<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
UNITED STATIONERS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5112 36-3141189
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
<TABLE>
<S> <C>
2200 EAST GOLF ROAD RANDALL W. LARRIMORE
DES PLAINES, ILLINOIS 60016-1267 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(847) 699-5000 2200 EAST GOLF ROAD
(address, including zip code, and DES PLAINES, ILLINOIS 60016-1267
telephone number, including area code, (847) 699-5000
of registrant's principal executive FAX: (847) 297-2410
offices) (Name, address, including zip code,
and telephone number, including area
code, of agent for service)
</TABLE>
COPIES TO:
<TABLE>
<S> <C>
Mary R. Korby Michael M. Boone
Weil, Gotshal & Manges LLP Haynes and Boone, LLP
100 Crescent Court, Suite 1300 901 Main Street, Suite 3100
Dallas, Texas 75201-6950 Dallas, Texas 75202
(214) 746-7700 (214) 651-5000
Fax: (214) 746-7777 Fax: (214) 651-5940
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered in
connection with dividend or reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- --------
If this Form is post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- --------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.10 per share.... 2,667,330(1) $62.375 $166,374,709 $49,081
</TABLE>
(1) Includes 347,912 shares that are to be sold upon exercise of the
Underwriters' over-allotment option.
(2) Estimated pursuant to Rule 457(c) solely for purposes of calculating the
registration fee, based upon the average of the high and low sale prices of
such Common Stock as reported by the Nasdaq National Market on May 5, 1998.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 8, 1998
PROSPECTUS
2,319,418 SHARES
[LOGO]
COMMON STOCK
Of the 2,319,418 shares of common stock, par value $0.10 per share (the
"Common Stock"), offered hereby, 1,750,000 shares are being offered by United
Stationers Inc. (the "Company" or "United Stationers") and 569,418 shares are
being offered by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"USTR." On May 6, 1998, the last reported sale price of the Common Stock, as
reported on the Nasdaq National Market, was $62.75 per share. See "Price Range
of Common Stock and Dividend Policy."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters (as defined) against certain liabilities, including liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
See "Underwriting."
(2) Before deducting expenses payable by the Company (including certain expenses
payable on behalf of the Selling Stockholders), estimated at $
(excluding an expense reimbursement of $ payable by the Underwriters to
the Company).
(3) The Company has granted the Underwriters an option exercisable within 30
days hereof to purchase up to an additional 347,912 shares of Common Stock
on the same terms and conditions as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made against payment therefor on or about
, 1998 at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York 10167.
---------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY DEAN WITTER
CLEARY GULL REILAND & MCDEVITT INC.
The date of this Prospectus is , 1998
<PAGE>
[MAP ENTITLED "DISTRIBUTION NETWORK"]
[PHOTOGRAPHS OF PRODUCTS AND CATALOGS]
[CHART ENTITLED "THE COMPANY'S ROLE IN THE BUSINESS PRODUCTS INDUSTRY"]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ALSO ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."
United Stationers-Registered Trademark- is a registered trademark and service
mark of the Company.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (as it may be amended, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, which may be inspected without charge at the public
reference facility maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of which may be obtained from the Commission
at prescribed rates. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected without charge and copied, at
prescribed rates, at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 2549, and the
Regional Offices of the Commission at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048. Such material may also be accessed electronically by means of the
Commission's web site on the Internet at http://www.sec.gov.
The Common Stock is listed on the Nasdaq National Market, and such reports,
proxy statements and other information can also be inspected and copied at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference documents that are not presented
herein or delivered herewith. The Company undertakes to provide without charge
to each person to whom a copy of this Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents incorporated by reference herein, other than the exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates. Written or oral requests for
such copies should be directed to: United Stationers Inc., 2200 East Golf Road,
Des Plaines, Illinois 60016-1267, Attention: Investor Relations, telephone
number (847) 699-5000.
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. The Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders filed on April 3, 1998;
3. The Company's Quarterly Report on Form 10-Q for the first quarter ended
March 31, 1998;
4. The Company's Current Reports on Form 8-K filed on March 17, 1998, April
20, 1998 and April 28, 1998;
5. The description of the Company's Common Stock in Item 1 of the Company's
Registration Statement on Form 8-A filed on September 7, 1982; and
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6. All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to
the termination of the Offering shall be deemed to be incorporated herein
by reference and to be a part hereof from the date of filing of such
documents.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in this Prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. EXCEPT AS OTHERWISE
NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING." AS USED IN THIS
PROSPECTUS, UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES,
REFERENCES HEREIN TO THE "OFFERING" MEAN THE OFFERING OF COMMON STOCK PURSUANT
TO THIS PROSPECTUS, AND REFERENCES HEREIN TO THE "COMPANY" OR "UNITED
STATIONERS" INCLUDE (I) UNITED STATIONERS INC. ("UNITED"), AND ITS DIRECT AND
INDIRECT SUBSIDIARIES, INCLUDING UNITED STATIONERS SUPPLY CO. ("USSC"), THE
OPERATING SUBSIDIARY OF THE COMPANY, AND (II) THE BUSINESS CONDUCTED BY UNITED,
USSC, ASSOCIATED HOLDINGS, INC. ("ASSOCIATED") AND ASSOCIATED STATIONERS, INC.
