainder of this Lease shall continue in full force and
effect.
35. ADDITIONAL TERMS AND CONDITIONS. Additional terms and conditions of
this Lease are set forth at Paragraph S. above (and attached) and have the same
force and effect as if printed here; provided, however, that in the event that
any provisions of Paragraph S. conflict with any other provision hereof, and
both may not be given effect Paragraph S. shall control.
36. ENVIRONMENTAL MATTERS. Tenant warrants for itself, and for any
subtenant or assignee, that it does not and shall not during any time when it,
its subtenant or assignee is in possession of the Property allow, possess,
generate, sue, release, store or deposition, over or beneath the Property any
hazardous substances (as defined in ORS 466.540, et seq. and regulations related
thereto), any substances, materials or contaminants regulated under 42 USC
Section 3001, and regulations related thereto, or any polychlorinated biphenyls,
nor shall it install, use or decommission any underground storage tank, except
in accordance with governing federal, state and local laws or regulations. The
use of the premises for any activities involving, directly or indirectly, the
use, generation, treatment, storage or disposal of any hazardous or toxic
<PAGE>
chemical material, substance or waster, except as required or allowed in the
normal course of each Tenant's business in accordance with local, state or
federal environmental protection laws and regulations is hereby prohibited.
Tenant agrees to indemnify Landlord and any lender suing the Property as
security from and against any and all costs, expenses, including, without
limitation, attorneys' fees for settlement, at trial or on appeal; losses;
actions; suits; claims, judgments and any other liability whatsoever in
connection with the breach by Tenant, tenant's subtenant or assignee of any
federal, state or local environmental protection laws or regulations. Upon
request from Landlord, Tenant will furnish an environmental estoppel certificate
in commercially reasonable form to Landlord.
IN WITNESS WHEREOF, the Lessor identified at Paragraph A. above and the
Lessee identified at Paragraph B. above have executed this instrument in
duplicate, the day and year set forth at Paragraph C. above, any corporate
signature being by the authority of the board of directors of such corporation.<PAGE>
<PAGE>
FIRST ADDENDUM
LESSOR: Davis Partnership
LESSEE: United Stationers Supply Co.
LOCATION: 4409 S.E. 24TH Avenue, Portland, Oregon
RENTAL: First year - $21,582.00 per month (March 1, 1997-February 28,
1998)
Second year - $22,230.00 per month (March 1, 1998-February 28,
1999)
Third year - $22,896.00 per month (March 1,1999-February 29,
2000)
Fourth year - $23,583.00 per month (March 1, 2000-February 28,
2001)
Fifth year - $24,291.00 per month (March 1, 2001-February 28,
2002)
REPAIRS: Lessor shall be responsible for the maintenance of the
concrete floors if major settlements should occur to said
floors. Lessee shall be responsible for all other maintenance
of the concrete floors, except where major settlements occur.
IMPROVEMENTS: Lessor, at Lessor's sole cost and expense, shall perform those
tenant improvements listed on the attached exhibit entitled
"Tenant Improvements" unless the parties subsequently agree in
writing on additional improvements. The first $2,000 of cost
overrun in excess of $59,723 for the listed items shall be
paid by Lessor, but still cause the monthly rent to be
increased by an amount which shall permit such costs to be
amortized over the term of the lease assuming a nine (9)
percent interest rate. Any cost overruns over $2,000 shall be
paid for by the Lessee. Savings on any allowance item may be
applied to overruns on other items. Any net savings on
allowance items will be applied as a credit against rent at
project completion. Lessor will use best efforts to complete
the Tenant Improvements as soon as possible. All parties
hereto acknowledge that the exterior painting and parking lot
striping will probably not be completed until May or June of
1997.
If the parties subsequently agree to additional tenant
improvements, in writing, the cost of the additional
improvements will cause the rent to be increased by an amount
which shall permit such costs to be amortized over the terms
of the Lease assuming a nine (9) percent interest rate.
RIGHT TO CANCEL: The Lessee, upon not less than 180 days advance written
notice, may terminate the lease effective February 28, 1999
or any date thereafter. Lessee may only exercise this right
of termination if the reason for termination is the relocation
of Lessee's business to a new building in the states of Oregon
or Washington that is at least 150 percent larger than the
building that is the subject of this lease. As consideration
for so terminating this Lease, the Lessee agrees to pay as
cost reimbursement to Lessor an amount equal to the
unamortized portion of the Tenant Improvements and the
unamortized portion of a $20,000 real estate fee. Said
amortization shall assume a 9 percent interest rate and
five-year amortization period. Lease cancellation fee must be
paid at the time cancellation notice if delivered.
CONSENT: Where the consent of either party is required, such consent
shall not be unreasonably withheld or delayed.
LESSOR'S
REPRESENTATIONS: Lessor represents and warrants to Lessee that the premises,
when originally built, was in compliance with the building
code in effect at that
<PAGE>
time.
<PAGE>
EXHIBIT 10.84
LEASE
1. PARTIES.
This Lease is made and entered into as of the ___ day of ______________
(hereafter called the "Effective Date") by and between OZBURN-HESSEY
STORAGE CO., (hereafter called "Lessor"), a Tennessee corporation with its
principal office in Nashville, Tennessee, and UNITED STATIONERS SUPPLY
CO., an Illinois corporation with its principal office at 2200 East Golf
Road, Des Plaines, Illinois 60016 (hereafter called "Lessee").
2. PREMISES.
(a) The Lessor for and in consideration of the covenants, conditions,
agreements and stipulations herein contained, does hereby lease
unto the Lessee, and the Lessee does hereby take and hire from the
Lessor, those certain premises (hereafter called the "Premises")
identified and described as follows:
191,250 square feet of the Mid-South Logistec Center, (hereafter
referred to as the "Project") at 455 Industrial Blvd., LaVergne,
Tennessee, as shown on Exhibit A.
(b) To have and to hold the same, subject to the conditions herein
contained for the lawful operation thereon of Lessee's normal
business operations of warehousing and distribution. Lessee shall
not engage in any other business on the Premises without the prior
written consent of Lessor.
3. TERM.
(a) The term of this Lease shall be for the period of ten (10) years
and three (3) months. The commencement date is February 1, 1998 and
the termination date is April 30, 2008.
(b) Lessee shall be entitled to possession of the Premises commencing
February 1, 1998 for the purpose of installing its racking system,
wire guidance system, trade fixtures and equipment, and for receipt
of merchandise inventory. If for any reason other than the fault
of Lessee possession of the Premises for such purposes is delayed
beyond March 1, 1998, Lessee's Rental shall be abated for two days
for each day of delay after March 1, 1998.
4. RENTAL.
Lessee agrees and covenants to pay as rental for said Premises (i) the
sum of $583,312.50 per year for each of the first five years of the
Lease Term, payable in monthly installments of $48,609.38 for each month
of the first five years of the initial term of this Lease commencing May
1, 1998, and (ii) the sum of $659,812.50 per year for each of the next
five years of the Lease Term, payable in monthly installments of
$54,984.38 for each month commencing May 1, 2003. For the period from
February 1, 1998 through April 30, 1998, Lessee shall not be required to
pay any rental pursuant to this paragraph
<PAGE>
4, nor shall Lessee be responsible for any portion of the Utilities
pursuant to paragraph 10, the Real Estate Taxes pursuant to paragraph
24, or the Common Area Maintenance costs pursuant to paragraph 25.
(a) Rent shall commence on May 1, 1998, with the first payment for the
month of May 1998 due on lease execution, and due thereafter on the
first day of each month commencing June 1, 1998 until the
expiration of the term hereof, as extended, except that if the
beginning or ending months are not whole, then only the prorata
portion of that month's rent shall be paid for said month. The
total rent due upon each due date shall be paid in full to Lessor
by Lessee in lawful money of the United States by check or draft
payable to the order of Lessor and mailed to Lessor at 633 THOMPSON
LANE, NASHVILLE TN 37204. ATTENTION: GARY KIMBALL unless Lessee
shall otherwise direct in writing, and no setoff or counter claims
may be deducted by Lessee from the rentals due.
(b) If Lessee fails to pay rent when due or if Lessee's rent payment is
not accepted by Lessor's Bank, Lessor, after providing Lessee with
ten (10) days advance written notice of the failure to receive rent
or the bank's rejection of the rent payment, may if such default is
not cured within such ten (10) day period, assess Lessee a late
charge in the amount of five percent (5%) of the payment due
Lessor.
5. REPAIRS.
(a) Lessor shall, at its own cost and expense, maintain in good working
order, condition and repair, the roof, structural elements of the
floor, driveways, parking lot, foundation and exterior walls (not
including doors, windows and floors), interior stress bearing walls
and columns, landscaping and grounds surrounding the Premises,
gutters, downspouts, concealed and underground plumbing, sewage and
electrical systems; however, Lessor shall not be obligated to make
any repairs of those portions of the Premises that it is obligated
to maintain unless it shall be notified in writing by Lessee, and
Lessor shall then have a reasonable period of time to make such
repairs; provided further, however, that Lessee and not Lessor
shall be responsible for making any such repairs occasioned by the
acts of Lessee, its employees (whether or not acting within the
scope of their employment), invitees, permitted assignees,
permitted subtenants, or licensees. If Lessor fails to maintain,
repair or replace the Premises as required by this paragraph 5,
Lessee may, upon ten (10) days prior written notice to Lessor
(except no notice shall be required in the case of an emergency)
perform such maintenance or repair (including replacement, as
needed) on behalf of Lessor. In such case, Lessor shall reimburse
Lessee for all reasonable, direct costs incurred in performing such
maintenance or repair promptly following receipt of appropriate
documentation of such costs. Lessor shall not be liable for any
damage or loss occasioned by Lessor's failure to repair portions of
the Premises which it has covenanted to maintain until after Lessor
has received written demand from Lessee to make the repair. Lessor
shall, however, indemnify and hold harmless Lessee against any and
all costs, claims or liability arising from Lessor's failure to
make timely repairs after receiving such written notice from Lessee.
2
<PAGE>
(b) Lessee shall, at its own expense and without notice from Lessor,
keep and maintain (including replacement, as needed) in good repair
the entire Premises, other than those portions for which Lessor
shall be responsible as set forth above. Lessee's obligations shall
extend to doors, windows, floors, interior (non-stress bearing
walls, ceilings, ducts, utilities, air conditioning, heating,
lighting, plate glass, plumbing, sprinkler system, and electrical
wiring, and also including the loading dock, and the cleaning, and
sweeping, removal of snow and ice from walks, stairs and steps,
removal of trash and rubbish, etc., of those areas of the Premises
under Lessee's control, but this enumeration shall not be treated
as a limitation of Lessee's obligations with respect to the care of
the Premises.
(c) Lessee shall, at its own expense, promptly comply with all lawful
orders, regulations, ordinances and statutes of all municipal,
county, state and federal authorities affecting the Premises by
virtue of Lessee's occupancy or use thereof.
(d) Lessee shall, at its own cost and expense, obtain and maintain any
and all permits and licenses necessary for its use of and business
operations at the Premises. Lessee shall not permit, perform or
carry on any practices which may cause injury or damage to the
Premises, produce any objectionable or unpleasant smoke, dust gas,
fumes, odors, noise or vibrations to emanate from the Premises, nor
take or permit any other actions which would constitute a nuisance
or menace to neighboring landowners or their tenant, as determined
by a court of competent jurisdiction. Without Lessor's prior
written consent, which shall not be unreasonably withheld, Lessee
shall not receive, store or otherwise handle any product, material
or merchandise which is explosive. Lessee shall not use or permit
the Premises to be used for any purpose or in any manner (including
without limitation any method of storage) which would render
invalid Lessor's insurance on the Premises or Lessee's liability
insurance for its operation on the Premises or cause the State
Board of Insurance or other insurance regulatory authority to
disallow any sprinkler credits. Lessee shall not use the Premises
for any unlawful purpose.
6. IMPROVEMENTS TO BE MADE, AND DELIVERY OF PREMISES.
Lessor is to make improvements, as generally described on Lessor's
Proposal To Lease Industrial Space dated October 1, 1997, and/or as set
forth on a separate Exhibit "B" which shall be attached and initialed by
each party setting out the agreed improvements. Lessor shall make such
improvements prior to March 1, 1998, and shall warrant its work for the
term of the Lease. Lessor and Lessee acknowledge that the Premises shall
be acceptable when such improvements are substantially complete.
Lessor warrants to Lessee that (a) the Project and (b) that portion of
the Premises already constructed and to be constructed by Lessor or
Lessor's contractor, have been or will be constructed and operated in a
first-class manner, in full compliance with all governmental
regulations, ordinances, and laws existing at the time of construction,
including, but not
3
<PAGE>
limited to, laws pertaining to disabled access (See Paragraph 9) and
laws pertaining to Hazardous Substances ("Applicable Laws"), in order to
make the Project and the Premises suitable for warehousing and
distribution purposes. Lessor will be responsible for making all
alterations and repairs to the Project and the Premises at its cost,
which shall not be included as Common Area Maintenance expenses (as
described in Paragraph 25 of this Lease), resulting from or necessitated
by the failure of Lessor to comply with the Applicable Laws.
7. ENVIRONMENTAL PROVISIONS.
The term "Hazardous Substance" as used in the Lease shall mean
pollutants, contaminants, petroleum or petroleum products, toxic or
hazardous wastes, or any other substances, (Including without
limitation, asbestos and raw materials which include hazardous
constituents) the removal of which is required or the use of which is
restricted, prohibited or penalized by any "Environmental laws," which
term shall mean any federal, state or local law, regulation or ordinance
relating to pollution or protection of the environment, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund, Amendment and Reauthorized Act of
1986, the Resource and Conservation and Recovery Act of 1976, as amended
by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of
1984, and all state environmental laws.
(a) Lessee hereby agrees that:
(i) no activity will be conducted on the Premises that will
produce any Hazardous Substances, except for such activities
that are part of the ordinary course of its business
activities provided said activities are conducted in
accordance with all Environmental Laws;
(ii) the Premises will not be used in any manner for the storage
of any Hazardous Substances except for the storage of such
materials that are used in the ordinary course of Lessee's
business, provided such materials are properly stored in a
manner and location meeting all Environmental laws;
(iii) no portion of the Premises will be used as landfill or dump;
(iv) Lessee will not use or install any underground tanks of any
type;
(v) Lessee will not allow any surface or subsurface conditions to
exist or come into existence that constitute, or with the
passage of time may constitute, a public or private nuisance,
except with regard to any Hazardous Substances located or
discovered off the Premises that have migrated or leached
onto the Premises from adjacent property through no fault of
Lessee;
(vi) Lessee will not permit any Hazardous Substances to be brought
onto, stored, processed, disposed of; released, discharged
from (including ground water contamination) or otherwise
handled on the Premises, except for those used in the
ordinary course of Lessee's business activities, and if so
brought or found located thereon, the same shall be
immediately removed by Lessee with proper disposal, and all
required cleanup
4
<PAGE>
procedures shall be diligently undertaken pursuant to all
Environmental Laws. Lessee shall immediately notify Lessor
should Lessee become aware of any Hazardous Substance located
on the Premises or Project in violation of Environmental Laws
or this lease or other environmental problem or liability with
respect to the Premises or Project. If, at any time during or
after the term of the Lease, the Premises or Project are found
to be so contaminated or subject to said conditions, and such
contamination or conditions are shown to have been caused by
Lessee, its employees, agents, contractors, licensees
permitees, invitees, or guests, then Lessee shall indemnify
and hold Lessor (and any mortgagee or trustee under any deed
of trust or mortgage on the Premises or Project) harmless from
all claims, demands, actions, liabilities, costs (including
attorney fees), expenses, damages and obligations that
directly result from the use of the Premises by Lessee.
(b) Except for conditions, if any, resulting from Lessee's occupation
or use of the Premises pursuant to the Prior lease, Lessor represents
and warrants to Lessee, to the best of Lessor's knowledge as of the
Effective Date, as follows:
(i) Lessor has maintained the Premises in compliance with all
Environmental Laws;
(ii) No Hazardous Substances have been disposed of; discharged,
released or spilled on the Premises in violation of any
Environmental Laws during Lessor's ownership, operation or
occupancy of the Premises;
(iii) The Premises have not been used for any dumping or land
filling activities during Lessor's ownership, operation or
occupancy of the Premises; and,
(iv) No underground storage tanks are or have been present on the
Premises during Lessor's ownership, operation or occupancy of
the Premises.