("ASI"), THE OPERATING SUBSIDIARY OF ASSOCIATED, PRIOR TO THE MERGERS OF
ASSOCIATED WITH UNITED AND ASI WITH USSC ON MARCH 30, 1995 (COLLECTIVELY, THE
"MERGER"). EXCEPT AS OTHERWISE INDICATED, (I) THE PRO FORMA FINANCIAL
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997 GIVES EFFECT TO THE OFFERING
(INCLUDING THE APPLICATION OF THE NET PROCEEDS TO THE COMPANY THEREFROM), THE
NOTES OFFERING (AS DEFINED) (INCLUDING THE APPLICATION OF THE NET PROCEEDS
THEREFROM), THE AZERTY ACQUISITION (AS DEFINED) AND THE SENIOR CREDIT FACILITIES
REFINANCING (AS DEFINED) AS IF EACH SUCH TRANSACTION HAD OCCURRED ON JANUARY 1,
1997 AND (II) THE SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION FOR THE YEAR
ENDED DECEMBER 31, 1997 GIVES EFFECT TO THE OCTOBER EQUITY OFFERING (AS DEFINED)
(INCLUDING THE APPLICATION OF THE NET PROCEEDS TO THE COMPANY THEREFROM), THE
PREFERRED STOCK REDEMPTION (AS DEFINED), THE OFFERING (INCLUDING THE APPLICATION
OF THE NET PROCEEDS TO THE COMPANY THEREFROM), THE NOTES OFFERING (INCLUDING THE
APPLICATION OF THE NET PROCEEDS THEREFROM), THE AZERTY ACQUISITION, THE SENIOR
CREDIT FACILITIES REFINANCING, THE MANAGEMENT AGREEMENTS TERMINATION (AS
DEFINED) AND THE COMPUTER SERVICES CONTRACT WRITE-OFF (AS DEFINED), AS IF EACH
SUCH TRANSACTION HAD OCCURRED ON JANUARY 1, 1997.
THE COMPANY
United Stationers is the largest broad line wholesale distributor of
business products in North America, with annual sales of more than twice its
next largest competitor. The Company offers more than 35,000 stockkeeping units
("SKUs"), including traditional office products, office furniture, information
technology products, facilities management supplies and janitorial and
sanitation supplies. The Company's customer base is comprised of more than
20,000 resellers, including office products dealers, office furniture dealers,
office products superstores, mass merchandisers, computer products resellers,
mail order companies and sanitary supply distributors. United Stationers serves
its customers through integrated nationwide networks of 41 business products
distribution centers, 18 janitorial and sanitation distribution centers and five
information technology products distribution centers. In addition to its broad
product offering, the Company provides value-added marketing and logistics
services to both manufacturers and resellers. For the year ended December 31,
1997, the Company's net sales and operating income were $2.6 billion and $70.2
million (after non-recurring charges of $64.7 million), respectively, and the
Company's supplemental pro forma net sales and operating income were $2.9
billion and $148.5 million, respectively.
The Company estimates that the U.S. business products industry generated
sales of more than $120 billion in manufacturers' shipments in 1996 (based on
independent industry sources). In recent years, this industry has experienced
significant consolidation at all levels of the supply chain, including
manufacturers, wholesalers and resellers. During this period, the Company has
strengthened its competitive position by: (i) leveraging its significant scale;
(ii) emphasizing cost-effective operations and systems; (iii) stocking the
broadest range of business products in the industry; and (iv) providing a high
level of customer service, including quick and accurate order fulfillment and
consistent on-time order delivery. Throughout this consolidation, the Company
has successfully maintained relationships with a diverse customer base, with no
single reseller accounting for more than 6% of the Company's pro forma net sales
in 1997.
As competition within the business products industry has increased,
resellers have focused on broadening their product offerings on a cost-effective
basis as well as providing high in-stock order fill rates with same day and
overnight delivery to end users. A primary goal of the Company is to be the
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<PAGE>
reseller's "partner of choice" by assisting resellers in achieving these
objectives and enabling them to increase their own profitability and return on
assets. United Stationers offers one-stop shopping to its customers by providing
a comprehensive inventory of products from more than 550 manufacturers. As the
Company's product line is much larger and broader than that which resellers can
economically stock themselves, resellers can rely on the Company to offer safety
stock (inventory back-up on high volume items) and to stock certain
slower-moving, generally higher margin products. As a result of volume
purchasing, the Company often qualifies for better pricing and terms than are
available to resellers. In addition, the Company can offer significantly lower
minimum order quantities than are available to resellers directly from
manufacturers.
United Stationers also provides a broad range of value-added services to
resellers. The Company produces catalogs (available in paper form, on CD-ROM and
through the Company's web site) for its resellers to customize and use as
consumer marketing tools. For the 1998 catalog season, the Company circulated
more than 10 million broad line and specialized catalogs. The Company's order
entry systems allow resellers to place orders electronically with the Company,
thereby increasing a reseller's efficiency. Further, the Company is able to
deliver pre-sold products directly to the reseller's customers or to the
reseller for delivery to the end user without further packaging. Through its
state-of-the-art information systems and integrated nationwide networks of
distribution centers, the Company has been able to achieve a high order fill
rate, which is an important benefit to resellers in providing timely deliveries
to end users. All of these services are provided in such a manner that the end
user has no knowledge of the Company's role in the supply chain, as all catalogs
and packaging are customized with the name of the reseller, allowing the
reseller to maintain and foster end-user relationships. By utilizing the
Company's services and products, resellers have begun to realize the economic
value of reducing the number of SKUs they carry and are increasingly relying
upon the Company for direct order fulfillment. The Company believes that this
trend of "de-stocking" by resellers will continue.
United Stationers is an integral part of the supply chain for resellers.
Additionally, manufacturers value the Company as both a cost-effective
distribution channel and as a sales outlet that provides broad geographic
exposure for their products. United Stationers also facilitates the introduction
of new products by manufacturers through the use of the Company's widely
distributed marketing materials. By serving as a distribution channel for
manufacturers, the Company assumes credit risk and cost-effectively breaks down
bulk shipments into individual orders for overnight delivery, allowing
manufacturers to realize efficiencies in order administration, warehousing and
freight costs. Manufacturers also rely on the Company to reach smaller resellers
who are not large enough to purchase directly due to their small order sizes and
the related high delivery costs.
BUSINESS STRATEGY
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution, the
Company believes its role as a wholesaler will continue to expand and that it
can achieve above industry-average growth rates by:
CAPTURING A GREATER SHARE OF EXISTING CUSTOMERS' PURCHASES. The Company
believes that it has the opportunity to capture a portion of the sales of
business products currently sold directly by manufacturers to resellers without
wholesaler involvement. Management estimates that approximately 20% of
manufacturers' shipments of business products move through wholesalers. The
Company believes that as resellers intensify their focus on asset management,
return on investment and inventory efficiency, they will continue de-stocking
and increasingly rely on United Stationers' products and services to meet
end-user requirements for a high order fill rate for a broad product assortment
available on an overnight basis.
EXPANDING ITS CUSTOMER BASE. The Company plans to continue to expand its
customer base by: (i) maintaining and building its business with commercial
dealers and contract stationers; (ii) developing additional programs for
marketing and buying groups; (iii) continuing to focus on complementary markets,
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<PAGE>
including specialty dealers; and (iv) expanding geographically, both within the
United States and, potentially, internationally.
OFFERING A BROADER LINE OF PRODUCTS AND SERVICES. The Company's product
line expansion plans include developing its newer product categories, such as
office furniture, computer supplies and peripherals, facilities management
supplies and janitorial and sanitation supplies as well as potentially offering
new products or services. The Company also plans to continue to expand its line
of private brand products.
CAPITALIZING ON CROSS-SELLING OPPORTUNITIES. The Company believes that its
various products and services are complementary and that there are significant
opportunities to cross-sell to existing customers. By implementing this
strategy, management believes the Company can enhance sales as resellers
purchase a broader selection of products offered by the Company, thereby
reducing end-user procurement costs and enhancing reseller profitability.
INCREASING TECHNOLOGICAL CAPABILITIES AND UTILIZING ELECTRONIC
COMMERCE. The Company intends to continue to invest in information systems
enhancements and customer interfaces that management believes will allow it to
capture a growing percentage of its customers' business. In addition, as the
Internet becomes increasingly important as a marketing channel, the Company is
positioned to participate in this trend with direct, on-line access by its
resellers to its 25,000 SKU general line catalog.
MAKING STRATEGIC ACQUISITIONS. The Company believes it can enhance its
growth by continuing to make strategic acquisitions. For example, the
acquisition of Lagasse Bros., Inc. ("Lagasse") in 1996 substantially increased
the Company's position in the janitorial and sanitation supplies product
category. The Company believes that the Azerty Acquisition also will expand its
product offerings and will make the Company one of the largest distributors of
computer consumable supplies in the United States. The Company intends to
continue, from time to time, to pursue acquisitions that expand its customer
base, increase its geographic reach and/or broaden its product offering.
RECENT TRANSACTIONS
AZERTY ACQUISITION
On April 3, 1998, the Company completed the acquisition of all of the
capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive
ID Wholesale Inc., and AP Support Services Incorporated (collectively, the
"Azerty Acquisition"), which together comprised substantially all of the United
States and Mexican operations of the Office Products Division of
Abitibi-Consolidated Inc. (collectively, the "Azerty Business"). The aggregate
purchase price paid by the Company for the Azerty Business was approximately
$115.1 million (including fees and expenses), following an initial post-closing
adjustment and subject to final audit and review by the Company. The Azerty
Business is primarily a specialty wholesaler of computer consumables,
peripherals and accessories in the United States and Mexico. It is currently
anticipated that the Company's existing Micro United division will be integrated
with the Azerty Business. For the fiscal year ended December 31, 1997, the
Azerty Business had combined net sales and pro forma operating income of $355.4
million and $9.7 million, respectively. See "Recent Transactions--Azerty
Acquisition."
The purchase price for the Azerty Business was funded from borrowings under
the Company's New Credit Facilities (as defined). See "--Senior Credit
Facilities Refinancing--The New Credit Facilities."
SENIOR CREDIT FACILITIES REFINANCING
THE NEW CREDIT FACILITIES
On April 3, 1998, in order to fund the purchase price of the Azerty
Business, refinance borrowings under the Company's then-existing senior secured
credit facilities (the "Existing Credit Facilities"), and pay related fees and
expenses in connection therewith, the Company amended and restated its existing
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credit agreement (as amended and restated, the "New Credit Agreement") governing
its senior secured credit facilities (the "New Credit Facilities"). The New
Credit Facilities initially consisted of a $250.0 million six year revolving
credit facility (the "Revolving Credit Facility"), a $150.0 million six year
tranche A term loan facility (the "Tranche A Term Loan Facility"), and a $100.0
million six and three-quarter year tranche B term loan facility (the "Tranche B
Term Loan Facility"). The net proceeds of the Notes Offering were used to
permanently repay a substantial portion of indebtedness outstanding under the
Tranche B Term Loan Facility and the remainder of such facility was permanently
repaid with proceeds from the sale of certain receivables, following which the
Tranche B Term Loan Facility was terminated. As a result of the early retirement
of the Existing Credit Facilities, approximately $9.5 million ($5.7 million net
of tax benefit of $3.8 million) of unamortized financing fees will be expensed
as a non-cash extraordinary charge during the second quarter of 1998. See
"Recent Transactions--New Credit Facilities" and "Description of Certain
Indebtedness--New Credit Facilities."
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into a $163.0 million 364-day liquidity facility
(the "Receivables Securitization Program"), pursuant to which the Company sells
all of its U.S. dollar trade receivables (the "Eligible Receivables") (except
for certain excluded receivables, which initially includes all receivables from
the Azerty Business and Lagasse) to a wholly-owned offshore bankruptcy-remote
subsidiary of the Company (the "Receivables Company"). The Receivables Company
then transfers the Eligible Receivables to a third-party, multi-seller
asset-backed commercial paper program existing solely for the purpose of issuing
commercial paper rated A-1/P-1 or higher. The Company received approximately
$160.0 million in proceeds from the initial sale of Eligible Receivables on
April 3, 1998. The proceeds to the Company from the Receivables Securitization
Program were used to reduce borrowings under the Revolving Credit Facility and
repay a portion of the Tranche B Term Loan Facility. See "Recent
Transactions--Receivables Securitization Program."