(c) Except as provided to the contrary in paragraph 7(b), Lessor
shall unconditionally and irrevocably indemnify, hold harmless and
defend Lessee, its employees, officers, directors, shareholders,
successors and assigns, from and against any loss, liability, claim,
suit, demand, damage, penalty, fine, cost or expense (including,
without limitation, reasonable attorneys' and consultants' fees) of
whatever kind or nature, whether arising on, before or after the
Effective Date of this Lease, arising out of or resulting from or in
any way related to:
(i) The breach of any environmental representation or warranty
contained in paragraph 7(b) of this Lease;
(ii) The presence, leakage, spillage, discharge or release of any
Hazardous Substances on or from the Premises unless caused by
Lessee; and,
(iii) Any violation or alleged violation of any Environmental Laws,
demands or orders of any governmental authority pertaining to
the presence, leakage, spillage, discharge or release of any
Hazardous Substance on or from the Premises unless caused by
Lessee.
5
<PAGE>
In no event shall Lessor be obligated to indemnify, defend
or hold harmless Lessee against the results of Lessee's breach of its
obligations under paragraph 7(a) or otherwise against the results of
Lessee's violation of the Environmental Laws.
(d) Paragraphs 7(a), 7(b), 7(c), and 7(d) shall survive the
expiration or earlier termination of this Lease
8. ALTERATIONS.
Lessee may, with the prior written consent of Lessor, which consent
shall not be unreasonably withheld or delayed, make such alterations,
changes and improvements to the Premises, as Lessee deems necessary and
advisable, at Lessee's own cost and expense, so long as the structural
strength of the building is not affected thereby. All such alterations,
changes and improvements made by the Lessee shall comply with all laws,
ordinances rules, building codes and regulations applicable thereto, and
upon completion shall remain upon, and be surrendered with, the Premises at
the termination of this Lease. Lessee agrees that should it make any
alterations, additions, replacements or improvements to the Premises, it
will not be acting as agent or servant of Lessor and that it will promptly
pay the cost or expense for same and shall forthwith pay and discharge all
liens, obligations and encumbrances of any kind and nature whatsoever which
shall attach to, be filed against or imposed upon the Premises by reason of
such alterations, changes, additions, replacements and improvements.
9. AMERICANS WITH DISABILITIES ACT.
(a) Except for any alterations, changes or improvements to the Premises
made by Lessee, Lessor shall, at Lessor's sole cost and expense,
comply with all applicable provisions of the Americans with
Disabilities Act of 1990 and all amendments thereto and all
regulations promulgated thereunder (collectively "ADA"), including,
but not limited to, any required modifications or alterations of the
Premises required by ADA in connection with the use of the Premises as
a warehouse.
(b) Lessor shall reimburse, defend and indemnify and hold Lessee, its
agents and employees, harmless from and against any and all claims,
losses, liabilities, damages, costs, and expenses, including
reasonable attorneys' fees and costs, arising out of or related to
any failure on the part of Lessor to maintain, modify or alter the
Premises in accordance with its obligations under paragraph 9(a) of
this Lease; provided, however, Lessor's obligations under this
paragraph 9(b) shall not arise unless and until Lessee:
(i) gives Lessor timely written notice of the existence of any
such claim or alleged liability but, in any event, not later
than fifteen (15) days following Lessee's first receipt of any
written demand, notice, or service of process asserting such
claim or alleged liability;
(ii) tenders to Lessor the defense of such claim or alleged
liability, along with the right of settlement;
(iii) reasonably cooperates with Lessor in the defense or settlement
of such
6
<PAGE>
claim or alleged liability.
10. UTILITIES.
Lessee agrees, at its own cost and expense, to pay the cost of electricity,
gas, water, sewer, garbage, metering charges, sprinkler fees and other
public utilities and services used or consumed by the Lessee in or on the
Premises, without liability on the part of Lessor.
11. SIGNS
Lessee shall not be permitted to paint, place, erect or cause to be
painted, placed or erected any sign or flag on the roof or the front, back
or side portions of the building, or on the grounds of the Premises (except
as provided in Exhibit C, attached hereto) without Lessor's prior written
consent, which consent shall not be unreasonably withheld or delayed. At or
prior to the expiration of this Lease, or any extension thereof, Lessee
shall remove all signs or flags so painted, placed or erected, and shall
restore the walls and other portions of the Premises to which any of said
signs or flags were attached to their original condition, ordinary wear and
tear excepted.
12. SURRENDER OF POSSESSION.
Upon termination of this Lease, by expiration or otherwise, Lessee will
peaceably and quietly leave and surrender the Premises in as good
condition as they now are or may be after making alterations, additions or
improvements as herein permitted, ordinary wear and tear, loss by fire,
casualty and causes beyond Lessee's control excepted.
13. LIABILITY.
(a) Lessee shall save Lessor free and harmless from all liability for
injury to any person or persons, firm or corporation, or for the
resultant effect of any injury to any person or persons, firm or
corporation, occurring on the Premises, or arising out of any
accident or other occurrence on the Premises causing injuries to any
person or persons, firm or corporation whatsoever, and due directly or
indirectly to the use of said Premises or any part thereof by Lessee;
unless caused by Lessor's sole negligence or the sole negligence of
Lessor's employees, agents or independent contractors.
(b) Lessee agrees to carry public liability insurance naming Lessor as
additional insured to protect Lessor from risks customarily covered
by such insurance, in an amount not less than $ 2,000,000 per person
and $ 2,000,000 per accident. Lessee shall furnish directly to Lessor
certificates evidencing such insurance is in effect continuously
during the term of this Lease and such policies shall provide they
may not be cancelled on less than thirty (30) days' notice to Lessor.
Lessor shall be named as an additional insured under said policy
and so identified in the Certificate of Insurance. Lessee also shall
carry contents coverage on its contents with a waiver of subrogation
clause as to Lessor.
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14. ASSIGNMENT AND SUBLETTING.
Lessee covenants and agrees not to assign this Lease or sublet the
Premises or any part thereof without the prior written consent of Lessor,
but such consent shall not be arbitrarily or unreasonably withheld or
delayed; provided, however, that Lessee may, without the prior consent of
Lessor, assign this Lease or sublease the Premises, in whole or in part, to
any corporation or other entity which controls, is controlled by or is
under common control with Lessee, or to any corporation into or with which
Lessee may be merged or consolidated; provided further, however, that such
permitted assignee executes an assumption, in a form reasonably acceptable
to Lessor, within fifteen (15) days following any such permitted
assignment. Any permitted sublet of the Premises shall not relieve the
Lessee of any obligations imposed upon Lessee by this Lease and such sublet
shall be on terms and conditions consistent with the provisions of this
Lease. Lessee shall deliver to Lessor a true copy of all permitted sublet
agreements entered into by Lessee with respect to all or part of the
Premises within fifteen (15) days following the execution thereof. In the
event the Lease is assigned or the Premises are sublet, Lessee shall
nevertheless remain liable for the payment of rent and performance of all
of the covenants of this Lease.
15. FIRE AND OTHER CASUALTY.
(a) During the term of the Lease (including any renewal term or
extension, as the case may be):
(i) Lessor, at its sole expense, shall maintain in full force and
effect standard fire and extended coverage insurance for the
buildings and improvements on the Premises in an amount equal
to the full replacement value thereof,
(ii) Lessee shall reimburse Lessor for Lessee's percentage (as
defined below) of said standard fire and extended coverage
insurance;
(iii) Lessee, at its sole expense, shall carry insurance for its
personal property (including but not limited to its fixtures
and inventory) located on the Premises in such amounts as
Lessee shall deem appropriate.
Lessee's Percentages shall be that fraction (expressed as a
percentage), the numerator of which is the space in the Premises
occupied by the Lessee and the denominator of which is the space in
the building (562,500 square feet).
(b) Lessee agrees promptly to comply with and execute all rules, orders
and regulations of the Fire Underwriters Association for the prevent
of fires, at Lessee's own cost and expense; provided, however, that
if any violation of such rules, orders or regulations are not
occasioned by Lessee's use of the Premises, then all costs and
expenses shall be borne by Lessor. Lessor represents that the
Premises are presently in substantial compliance with all rules,
orders and regulations of the Fire Underwriters Association, to the
best of Lessor's knowledge. Payment under this clause shall be due
within thirty (30) days of delivery of notice thereof to Lessee. If
said insurance coverage should escalate due to Lessee's occupancy, the
Lessee may elect to provide insurance coverage, at its expense,
acceptable to Lessor.
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(c) In case the said Premises shall be so damaged by fire or other
cause as to be rendered untenantable, Lessor and Lessee shall
have thirty (30) days from date of said casualty to determine the
extent of repairs to be done and the time required to perform them.
(d) Lessor and Lessee agree (to the extent that such agreement does not
invalidate coverage under an policy of insurance) that, in the event
the Premises, or any part thereof, are damaged or destroyed by fire
or other casualty that is covered by insurance of the Lessor or
Lessee, or the sublessees, assignees of transferees of Lessee, the
rights of any party against the other or against the employees, agents
or licensees of any party, with respect to such damage or destruction
and with respect to any loss resulting therefrom, including the
interruption of the business of any of the parties, are hereby waived
to the extent of the coverage of said insurance, Lessor and Lessee
further agree that all policies of fire, extended coverage, business
interruption and other insurance covering the Premises or the contents
therein shall, if possible, provide that the insurance shall not be
impaired by virtue of this provision or if the insureds have waived
their right of recovery from any person or persons prior to the date
and time of loss or damage.
16. EMINENT DOMAIN.
In the event of Lessor's receipt of notice by a condemning authority's
intention to take by eminent domain a substantial part of the property on
which the leased Premises are situated, the rent shall be abated in
proportion to the amount of the Premises taken. If the taking of the
Project or Premises, or any part thereof, would prevent or materially
interfere with Lessee's use of the Premises, Lessee may terminate the Lease
by written notice to Lessor. In the event of termination of this Lease as
a result of condemnation, Lessee shall have the right to remove all of its
property and contents but shall have no right to any part of the
condemnation award, judgment or settlement, except for reasonable moving
expenses and loss leasehold, if specifically set aside for tenant
relocation by the condemning authority. The rent herein provided for shall
be prorated to the date of termination. If this Lease continues in force
upon such partial taking, the rent herein provided for shall be equitably
adjusted according to the remaining areas of the Premises.
17. RIGHT TO ENTER.
Lessor and its agents shall have the right to enter the Premises at
all reasonable hours upon reasonable notice to examine the same, to make
any repairs or improvements that it my be obligated to do under the terms
of this Lease, to exhibit said Premises for sale, and, at any time within
nine (9) calendar months before the expiration of this Lease, to exhibit
said Premises for rent and affix upon any suitable part thereof a notice
for reletting same. Routine inspections or examinations shall be preceded
by a telephone call.
18. INTENTIONALLY OMITTED.
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19. DEFAULT.
(a) All covenants and agreements herein made and obligations assumed
are to be construed also as conditions and these presents and upon
the express condition that if Lessee should fail to pay when due
any one of the aforesaid installments of rent, or if either party
should fail to perform or observe any of the covenants, agreements, or
obligations herein made or assumed, and if such default is not cured
within ten (10) days (in the case of rental installments) or thirty
(30) days (in case of other covenants, agreements or obligations
herein made or assumed) after written notice of default, then, and
thenceforth, in any of said events, this Lease may be terminated at
the option of the non-defaulting party, and said Lessor may
immediately re-enter said Premises and repossess and have the same as
if Lessor's former estate, and remove therefrom all goods and chattels
not thereto properly belonging and expel said Lessee and all other
persons who may be in possession of said Premises. In the case of
Lessee's default, Lessor shall be entitled to receive from Lessee the
difference in rental, if any, between the rental herein reserved for
the unexpired portion of the term and any lesser amount which Lessor,
in the exercise of reasonable diligence, is able to procure for the
unexpired portion of the term. In the case of Lessor's default, Lessee
may remove their goods and chattels, vacate the Premises, and upon
vacation have no further obligation for rent.
(b) The right to terminate this Lease as herein set forth is in addition
to and not in exhaustion of such other rights that a party hereto
has or causes of action that may accrue because of the other party's
failure to fulfill, perform or observe the obligations, agreements
or covenants of this Lease, and the exercise or pursuit of any of
the rights or causes of action that a party hereto might otherwise
have; and the defaulting party shall pay all attorney's fees and
expenses occasioned by the default or failure to perform any of
the obligations, covenants or provisions hereof, incurred in enforcing
any of the provisions hereof or any of the rights hereunder.
Notwithstanding any other provision of this Lease to the contrary,
Lessor and Lessee agree that neither the Lessor nor the Lessee
shall be liable or responsible for consequential damages.
20. WAIVER.
The failure of Lessor or Lessee to insist in any one or more instances
upon a strict performance of any of the covenants of this Lease shall not
be construed as a waiver or relinquishment for the future of such covenant
with respect to any subsequent breach.
21. RIGHT TO CURE DEFAULT
Either party shall have the right to cure default of any of the terms,
provisions and conditions of this Lease to be performed by the other party
after notice thereof has been given as hereinabove provided, or reasonable
notice thereof has been given if no specific provision therefor has been
made, and default has not been cured within such period of
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notice or such longer period as is reasonably necessary to remedy such
failure to cure, and to charge the defaulting party with the full cost
and expense thereof; which amount the defaulting party agrees to pay
promptly upon demand.
22. NOTICES.
All notices required under this Lease shall be deemed to be properly
served if delivered in writing personally or sent by certified mail to
Lessor at: 633 THOMPSON LANE, NASHVILLE TN 37204 ATTENTION: GARY KIMBALL
and to Lessee at 2200 East Golf Road, Des Plaines, IL 60016, Attn:
President, or to any other address which either party may designate for
such purpose. The date of service of notice served by mail shall be
three (3) business days after the date on which said notice is deposited
in a post office of the United States Postal Service, properly addressed
with sufficient first-class postage pre-paid thereon to carry same to
the destination in the foregoing address.
23. QUIET ENJOYMENT/NON-DISTURBANCE.
Lessor covenants and agrees with Lessee that upon Lessee's paying said
rent and performing all the covenants and conditions aforesaid on Lessee's
part to be observed and performed, Lessee shall and may peaceably and
quietly have, hold and enjoy the Premises hereby demised for the term
aforesaid. Lessor warrants that it is the holder of the fee title to the
Premises and Lessee acknowledges that the Premises are currently subject to
a mortgage. Lessor agrees to make commercially reasonable efforts to obtain
from Lessor's mortgagee a non-disturbance agreement for Lessee's protection
on such terms and conditions as the parties hereto mutually consent, which
consent shall not be unreasonably withheld.
In the event that Lessee is prevented from using, and does not use, the
Premises or any portion thereof, for five (5) consecutive business days
or fifteen (15) days in any twelve (12) month period (the "Eligibility
Period") as a result of any damage or destruction to the Premises or any
repair, maintenance or alteration performed by Lessor after the
Commencement Date and required or permitted by the Lease, (unless caused
by Lessee) which interferes with Lessee's use of the Premises, or any
failure to provide utilities, services or access to the Premises or
because of an eminent domain proceeding or because of the presence of
hazardous substances in, on or around the building, the Premises or the
Project which could, in Lessee's business judgment and, taking into
account the standards, guidances and recommendations with respect to
Hazardous Substances, pose a health risk to occupants of the Premises,
then Lessee's rent shall be abated or reduced, as the case may be, after
expiration of the Eligibility Period for such time that Lessee continues
to be so prevented from using, and does not use, the Premises or a
portion thereof, in the proportion that the rentable area of the portion
of the Premises that Lessee is prevented from using, and does not use,
bears to the total rentable area of the Premises. However, in the event
that Lessee is prevented from so conducting, and does not conduct, its
business in any portion of the Premises for a period of time in excess
of the Eligibility Period, and the remaining portion of the Premises is
not sufficient to allow Lessee to effectively conduct its business
therein, and if Lessee does not conduct its business from such remaining
portion, then for such time after expiration of the Eligibility Period
during which Lessee is so prevented from effectively conducting
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its business therein, the rent for the entire Premises shall be abated;
provided, however, if Lessee reoccupies and conducts its business from
any portion of the Premises during such period, the rent allocable to
such reoccupied portion, based on the proportion that the rentable area
of such portion of the Premises which was not damaged or destroyed
bears to the total rentable area of the Premises, shall be payable by
Lessee from the date such business operations commence. If Lessee's
right to abatement occurs because of an eminent domain taking and/or
because of damage or destruction to the Premises or Lessee's property,
Lessee's abatement period shall continue until Lessee has been given
sufficient time, and sufficient access to the Premises, to rebuild the
portion of the Premises it is required to rebuild, to install its
property, furniture, fixtures, and equipment and to move in. To the
extent Lessee is entitled to abatement because of an event covered by
paragraph 15 [Fire and Other Casualty] or 16 [Eminent Domain], then the
Eligibility Period shall not be applicable.