The refinancing of the Company's Existing Credit Facility pursuant to the
New Credit Facilities and the Receivables Securitization Program is collectively
referred to in this Prospectus as the "Senior Credit Facilities Refinancing."
THE NOTES OFFERING
On April 15, 1998, USSC consummated the sale (the "Notes Offering") of
$100.0 million of its 8 3/8% Senior Subordinated Notes due 2008 (the "8 3/8%
Notes") in a transaction not subject to the registration requirements of the
Securities Act. The 8 3/8% Notes were immediately resold by the initial
purchasers thereof in reliance on Rule 144A under the Securities Act. The
aggregate net proceeds to the Company (approximately $97.0 million) from the
sale of the 8 3/8% Notes were used to repay a substantial portion of the
indebtedness outstanding under the Tranche B Term Loan Facility. See "Recent
Transactions--The Notes Offering."
COMPUTER SERVICES CONTRACT WRITE-OFF
In May 1998, the Company will write off (the "Computer Services Contract
Write-Off") the remaining term of a contract for the provision of computer
services (as amended, the "Computer Services Contract"), which is scheduled to
expire in July 2002. Management has recently determined that the Computer
Services Contract has no future value to the Company. As a result of the
Computer Services Contract Write-Off, the Company will take a $13.9 million
non-recurring pre-tax charge ($8.3 million net of tax benefit of $5.6 million)
to write-off the remaining payments and related prepaid expense under the
Computer Services Contract. The Company anticipates that the savings from this
write-off will be approximately $3.2 million annually. See "Recent
Transactions--Computer Services Contract Write-Off" and "Unaudited Consolidated
Pro Forma Financial Statements."
8
<PAGE>
OCTOBER EQUITY OFFERING
On October 10, 1997, United completed an offering of 5,400,000 shares of
Common Stock (the "October Equity Offering"), consisting of 2,000,000 primary
shares sold by the Company, and 3,400,000 secondary shares sold by certain
selling stockholders. The aggregate proceeds to United of $72.2 million were
contributed to USSC and used to (i) repurchase $50.0 million principal amount of
the Company's existing 12 3/4% Senior Subordinated Notes due 2005 (the "12 3/4%
Notes") and pay the redemption premium thereof of approximately $6.4 million,
(ii) reduce indebtedness under the Company's Existing Credit Facilities by $15.5
million and (iii) pay related fees and expenses. The repayment of indebtedness
from the proceeds of the October Equity Offering resulted in an extraordinary
loss on the early extinguishment of indebtedness of $9.8 million ($5.9 million
net of tax benefit of $3.9 million). In addition, in the fourth quarter of 1997,
the Company recognized a pre-tax non-recurring non-cash charge of $59.4 million
($35.5 million net of tax benefit of $23.9 million) related to the vesting of
Merger Incentive Options (as defined), and a non-recurring cash charge of $5.3
million ($3.2 million net of tax benefit of $2.1 million) related to the
Management Agreements Termination.
------------------------
The principal executive offices of the Company are located at 2200 East Golf
Road, Des Plaines, Illinois 60016-1267 and its telephone number at such location
is (847) 699-5000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 1,750,000 shares
Common Stock offered by the Selling
Stockholders(1).................................... 569,418 shares
Common Stock to be outstanding after the
Offering(2)........................................ 18,377,191 shares
Use of Proceeds...................................... To repay certain outstanding
indebtedness. See "Use of Proceeds."
Nasdaq National Market symbol........................ USTR
</TABLE>
- ------------------------
(1) Includes 466,496 shares of Common Stock to be issued and sold by the Selling
Stockholders upon exercise of certain Employee Stock Options by the Selling
Stockholders in connection with the Offering. See "Principal and Selling
Stockholders."
(2) Based on the number of shares outstanding at May 6, 1998. Does not include
(i) 1,273,339 shares of Common Stock issuable upon exercise of employee
stock options ("Employee Stock Options") granted to certain employees and
directors of the Company pursuant to the Company's 1992 Management Equity
Plan, as amended (the "Management Equity Plan"), that the Company expects to
be outstanding following the consummation of the Offering, (ii) 1,547 shares
issuable upon exercise of certain warrants to purchase Common Stock (the
"Warrants") or (iii) 50,000 shares issuable under the Non-Employee
Directors' Deferred Compensation Plan. See "Description of Capital Stock."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" beginning on page 13 for risks involved
with an investment in the Common Stock offered hereby.
9
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares
of pre-Merger United common stock pursuant to a tender offer (the "Tender
Offer"). Immediately thereafter, Associated merged with and into United, and
ASI, a wholly owned subsidiary of Associated, merged with and into USSC, a
wholly owned subsidiary of United. Although United was the surviving corporation
in the Merger, the transaction was treated as a reverse acquisition for
accounting purposes, with Associated deemed the acquiring corporation.
Therefore, the historical income statement and other data for the year ended
December 31, 1995 reflect the financial information of Associated only for the
three months ended March 30, 1995, and the results of the post-Merger United for
the nine months ended December 31, 1995.