24. REAL ESTATE TAXES.
(a) Lessee shall pay to Lessor Lessee's Percentage (Lessee's Percentage
shall be that fraction (expressed as a percentage), the numerator
of which is the space in the Premises occupied by the Lessee and
the denominator of which is the space in the building (562,500
square feet)) of all real property taxes on the Property (including
any fee, taxes or assessments against, or as a result of; any
tenant improvements installed on the Premises by or for the benefit
of the Lessee during the Lease Term, and excluding any fees, taxes
or assessments against, or as a result of, any tenant improvements
installed on the Property for the benefit of any other tenant..
Lessee shall make payment to Lessor within 15 days after Lessee
receives a written statement from Lessor for such real property tax.
(b) DEFINITION OF "REAL PROPERTY TAXES", "Real Property Tax" means:
(i) any fee, license fee, license tax, business license fee,
commercial rental tax, levy, charge, assessment, penalty or
tax imposed by any taxing authority against the Premises;
(ii) any tax on the Lessor's right to receive, or the receipt of,
rent from the Premises;
(iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the
Premises by any governmental agency;
(iv) any charge or fee replacing any tax previously included
within the definition of real property tax. "Real Property
Tax: does not, however, include Lessor's federal or state
income, franchise, payroll, inheritance or estate taxes.
(c) All assessments which are not specifically charged to Lessee
because of Lessee's acts, which can be paid by Lessor in
installments, shall be paid by Lessor in the maximum number of
installments permitted by law (prior to the time that further
deferral would result in the imposition of interest or other
carrying charge) and charged as Taxes only in the year in which the
assessment installment is actually paid;
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(d) JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessor shall reasonably determine Lessee's share of the real
property tax payable by Lessee from the assessor's worksheets or
other reasonably available information. Lessee shall pay such share
to Lessor within fifteen (15) days after receipt of Lessor's
written statement.
(e) PERSONAL PROPERTY TAX.
(i) Lessee shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property
belonging to Lessee. Lessee shall try to have personal
property taxed separately from the Premises;
(ii) If any of the Lessee's personal property is taxed with the
Premises, Lessee shall pay Lessor the taxes for the personal
property taxes.
25. COMMON AREA MAINTENANCE.
Lessee shall pay Lessor, as additional rental, Lessee's Percentage (as
defined below) of all costs of operating and maintaining the common areas
applicable to the term of this Lease, including, but not limited to,
parking lot and street lighting; repairs and maintenance to the parking
lot, including cleaning and striping, snow and ice removal; the costs and
expenses of maintaining the landscaped areas (including grass cutting,
planting, fertilizer, replacing flowers and shrubbery, and repairs and
maintenance to the lawn sprinklers, if any); and electricity, water, and
sewer charges for the common areas. Such payment shall be made by Lessee
within ten (10) days after receipt of a statement showing the amount
due. "Lessee's Percentage" shall be that fraction (expressed as a
percentage), the numerator of which is the space in the Premises and the
denominator of which is all of Lessor's space in the Project.
Notwithstanding anything to the contrary in the description of common
area maintenance expenses described above, such expenses shall not
include:
(a) all costs and expenditures for which Lessor has a right to be
reimbursed, whether by insurance proceeds or otherwise, except
through Additional Rent payments by tenants:
(b) costs for repairs or other work occasioned by fire, windstorm or
other casualty for which insurance would at the time of such
casualty customarily be carried by a prudent Lessor in the
metropolitan area of Nashville;
(c) costs of improvements to leasable space in the Project;
(d) costs of relocating any tenant;
(e) costs of capital improvements or capital expenditures (except any
capital expenditures made or installed for the purpose of reducing
common area
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maintenance expenses - only to the lesser of (x) the extent of such
reductions actually achieved (without regard to the "useful life"
of such capital expenditure), or (y) the amortization of the
capital expenditure over its useful life;
(f) depreciation and amortization;
(g) interest, points and fees, on debt or amortization on or for any
mortgages encumbering the property, or any part thereof, and all
principal, escrow deposits and other sums paid on or in respect to
any indebtedness (whether or not secured by a mortgage lien) and on
any equity participations of any lender, lessor or tenant, and all
costs incurred in connection with any financing, refinancing or
syndication of the Project or building, or any part thereof;
(h) all costs relating to activities for the solicitation and execution
of leases of space in the Project, including but not limited to
tenant allowances, space planning fees, legal fees for preparing
leases and amendments to leases, rent payable with respect to any
leasing office, advertising costs and real estate brokerage and
leasing commissions;
(i) expenses incurred in enforcing obligations of other tenants of the
Project;
(j) costs of decorating, redecorating, or special cleaning of tenant
spaces not provided on a regular basis to all tenants of the
Project;
(k) wages, salaries, fees and fringe benefits paid to executive
personnel, officers or partners of Lessor;
(l) The cost of abatement of pollutants and/or hazardous substances or
materials;
(m) Fines and/or penalties incurred due to non-compliance by Lessor or
the building or any other tenant in the Project, with any law,
governmental rule or regulation or directive of any governmental
authority;
(n) The costs and expenses to Lessor in curing its defaults or
performing work expressly provided in the Lease to be borne at
Lessor's expense;
(o) the cost and expenses of correcting defects in equipment in for or
of the Premises, building or Project, or in the construction of the
building or defects in any other improvements on the Project (as
distinguished from repairs thereof in the ordinary course of
business due to normal aging of the equipment, building or the
other improvement);
(p) the cost of any work or service performed for any facility other
than the Project and the Project systems;
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(q) Any costs representing an amount paid to a person, firm,
corporation or other entity related to Lessor, or Lessor's
management company, which is in excess of the amount which would
have been paid in the absence of such relationship;
(r) any and all costs related to Hazardous Substances except to the
extent caused by Lessee.
In no event shall the Lessee's portion of common area maintenance during
the first year of the Lease Term exceed $0.10 per square foot, and in no
event shall Lessee's portion of common area maintenance expenses for any
subsequent year increase by more than 5% over Lessee's share of the
common area maintenance expenses for the preceding year.
26. ENTIRE AGREEMENT AND ENFORCEABILITY.
This Lease contains the entire agreement between Lessor and Lessee. No
representations, inducements, promises or agreement between Lessor and
Lessee as to the subject matter hereof; and not embodied herein, shall
be of any force or effect. If any provision of this Lease shall be
unenforceable, the remaining terms and provisions hereof shall not be
affected, and shall remain enforceable. If the application of any term
or provision of this Lease to any person or circumstances shall to any
extent be invalid, unenforceable, or inappropriate, such term or
provision shall remain applicable as to those persons, entities or
circumstances to which it shall be valid, enforceable and appropriate.
Each provisions of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
27. COUNTERPARTS.
This Lease may be executed in any number of counterparts, each of which
shall be deemed to be an original, and all of which together shall
compromise but a single instrument.
28. RECORDATION.
A Memorandum of lease describing the Premises, the term of this Lease,
and referring to this Lease, may be recorded by any party, and the other
parties to execute such memorandum of Lease.
29. AMENDMENT.
This Lease may not be altered, changed or amended, except by instrument
in writing and signed by the parties to this Lease. No conduct or
statement by Lessor shall constitute a cancellation, termination or
modification of this Lease, or a waiver of any provisions hereof, unless
evidenced by written instrument duly executed by Lessor.
30. HOLDING OVER.
Holding over by Lessee after the term of this Lease shall not be
construed to extend the term of the Lease or create any periodic
tenancy. in the event of any unauthorized holdingover, Lessee shall
indemnify Lessor against all claims for damages by any part to whom
Lessor shall have leased all or any portion of the Premises. The rental
for any such hold over shall be equal to the then fair market rental for
comparable property in Davidson County and Rutherford County, Tennessee.
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31. PAYMENT OF EXPENSES.