Set forth below are (i) summary historical financial data, (ii) summary 1995
supplemental pro forma data, (iii) summary pro forma data reflecting the Senior
Credit Facilities Refinancing, the Azerty Acquisition, the Notes Offering (and
the application of the net proceeds to the Company therefrom), and the Offering
(and the application of the net proceeds to the Company therefrom), (iv) summary
1997 supplemental pro forma data reflecting the October Equity Offering (and the
application of the net proceeds to the Company therefrom), the termination of
certain management advisory service agreements effected in October 1997 (see
note 13 to the Consolidated Financial Statements of United included elsewhere
herein) (the "Management Agreements Termination"), the redemption of all of
United's outstanding shares of Series A Preferred Stock, $0.01 par value
("Series A Preferred Stock"), and Series C Preferred Stock, $0.01 par value
("Series C Preferred Stock" and, collectively with the Series A Preferred Stock,
the "Preferred Stock"), for approximately $21.3 million, which was effected in
September 1997 (the "Preferred Stock Redemption" and, collectively with the
October Equity Offering and the Management Agreements Termination, the "1997
Financing Transactions"), the cost savings associated with, the Computer
Services Contract Write-Off, the Senior Credit Facilities Refinancing, the
Azerty Acquisition, the Notes Offering (and the application of the net proceeds
to the Company therefrom) and the Offering (and the application of the net
proceeds to the Company therefrom) and (v) summary supplemental pro forma data
for the three months ended March 31, 1998 reflecting the cost savings associated
with the Computer Services Contract Write-Off, Senior Credit Facilities
Refinancing, the Azerty Acquisition, the Notes Offering (and the application of
net proceeds to the Company therefrom) and the Offering (and the application of
the net proceeds to the Company therefrom). The summary 1995 supplemental pro
forma data, the pro forma data and the supplemental pro forma data are intended
for informational purposes only and are not necessarily indicative of either
financial position or results of operations in the future, or those that would
have occurred had the events described below occurred on the indicated dates as
described elsewhere herein. The following information should be read in
conjunction with, and is qualified in its entirety by, "Selected Consolidated
Financial Data," "Unaudited Consolidated Pro Forma Financial Statements," and
related notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company, together with the related notes thereto, included herein.
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA
DECEMBER 31, 1995 YEAR ENDED YEAR ENDED
------------------------------ DECEMBER 31, DECEMBER 31,
UNITED SUPPLEMENTAL ----------------------------- --------------
HISTORICAL PRO FORMA(1) 1996 1997 1997(2)
-------------- -------------- ------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $ 1,751,462 $ 2,201,860 $ 2,298,170 $ 2,558,135 $ 2,913,558
Cost of goods sold........................ 1,446,949 1,820,590 1,907,209 2,112,204 2,435,364
-------------- -------------- ------------- -------------- --------------
Gross profit.............................. 304,513 381,270 390,961 445,931 478,194
Operating expenses:
Warehousing, marketing and
administrative expenses............... 237,197 299,861(5) 277,957 311,002 333,601
Restructuring charge(6)................. 9,759 -- -- -- --
Non-recurring charges(7)................ -- -- -- 64,698 64,698
-------------- -------------- ------------- -------------- --------------
Total operating expenses.................. 246,956 299,861 277,957 375,700 398,299
-------------- -------------- ------------- -------------- --------------
Income from operations.................... 57,557 $ 81,409 113,004 70,231 79,895
--------------
--------------
Interest expense.......................... 46,186 57,456 53,511 39,538
Other expense............................. -- -- -- 9,251(8)
-------------- ------------- -------------- --------------
Income before income taxes and
extraordinary item...................... 11,371 55,548 16,720 31,106
Income taxes.............................. 5,128 23,555 8,532 15,013
-------------- ------------- -------------- --------------
Income before extraordinary item.......... 6,243 31,993 8,188 16,093
Extraordinary item........................ (1,449)(9) -- (5,884)(10) (5,884)(10)
-------------- ------------- -------------- --------------
Net income................................ 4,794 31,993 2,304 10,209
Preferred stock dividends issued and
accrued................................. 1,998 1,744 1,528 1,528
-------------- ------------- -------------- --------------
Net income attributable to common
stockholders............................ $ 2,796 $ 30,249 $ 776 $ 8,681
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Net income per common
share-- assuming dilution:
Income before extraordinary item........ $ 0.33 $ 2.03 $ 0.43 $ 0.84
Extraordinary item...................... (0.11) -- (0.38) (0.34)
-------------- ------------- -------------- --------------
Net income.............................. $ 0.22 $ 2.03 $ 0.05 $ 0.50
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Weighted average shares outstanding and
assumed conversions (in thousands)...... 12,809 14,923 15,380 17,358
OTHER DATA:
EBITDA(11)................................ $ 81,241 $ 111,880 $ 139,046 $ 96,272 $ 108,903
Adjusted EBITDA(12)....................... 91,000 111,880 139,046 160,970 173,601
EBITDA margin(13)......................... 4.6% 5.1% 6.1% 3.8% 3.7%
Adjusted EBITDA margin.................... 5.2% 5.1% 6.1% 6.3% 6.0%
Cash provided by operating activities..... $ 26,329 $ 1,609 $ 41,768
Cash used in investing activities......... (266,291) (49,871) (12,991)
Cash (used in) provided by financing
activities.............................. (249,773) 47,221 (27,029)
OTHER DATA BEFORE CHARGES(14):
Income from operations.................... $ 67,316 $ 113,004 $ 134,929 $ 144,593
Net income attributable to common
stockholders............................ 10,081 30,249 45,364 53,254
Net income per common share--
assuming dilution....................... 0.79 2.03 2.95 3.07
<CAPTION>
SUPPLEMENTAL
SUPPLEMENTAL PRO FORMA PRO FORMA
PRO FORMA THREE MONTHS THREE MONTHS
YEAR ENDED THREE MONTHS ENDED MARCH ENDED MARCH ENDED MARCH
DECEMBER 31, 31, 31, 31,
-------------- ------------------------ ------------- -------------
1997(3) 1997 1998 1998 (2) 1998 (4)
-------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $ 2,913,558 $ 635,021 $ 712,517 $ 812,318 $ 812,318
Cost of goods sold........................ 2,435,364 526,279 589,455 681,451 681,451
-------------- ----------- ----------- ------------- -------------
Gross profit.............................. 478,194 108,742 123,062 130,867 130,867
Operating expenses:
Warehousing, marketing and
administrative expenses............... 329,653 76,704 85,037 90,828 90,026
Restructuring charge(6)................. -- -- -- -- --
Non-recurring charges(7)................ -- -- -- -- --
-------------- ----------- ----------- ------------- -------------
Total operating expenses.................. 329,653 76,704 85,037 90,828 90,026
-------------- ----------- ----------- ------------- -------------
Income from operations.................... 148,541 32,038 38,025 40,039 40,841
Interest expense.......................... 34,442 14,661 11,826 8,577 8,577
Other expense............................. 9,251(8) -- -- 2,313(8) 2,313(8)
-------------- ----------- ----------- ------------- -------------
Income before income taxes and
extraordinary item...................... 104,848 17,377 26,199 29,149 29,951
Income taxes.............................. 44,657 7,368 11,108 12,472 12,794
-------------- ----------- ----------- ------------- -------------
Income before extraordinary item.......... 60,191 10,009 15,091 16,677 17,157
Extraordinary item........................ -- -- -- -- --
-------------- ----------- ----------- ------------- -------------
Net income................................ 60,191 10,009 15,091 16,677 17,157
Preferred stock dividends issued and
accrued................................. -- 455 -- -- --
-------------- ----------- ----------- ------------- -------------
Net income attributable to common
stockholders............................ $ 60,191 $ 9,554 $ 15,091 $ 16,677 $ 17,157
-------------- ----------- ----------- ------------- -------------
-------------- ----------- ----------- ------------- -------------
Net income per common
share-- assuming dilution:
Income before extraordinary item........ $ 3.47 $ 0.65 $ 0.88 $ 0.88 $ 0.90
Extraordinary item...................... -- -- -- -- --
-------------- ----------- ----------- ------------- -------------
Net income.............................. $ 3.47 $ 0.65 $ 0.88 $ 0.88 $ 0.90
-------------- ----------- ----------- ------------- -------------
-------------- ----------- ----------- ------------- -------------
Weighted average shares outstanding and
assumed conversions (in thousands)...... 17,358 14,608 17,098 18,980 18,980
OTHER DATA:
EBITDA(11)................................ $ 177,549 $ 38,573 $ 45,458 $ 48,250 $ 49,052
Adjusted EBITDA(12)....................... 177,549 38,573 45,458 48,250 49,052
EBITDA margin(13)......................... 6.1% 6.1% 6.4% 5.9% 6.0%
Adjusted EBITDA margin.................... 6.1% 6.1% 6.4% 5.9% 6.0%
Cash provided by operating activities..... $ 48,928 $ 67,500
Cash used in investing activities......... (1,612) (3,975)
Cash (used in) provided by financing
activities.............................. (40,351) (64,388)
OTHER DATA BEFORE CHARGES(14):
Income from operations.................... $ 148,541 $ 32,038 $ 38,025 $ 40,039 $ 40,841
Net income attributable to common
stockholders............................ 60,191 9,554 15,091 16,677 17,157
Net income per common share--
assuming dilution....................... 3.47 0.65 0.88 0.88 0.90
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
HISTORICAL PRO FORMA(2)
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................................... $ 431,324 $ 327,569
Total assets.......................................................................................... 1,087,692 1,093,254
Total debt(15)........................................................................................ 475,201 333,117
Total stockholders' equity............................................................................ 236,629 339,478
</TABLE>
- --------------------------
(1) Supplemental pro forma data for the year ended December 31, 1995 are based
on the audited consolidated financial statements of United for the fiscal
year ended December 31, 1995 (which includes the results of operations of
Associated for twelve months but excludes pre-Merger United for the three
months ended March 30, 1995) and the unaudited consolidated financial
statements of pre-Merger United for the three-month period ended March 30,
1995 giving effect to (i) increased depreciation expense of $1.3 million
resulting from the write-up of certain fixed assets to fair value, (ii)
additional incremental goodwill amortization, (iii) elimination of
nonrecurring compensation expense of $1.5 million relating to certain
employee stock options recognized as a result of the Merger and (iv) the
elimination of $37.6 million in costs described in note 4 below. This
information is presented to facilitate a better understanding of the
combined operations prior to the Merger.
(2) See "Unaudited Consolidated Pro Forma Financial Statements" for a
discussion of the adjustments used in preparation of this data which
reflects the Senior Credit Facilities Refinancing, the Azerty Acquisition,
the Notes Offering and the Offering.
(3) See the "Unaudited Consolidated Pro Forma Financial Statements" for a
discussion of the adjustments used in preparation of this data which
reflects the 1997 Financing Transactions, the Computer Services Contract
Write-Off, Senior Credit Facilities Refinancing, the Azerty Acquisition,
the Notes Offering and the Offering.
(4) See "Unaudited Consolidated Pro Forma Financial Statements" for a
discussion of the adjustments used in preparation of this data which
reflects the Computer Services Contract Write-Off, the Senior Credit
Facilities Refinancing, the Azerty Acquisition, the Notes Offering and the
Offering.
(5) Supplemental pro forma operating expenses for the year ended December 31,
1995 exclude the following items: (i) a restructuring charge of $9.8
million related to the Merger which was recorded by United during the year
ended December 31, 1995, and (ii) Merger-related costs of $27.8 million
recorded by pre-Merger United during the three months ended March 30, 1995.
(6) Restructuring charge is related to United's consolidation plan in
connection with the Merger.
(7) United 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 certain stock options (the "Merger Incentive
Options") and the Management Agreements Termination, respectively.
(8) Costs related to the sale of certain accounts receivable.
(9) Loss on early retirement of debt of $2.4 million ($1.4 million net of tax
benefit of $1.0 million).
(10) Loss on early retirement of debt of $9.8 million ($5.9 million net of tax
benefit of $3.9 million).
(11) "EBITDA" refers to earnings before interest, income taxes, depreciation
and amortization, costs associated with the sale of certain accounts
receivable, and the extraordinary items discussed in notes 9 and 10 above.