Except as otherwise expressly provided in this Lease, the parties hereto
shall bear their own expenses in connection with the execution and
performance of this Lease, including legal fees.
32. BINDING EFFECT: PRONOUNS.
This Lease shall be binding upon and inure to the benefit of Lessor, its
successors and assigns, and shall be binding upon and inure to the
benefit of Lessee, its successors and assigns and, to the extent
assignments or subletting may be permitted hereby or approved by Lessor
hereunder, such assigns or sublessees, as the case may be. The pronouns
of any gender shall include the other genders, and either the singular
or the plural shall include the other, wherever appropriate.
33. TENNESSEE CONTRACT.
The Lease is declared to be a Tennessee contract, and all of the terms
hereof shall be construed according to the laws of the State of
Tennessee. Time is of the essence of this lease.
34. PARAGRAPH HEADINGS.
The paragraph heading throughout the Lease are for convenience and
reference only, and the words contained therein shall in no way be held
to explain, modify, amplify or aid in the interpretation, construction
or meaning of the provisions of the Lease.
35. TENANT'S CERTIFICATE.
Upon the request of Lessor or any lender who holds or will be conveyed a
lien against the Premises demised herein, Lessee agrees to furnish
"estoppel certifications," (Exhibit "D") regarding the status of the
Lease, rent payments, defaults by either party, deposits or rental
payments made in advance, any claims for reimbursement by Lessee or
Lessee's rights of set-off against accruing rentals and whether Lessee
is in occupancy of the Premises and actively conducting its business
therein.
36. SECURITY DEPOSIT. Intentionally omitted.
37. BROKER'S FEE.
When this Lease is signed by and delivered to both Lessor and Lessee,
Lessor shall pay a real estate commission to Industrial Real Estate
Services LLC (Broker) as provided in the written agreement between
Lessor and Industrial Real Estate Services LLC, to be shared with
Commercial Property Services, Inc./Grubb & Ellis Company. Lessor shall
pay broker a commission if Lessee exercises any option to extend the
Lease Term or expand the Premises. Such commission shall be the amount
set forth in Lessor's and Broker's commission schedule in effect as of
the execution of this Lease. Nothing contained in this lease shall
impose any obligation on Lessor or Lessee to pay a commission or fee to
any party other than Broker and Commercial Property Services, Inc./Grubb
& Ellis Company.
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38. AGENCY DISCLOSURE; NO OTHER BROKERS.
Lessor and Lessee each warrant that they have dealt with no other real
estate brokers (s) in connection with this transaction except:
Industrial Real Estate Services LLC, who represents Lessor and Grubb &
Ellis Company/Commercial Property Services, Inc., who represent Lessee.
39. OPTION TO RENEW.
Provided that no Default by Lessee shall be continuing under this Lease,
Lessee is hereby granted two options to renew this Lease on the same
terms and conditions (except as hereinafter provided) as contained in
this Lease, such options each being for a term of five (5) years
("Option Period") commencing immediately after the expiration date of
this Lease. Lessee may exercise the option to renew by written notice
("Option Notice") to Lessor no later than 12 months prior to expiration
of the Lease Term. The annual rental for each Option Period shall be the
Prevailing Rent for industrial/distribution buildings of similar quality
and construction in Nashville's Southeast corridor at the time of the
Option Notice.
Lessor shall determine the Prevailing Rent by using its good faith
judgment. Lessor shall provide written notice of such amount within 15
days after Lessee sends the Option Notice to Lessor exercising an
extension option. Lessee shall have 30 days (the "Lessee's Review
Period") after receipt of Lessor's notice of the new rental within which
to accept such rental or to reasonably object thereto in writing. If
Lessee objects, Lessor and Lessee shall attempt to agree upon such
Prevailing Rent, using their best good faith efforts. If Lessor and
Lessee fail to reach agreement within 15 days following Lessee's Review
Period (the "Outside Agreement Date"), then each party's determination
shall be submitted to arbitration in accordance with Subsections (a)
through (e) below. Failure of Lessee to so elect in writing within the
Lessee's Review Period shall conclusively be deemed its disapproval of
the Prevailing Rent determined by Lessor. In the event that Lessor
fails to timely generate the initial written notice of Lessor's
determination of the Prevailing Rent which triggers the negotiation
period of this paragraph 39, then Lessee may commence such negotiations
by providing the initial notice, in which event Lessor shall have 15
days ("Lessor's Review Period") after receipt of Lessee's notice of the
new rental within which to accept such rental. In the event Lessor does
not affirmatively in writing consent to Lessee's proposed rental, such
proposed rental shall be deemed rejected and Lessor and Lessee shall
attempt in good faith to agree upon such Prevailing Rent, using their
best good faith efforts. If Lessor and Lessee fail to reach agreement
within 15 days following Lessor's Review Period (which shall be, in such
event, the "Outside Agreement Date" in lieu of the above definition of
such date), then each party shall place in a separate sealed envelope
their final proposal as to Prevailing Rent and such determination shall
be submitted to arbitration in accordance with subsections (a) through
(d) below.
(a) Lessor and Lessee shall meet with each other within 10 business
days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's presence.
If Lessor and Lessee do not mutually agree
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upon the Prevailing Rent within 5 business days of the exchange and
opening of envelopes, then, within 10 business days of the exchange
and opening of envelopes Lessor and Lessee shall agree upon and
jointly appoint a single arbitrator who shall by profession be a
real estate broker who shall have been active over the 5-year
period ending on the date of such appointment in the leasing of
industrial/distribution properties in the Nashville metropolitan
area. Neither Lessor nor Lessee shall consult with such broker as
to his or her opinion as to Prevailing Rent prior to the
appointment. The determination of the arbitrator shall be limited
solely to the issue of whether Lessor's or Lessee's submitted
Prevailing Rent for the Premises is the closest to the actual
Prevailing Rent for the Premises as determined by the arbitrator,
taking into account the requirements of this provision regarding
same. Such arbitrator may hold such hearings and require such
briefs as the arbitrator, in his or her sole discretion, determines
is necessary.
(b) The arbitrator shall, within 30 days of his or her appointment,
reach a decision as to whether the parties shall use Lessor's or
Lessee's submitted Prevailing Rent, and shall notify Lessor and
Lessee of such determination.
(c) The decision of the arbitrator shall be binding upon Lessor and
Lessee, except as provided below.
(d) The cost of arbitration shall be paid by Lessor and Lessee equally.
40. RIGHT OF FIRST REFUSAL.
If at any time during the first five years of the term of this Lease,
Lessor shall receive a BONA FIDE offer from any third party to lease any
available space adjacent to the Premises which Lessor is willing to
accept, Lessor shall notify Lessee and Lessee shall have the right,
within ten (10) days of receipt of the notice to accept the terms of the
offer in writing and within sixty (60) days thereafter to lease the
available premises under the rent terms specified in Lessor's offer and
otherwise under all of the terms, including but not limited to the Term
of this Lease, specified in this Lease. This Right of First Refusal is
continuing so long as Lessee is not in default under this Lease and is
in addition to Lessee's option to acquire additional space under
Paragraph 41.
41. EXPANSION OPTION.
Lessor hereby grants to Lessee the option to expand the Premises and
lease up to an additional 56,250 square feet of space to be constructed
by Lessor contiguous to the Premises ("Expansion Option"). Lessee may
exercise the Expansion Option only by 6 months' written notice thereof,
that Lessee desires to occupy the Expansion Option space commencing May
1, 2003. The rate of annual rent payable for the Expansion Option space
shall be the same rate per square foot as then in effect for the
initially leased portion of the Premises. Lessor shall construct and
improve the Expansion Option space to at least the building standard
level for the building and tenant improvement work, as it applies to
warehouse space.
18
<PAGE>
42. CANCELLATION OPTION.
Lessee shall have the sole option to terminate the Lease at the end of
the fifth year of the lease term (i.e., as of April 30, 2003) upon one
year's prior written notice to Lessor. If Lessee elects to exercise
this option it shall pay to Lessor with its final rental payment an
amount of $390,682 which represents all unamortized costs including
tenant improvement construction costs, fees, commissions, etc.
IN WITNESS WHEREOF, the respective parties hereto have entered into this
Lease as of the Effective Date.
LESSOR: Ozburn-Hessey Storage Co. LESSEE: United Stationers Supply Co.