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to incur and service debt and is also one of the
financial measures by which certain covenants under the Company's New
Credit Agreement are calculated. However, EBITDA should not be considered
in isolation or as a substitute for net income or cash flow data prepared
in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. Also, the EBITDA
definition used herein may not be comparable to similarly titled measures
reported by other companies.
(12) "Adjusted EBITDA" is defined as in note 11 above except for the add back
of restructuring and non-recurring charges discussed in notes 6 and 7
above.
(13) EBITDA margin represents EBITDA as a percentage of net sales.
(14) Charges refers to the restructuring and non-recurring charges discussed in
notes 6 and 7 above and the extraordinary items discussed in notes 9 and
10 above.
(15) Includes current maturities and capital lease obligation.
12
<PAGE>
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK IN ADDITION TO THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS MAY CONTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "ANTICIPATE," "BELIEVE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING THOSE REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY, PROJECTED COSTS AND PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS. THE FOLLOWING
MATTERS AND CERTAIN OTHER FACTORS NOTED THROUGHOUT THIS PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO ANY SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
PROSPECTUS AND/OR ANY SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON BEHALF OF THE COMPANY ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS. THE COMPANY
UNDERTAKES NO OBLIGATION TO RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with business products manufacturers and other national, regional and
specialty wholesalers of business products, office furniture, information
technology products, janitorial and sanitation supplies and related items. Some
of these competitors are larger than the Company and have greater financial and
other resources available to them than does the Company, and there can be no
assurance that the Company can continue to compete successfully with such
competitors. Increased competition in the business products industry, together
with increased advertising, has heightened price awareness among end users. Such
heightened price awareness has led to margin pressure on business products. In
the event that such a trend continues, the Company's profit margins could be
adversely affected. Further, the Company could be adversely affected by the loss
of a major customer. See "Business--Competition."
CONSOLIDATION
Consolidation continues throughout all levels of the business products
industry. Consolidation of commercial dealers and contract stationers has
resulted in (i) an increased ability of those resellers to buy goods directly
from manufacturers on their own or through their participation in buying groups,
(ii) the ability of larger resellers who grow primarily through acquisitions to
qualify for larger volume rebates than the acquired companies would have
qualified for on a stand-alone basis, and (iii) fewer independent resellers to
purchase from wholesalers. In addition, over the last decade, office products
superstores (which largely buy directly from manufacturers) have entered
virtually every major metropolitan market. Continuing consolidation could
adversely affect the Company's financial results. See "Business--The Business
Products Industry."
LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company has significant debt and debt service obligations. As of March
31, 1998, after giving effect to the Senior Credit Facilities Refinancing, the
Azerty Acquisition, the Notes Offering (including the application of the net
proceeds therefrom), and the Offering (including application of the net proceeds
therefrom), the Company would have had on that date (i) outstanding long-term
indebtedness (including current maturities) of approximately $333.1 million
(excluding unused commitments) and total stockholders' equity of $339.5 million,
and (ii) long-term indebtedness to total stockholders' equity ratio of 1.0 to
1.0. See "Capitalization."
13
<PAGE>
The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
potential acquisition opportunities, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness; (iii) the Company may be more vulnerable to economic
downturns, may be limited in its ability to withstand competitive pressures and
may have reduced flexibility in responding to changing business and economic
conditions; and (iv) fluctuations in market interest rates will affect the cost
of the Company's borrowings to the extent not covered by interest rate hedge
agreements because interest under the New Credit Facilities is payable at
variable rates. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
The Company's ability to service its indebtedness will be dependent on its
future performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. The Company believes that, based upon current levels of operations, it
should be able to meet its debt service obligations when due. If, however, the
Company were unable to service its indebtedness, it would be forced to pursue
one or more alternative strategies such as selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all, or that asset sales, restructuring or refinancing would be
permitted under the indenture governing USSC's 8 3/8% Notes (as it may be
amended and supplemented from time to time, the "8 3/8% Notes Indenture"), the
New Credit Agreement or the indenture governing the 12 3/4% Notes (as amended
and supplemented from time to time, the "12 3/4% Notes Indenture"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The 8 3/8% Notes Indenture, the New Credit Agreement and the 12 3/4% Notes
Indenture contain numerous restrictive covenants that limit the discretion of
management with respect to certain business matters. These covenants place
significant restrictions on, among other things, the ability of the Company to
incur additional indebtedness, to create liens or other encumbrances, to pay
dividends or make other payments in respect of its capital stock, to engage in
transactions with affiliates, to make certain payments, investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or consolidate
with another entity. The New Credit Agreement also contains a number of
financial covenants that require the Company to meet certain financial ratios
and tests. A failure to comply with the obligations in the 8 3/8% Notes
Indenture, the New Credit Agreement or the 12 3/4% Notes Indenture could result
in an event of default under the 8 3/8% Notes Indenture, the New Credit
Agreement or the 12 3/4% Notes Indenture, which, if not cured or waived, could
permit acceleration of the indebtedness thereunder and acceleration of
indebtedness under other instruments that may contain cross-acceleration or
cross-default provisions, any of which could have a material adverse effect on
the financial condition of the Company. The New Credit Agreement restricts the
prepayment, purchase, redemption, defeasance or other payment of any of the
principal of the 8 3/8% Notes or the 12 3/4% Notes so long as any loans remain
outstanding under the New Credit Agreement. See "Description of Certain
Indebtedness."