By: By:
Its: Its:
Date: Date:
19
<PAGE>
STATE OF TENNESSEE )
)
COUNTY OF DAVIDSON )
Before me, the undersigned, a Notary Public in and for the State and County
aforesaid, personally appeared ________________________, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence)
and who, upon oath, acknowledged herself to be the __________________________
the within named bargainor, a corporation, and that she, as such officer, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the corporation by herself as such officer.
Witness my hand and official seal at Nashville, Tennessee, this ______ day
of , 1997.
Notary Public
My Commission expires:
<PAGE>
STATE OF ILLINOIS )
)
COUNTY OF COOK. )
Before me, the undersigned, a Notary Public in and for the State and
County aforesaid, personally appeared DANIEL H. BUSHELL, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence)
and who, upon oath, acknowledged himself to be the EXECUTIVE VICE PRESIDENT
AND CFO of United Stationers Supply Co., the within named bargainor, a
corporation, and that he, as such officer, being authorized so to do,
executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such officer.
Witness my hand and official seal at Des Plaines, Illinois this _____
day of , 1997.
Notary Public
My Commission expires:
___________
<PAGE>
EXHIBIT 10.85
THE UNITED STATIONERS INC.
NONEMPLOYEE DIRECTORS' DEFERRED
STOCK COMPENSATION PLAN
ARTICLE I
INTRODUCTION
I.1 ESTABLISHMENT. United Stationers, Inc. (the "Company") hereby
establishes the United Stationers Inc. Nonemployee Directors' Deferred Stock
Compensation Plan (the "Plan") for those directors of the Company who are not
employees of the Company or any of its subsidiaries or affiliates. The Plan
allows Nonemployee Directors to defer the receipt of cash compensation and to
receive such deferred compensation in the form of Shares of Common Stock of
the Company.
I.2 PURPOSE. The Plan is intended to advance the interests of the
Company and its Stockholders by providing a means to attract and retain
qualified persons to serve as Nonemployee Directors and to promote ownership
by Nonemployee Directors of a greater proprietary interest in the Company,
thereby aligning such Directors' interests more closely with the interests of
Stockholders of the Company.
I.3 EFFECTIVE DATE. The Plan shall become effective as of the
date on which the Plan is adopted by the Board of Directors (the "Effective
Date"); PROVIDED, HOWEVER, that if the Plan is not approved by a vote of the
stockholders of the Company at the next Annual Meeting the Plan and any Stock
Units credited hereunder shall terminate and any Fees deferred hereunder
shall be paid to the Directors entitled thereto.
ARTICLE II
DEFINITIONS
II.1 "ANNUAL MEETING" means the Annual Meeting of Stockholders of the
Company.
II.2 "BOARD" means the Board of Directors of the Company.
II.3 "COMMITTEE" means the Board or a committee appointed to
administer the Plan under Article IV.
II.4 "COMPANY" means United Stationers Inc., a Delaware corporation,
or any successor thereto.
II.5 "DEFERRAL DATE" means the date Fees would otherwise have been
paid to the Participant.
II.6 "DEFERRAL ELECTION" means a written election to defer Fees under
the Plan.
II.7 "DIRECTOR" means any individual who is a member of the Board.
<PAGE>
II.8 "FAIR MARKET VALUE" means the closing price for the Shares
reported on a consolidated basis on the NASDAQ National Market on the
relevant date or, if there were no sales on such date, the closing price on
the nearest preceding date on which sales occurred.
II.9 "FEES" means all or part of any retainer or meeting fees payable
in cash to a Nonemployee Director in his or her capacity as a Director. Fees
shall not include any expenses paid directly or through reimbursement.
II.10 "NONEMPLOYEE DIRECTOR" means a Director who is not, as of the
date of an Annual Meeting, an employee of the Company or any of its
subsidiaries or affiliates. For purposes of the Plan, an employee is an
individual whose wages are subject to the withholding of federal income tax
under Section 3401 of the Internal Revenue Code of 1986, as amended.
II.11 "PARTICIPANT" means a Nonemployee Director who defers Fees under
Article VI of the Plan.
II.12 "SECRETARY" means the Secretary or any Assistant Secretary of
the Company.
II.13 "SHARES" means shares of the Common Stock of the Company, par
value $.10 per share.
II.14 "STOCK UNITS" means the credits to a Participant's Stock Unit
Account under Article VI of the Plan, each of which represents the right to
receive one Share upon settlement of the Stock Unit Account.
II.15 "STOCK UNIT ACCOUNT" means the bookkeeping account established
by the Company pursuant to Section VI.5.
II.16 "TERMINATION OF SERVICE" means termination of service as a
Director for any reason.
ARTICLE III
SHARES AVAILABLE UNDER THE PLAN
Subject to adjustment as provided in Article X, the maximum number of
Shares that may be distributed in settlement of Stock Unit Accounts under the
Plan shall be 50,000. Such Shares may include authorized but unissued
Shares, Treasury Shares or Shares that have been reacquired by the Company.
ARTICLE IV
ADMINISTRATION
The Plan shall be administered by the Board or such other committee as
may be designated by the Board. The Committee shall have the authority to
make all determinations it deems necessary or advisable for administering the
Plan, subject to the express provisions of the Plan. Notwithstanding the
foregoing, no Director who is a Participant under the Plan shall participate
in any determination relating solely or primarily to his or her own Shares,
Stock Units or Stock Unit Account.
<PAGE>
ARTICLE V
ELIGIBILITY
Each person who is a Nonemployee Director on a Deferral Date shall be
eligible to defer Fees payable on such date in accordance with Article VI of
the Plan. If any Nonemployee Director subsequently becomes an employee of
the Company or any of its subsidiaries, but does not incur a Termination of
Service, such Director shall continue as a Participant with respect to Fees
previously deferred, but shall cease eligibility with respect to all future
Fees, if any, earned while an employee.
ARTICLE VI
DEFERRAL ELECTIONS IN LIEU OF CASH PAYMENTS
VI.1 GENERAL RULE. Each Nonemployee Director may, in lieu of receipt
of Fees, defer any or all of such Fees in accordance with this Article VI,
provided that such Nonemployee director is eligible under Article V of the
Plan to defer such Fees at the date any such Fees are otherwise payable. A
Director may elect to defer a percentage (of not less than 50% and in 5%
increments up to 100%) of his or her Fees.
VI.2 TIMING OF ELECTION. Each Nonemployee Director who is serving on
the Board on the Effective Date may make a Deferral Election at any time
within 30 days of the Effective Date. Any person who is not then serving as
a Nonemployee Director may make a Deferral Election before the first date on
which he or she is entitled to receive Fees. A Nonemployee Director who does
not make a Deferral Election when first eligible to do so may make a Deferral
Election at any time before the first day of any subsequent calendar year.
VI.3 EFFECT AND DURATION OF ELECTION. A Deferral Election shall
apply to Fees payable after the date such election is made and shall be
deemed to be continuing and applicable to all Fees payable in subsequent
calendar years, unless the Participant revokes or modifies such election by
filing a new election form before the first day of any subsequent calendar
year, effective for all Fees payable on and after the first day of such
calendar year.
VI.4 FORM OF ELECTION. A Deferral Election shall be made in a manner
satisfactory to the Committee. Generally, a Deferral Election shall be made
by completing and filing the specified election form with the Secretary or
his or her designee within the period described in Section VI.2 or Section
VI.3.
VI.5 ESTABLISHMENT OF STOCK UNIT ACCOUNT. The Company shall
establish a Stock Unit Account for each Participant. All Fees deferred
pursuant to this Article VI shall be credited to the Participant's Stock Unit
Account as of the Deferral Date and converted to Stock Units. The number of
Stock Units credited to a Participant's Stock Unit Account as of a Deferral
Date shall equal the amount of the deferred Fees divided by the Fair Market
Value of a Share on such Deferral Date, with fractional units calculated to
three decimal places. Fractional Stock Units shall be credited cumulatively,
but any fractional Stock Unit in a Participant's Stock Unit Account at the
time of a distribution under Article VII shall be converted into cash equal
to the Fair Market Value of a corresponding fractional Share on the date of
distribution.
<PAGE>
VI.6 CREDITING OF DIVIDEND EQUIVALENTS. As of each dividend payment
date with respect to Shares, each Participant shall have credited to his or
her Stock Unit Account a dollar amount equal to the amount of cash dividends
that would have been paid on the number of Shares equal to the number of
Stock Units credited to the Participant's Stock Unit Account as of the close
of business on the record date for such dividend. Such dollar amount shall
then be converted into a number of Stock Units equal to the number of whole
and fractional Shares that could have been purchased with such dollar amount
at Fair Market Value on the dividend payment date.
ARTICLE VII
SETTLEMENT OF STOCK UNITS
VII.1 TIMING OF PAYMENT. A Participant shall receive or begin
receiving a distribution of his or her Stock Unit Account in the manner
described in Section VII.2 either (i) on or as soon as administratively
feasible after the first day of the second calendar month immediately
following the month in which the Participant incurs a Termination of Service
(but not less than six months after the Participant has made a Deferral
Election), or (ii) if the Participant has made an election to defer payment
in accordance with this Section, on or as soon as administratively feasible
after January 1 of the year immediately following the date on which the
Participant incurs a Termination of Service. A Participant must deliver an
election to defer the distribution or commencement of distribution to the
Secretary or his or her designee at least 6 months before the date on which
the Participant incurs a Termination of Service.
VII.2 PAYMENT OPTIONS. A Deferral Election filed under Article VI
shall specify whether the Participant's Stock Unit Account is to be settled
by delivering to the Participant the number of Shares equal to the number of
whole Stock Units then credited to the Participant's Stock Unit Account, in
either (i) a lump sum, or (ii) substantially equal annual installments over a
period not to exceed 5 years. Any fractional Stock Unit credited to a
Participant's Stock Unit Account at the time of a distribution shall be paid
in cash at the time of such distribution. A Participant may change the
manner in which his or her Stock Unit Account is distributed by delivering a
new election form to the Secretary or his or her designee at least 6 months
before the date on which the Participant incurs a Termination of Service.
VII.3 PAYMENT UPON DEATH OF A PARTICIPANT. If a Participant dies
before the entire balance of his or her Stock Unit Account has been
distributed, the balance of the Participant's Stock Unit Account shall be
paid in cash, in a lump sum as soon as administratively feasible after the
Participant's death, to the beneficiary designated by the Participant under
Article IX.
VII.4 CONTINUATION OF DIVIDEND EQUIVALENTS. If payment of Stock Units
is deferred pursuant to Section VII.2, the Participant's Stock Unit Account
shall continue to be credited with dividend equivalents as provided in
Section VI.6 until the entire balance of the Participant's Stock Unit Account
has been distributed.
ARTICLE VIII
UNFUNDED STATUS
VIII.1 GENERAL. The interest of each Participant in any Fees deferred
under the Plan
<PAGE>
(and any Stock Units or Stock Unit Account relating thereto) shall be that of
a general creditor of the Company. Stock Unit Accounts, and Stock Units
credited thereto, shall at all times be maintained by the Company as
bookkeeping entries evidencing unfunded and unsecured general obligations of
the Company. Except as provided in Section VIII.2, no money or other assets
shall be set aside for any Participant.
VIII.2 TRUST. To the extent determined by the Board, the Company may
transfer funds necessary to fund all or part of the payments under the Plan
to a trust; provided, the assets held in such trust shall remain at all times
subject to the claims of the general creditors of the Company. No participant
or beneficiary shall have any interest in the assets held in such trust or in
the general assets of the Company other than as a general, unsecured
creditor. Accordingly, the Company shall not grant a security interest in the
assets held by the trust in favor of any Participant, beneficiary or creditor.
ARTICLE IX
DESIGNATION OF BENEFICIARY
Each Participant may designate, on a form provided by the Committee, one
or more beneficiaries to receive payment of the Participant's Stock Unit
Account in the event of such Participant's death. The Company may rely upon
the beneficiary designation list filed with the Committee, provided that such
form was executed by the Participant or his or her legal representative and
filed with the Committee prior to the Participant's death. If a Participant
has not designated a beneficiary, or if the designated beneficiary is not
surviving when a payment is to be made to such person under the Plan, the
beneficiary with respect to such payment shall be the Participant's surviving
spouse, or if there is no surviving spouse, the Participant's estate.
ARTICLE X
ADJUSTMENT PROVISIONS
In the event any recapitalization, reorganization, merger,
consolidation, spin-off combination, repurchase, exchange of Shares or other
securities of the Company, stock split or reverse split, or similar corporate
transaction or event affects Shares such that an adjustment is determined by
the Board or Committee to be appropriate to prevent dilution or enlargement
of Participants' rights under the Plan, then the Board or Committee shall, in
a manner that is proportionate to the change to the Shares and is otherwise
equitable, adjust the number or kind of Shares to be delivered upon
settlement of Stock Unit Accounts under Article VII.
ARTICLE XI
GENERAL PROVISIONS
XI.1 NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan
will confer upon any Participant or beneficiary any rights of a Stockholder
of the Company, unless and until Shares are in fact issued or transferred to
such Participant or beneficiary in accordance with Article VII.
<PAGE>
XI.2 CHANGES TO THE PLAN. The Board may amend, alter, suspend,
discontinue, extend, or terminate the Plan without the consent of
Stockholders or Participants; provided, no action taken without the consent
of an affected Participant may materially impair the rights of such
Participant with respect to any Stock Units credited to his or her Stock Unit
Account at the time of such change or termination.
XI.3 COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be
obligated to issue or deliver Shares in connection with the Plan in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, or any other federal or state securities law, any
requirement under any listing agreement between the Company and any national
securities exchange or automated quotation system or any other laws,
regulations, or contractual obligations of the Company, until the Company is
satisfied that such laws, regulations and other obligations of the Company
have been complied with in full. Certificates representing Shares delivered
under the Plan will be subject to such restrictions as may be applicable
under such laws, regulations and other obligations of the Company.
XI.4 LIMITATIONS ON TRANSFERABILITY. Stock Units and any other right
under the Plan will not be transferable by descent and distribution (or to a
designated beneficiary in the event of a Participant's death), Stock Units
and other rights under the Plan may not be pledged, mortgaged, hypothecated
or otherwise encumbered, and shall not be subject to the claims of creditors
of any Participant.
XI.5 GOVERNING LAW. The validity, construction and effect of the
Plan and any agreement hereunder will be determined in accordance with (i)
the Delaware General Corporation Law, and (ii) to the extent applicable,
other laws (including those governing contracts) of the State of Illinois.
XI.6 PLAN TERMINATION. Unless earlier terminated by action of the
Board, the Plan will remain in effect until such time as no Shares remain
available for delivery under the Plan and the Company has no further rights
or obligations under the Plan.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
SUBSIDIARIES OF UNITED STATIONERS INC.
United Stationers Supply Co., an Illinois corporation
SUBSIDIARIES OF UNITED STATIONERS SUPPLY CO.
United Stationers Hong Kong Limited, a Hong Kong corporation
United Worldwide Limited, a Hong Kong corporation
Lagasse Bros., Inc., a Louisiana corporation
SAH, Inc., an Illinois corporation
CJS/GT Corp., a Georgia corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-02247) of United Stationers Inc. and in the related
Prospectus of our report dated January 27, 1998, with respect to the
consolidated financial statements of United Stationers Inc. and Subsidiaries,
included in this Annual Report (Form 10-K) for the year ended December 31,
1997.
/S/ ERNST & YOUNG LLP
Chicago, Illinois
March 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000355999
<NAME> UNITED STATIONERS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,367
<SECURITIES> 0
<RECEIVABLES> 304,849
<ALLOWANCES> 7,071
<INVENTORY> 511,555
<CURRENT-ASSETS> 850,687
<PP&E> 237,242
<DEPRECIATION> (72,699)
<TOTAL-ASSETS> 1,148,021
<CURRENT-LIABILITIES> 399,238
<BONDS> 0
0
0
<COMMON> 1,591
<OTHER-SE> 221,717
<TOTAL-LIABILITY-AND-EQUITY> 1,148,021
<SALES> 2,558,135
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<CGS> 2,112,204
<TOTAL-COSTS> 2,112,204
<OTHER-EXPENSES> 375,700
<LOSS-PROVISION> 2,502
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<INCOME-PRETAX> 16,720
<INCOME-TAX> 8,532
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<DISCONTINUED> 0
<EXTRAORDINARY> (5,884)
<CHANGES> 0
<NET-INCOME> 2,304
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY CO.
<MULTIPLIER> 1,000
<S> <C>
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