INTEGRATION OF ACQUISITIONS
As a result of the Azerty Acquisition and the Company's strategy of pursuing
strategic acquisitions, the Company's management will be required to manage
substantially larger operations than has historically been the case. With the
Azerty Acquisition, the Company's future operations in the information
technology products area and earnings from such operations will be largely
dependent upon the Company's ability to integrate the operations of the
Company's existing Micro United division with the Azerty Business. The Company
must, among other things, integrate management and employee personnel and
combine certain administrative, sales and information technology procedures. The
integration of the Micro
14
<PAGE>
United business and the Azerty Business involves numerous risks, including the
potential loss of key employees and customers. There can be no assurance that
the Company will successfully integrate the Micro United business and the Azerty
Business, and a failure to do so could have a material adverse effect on the
Company's results of operations and financial condition. Additionally, the need
to focus management's attention on the integration of the Azerty Business may
limit the ability of the Company to successfully pursue acquisitions or other
opportunities related to its business for a substantial period of time.
CHANGING END-USER DEMANDS AND SEASONALITY
The Company's sales and profitability are largely dependent on its ability
to continually enhance its product offerings in order to meet changing end-user
demands. End-users' traditional demands for business products have changed over
the last several years as a result of, among other things, the widespread use of
computers and other technological advances (resulting in the reduction in use of
traditional office supplies), efforts by various businesses to establish
"paperless" work environments, increased recycling efforts and a trend toward
non-traditional offices (such as home offices). The Company's ability to
continually monitor and react to such trends and changes in end-user demands
will be necessary to avoid adverse effects on its sales and profitability. In
addition, the Company's financial results could be adversely affected if and to
the extent that end-user demand for a broad product selection or the need for
overnight delivery were to diminish substantially or end-user demand for a
higher proportion of low margin products were to increase substantially.
Although the Company's sales are relatively level throughout the year, the
Company's sales vary to the extent of seasonal differences in the buying
patterns of end users who purchase office products. In particular, the Company's
sales are generally higher than average during the month of January when many
businesses begin operating under new annual budgets. Any impact upon sales
during this peak season could have a disproportionate effect on the Company's
results of operations for the full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
DEPENDENCE ON KEY SUPPLIERS
Although the Company regularly carries products and accessories supplied by
more than 550 business products manufacturers, approximately 27.6% of the
Company's total purchases (on a pro forma basis) during the year ended December
31, 1997 were derived from products purchased from the Company's three largest
suppliers. The Company's purchasing agreements with such suppliers are generally
terminable at any time or on short notice, with or without cause, and, while the
Company considers its relationships with its suppliers to be good, there can be
no assurance that any or all of such relationships will not be terminated or
that such relationship will continue as presently in effect. Termination of such
relationships or changes by its suppliers in their policies regarding wholesale
distributors or volume discount schedules or other marketing programs applicable
to the Company may have a material adverse effect on the Company's business.
IMPACT OF CHANGING MANUFACTURERS' PRICES
The Company maintains substantial inventories to accommodate the prompt
service and delivery requirements of its customers. Accordingly, the Company
purchases its products on a regular basis in an effort to maintain its inventory
at levels that it believes to be sufficient to satisfy the anticipated needs of
its customers based upon historic buying practices and market conditions.
Although the Company has historically been able to pass through manufacturers'
price increases to its customers on a timely basis, competitive conditions will
influence how much of future price increases can be passed on to the Company's
customers. Conversely, when manufacturers' prices decline, lower sales prices
could result in lower margins as the Company sells existing inventory. Changes
in the prices paid by the Company for its products therefore could have a
material adverse effect on the Company's net sales, gross margins and net
income, and the timing of such changes throughout the year could adversely
impact quarterly results.
15
<PAGE>
EFFECT OF CHANGES IN THE ECONOMY
Demand for business products is affected by, among other things, white
collar employment levels. Changes in the economy resulting in decreased white
collar employment levels may therefore adversely affect the Company's operations
and profitability. In addition, pricing and, to an extent, profitability of the
Company's product offerings generally decrease under deflationary economic
conditions. Deflationary swings in the economy may therefore adversely affect
the Company's profitability.
POTENTIAL SERVICE INTERRUPTIONS
Substantially all of the Company's shipping, warehouse and maintenance
employees at certain of the Company's facilities in Chicago, Detroit,
Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City are covered
by various collective bargaining agreements that expire at various times during
the next three years. Although the Company considers its relations with
employees to be good, a prolonged labor dispute could have a material adverse
effect on the Company's business (including its ability to deliver its products
in a timely manner) as well as the Company's results of operations and financial
condition. The Company has not experienced any work stoppages during the past
five years.
The Company's ability to receive and deliver products is largely dependent
on the availability of trucking and package delivery services utilized by
manufacturers and the Company. Therefore, the occurrence of a strike or other
work stoppage by any such service provider could materially affect the Company's
sales and profitability.
DEPENDENCE ON TECHNOLOGY; YEAR 2000 MODIFICATIONS
The Company believes that the successful operation of its business depends
to a large extent on its computerized inventory management, order processing and
distribution systems. The Company may, from time to time, experience delays,
complications or expenses in integrating and operating these systems, any of
which could have a material adverse effect upon the Company's results of
operations and financial condition. While the Company believes that its computer
systems will be adequate for its future needs, such systems may require
modification, improvement or replacement as the Company grows or as technologies
make these systems obsolete. For example, the Company is currently taking steps
to make all necessary modifications to its systems for the year 2000. In 1997,
the Company incurred approximately $1.4 million of expenses related to this
issue, and expects to incur an additional $2.6 to $3.3 million of such expenses
during the next two years. For the three months ended March 31, 1998, the
Company incurred $0.3 million of such expenses. Any such modifications,
improvements or replacements may require substantial additional expenditures to
design and implement and may require interruptions in operations during periods
of implementation, any of which could have a material adverse effect on the
Company's results of operations and financial condition. Further, since
approximately 80% of the Company's orders are received electronically, any
disruption of a significant reseller's computer systems could have an adverse
impact on the Company's sales. The Company's service levels also would be
affected in the event of an interruption in operation of its telecommunications
network on a company-wide scale for an extended period of time, although the
Company has developed contingency plans to limit its exposure to such risks. See
"Business--Technology."
DEPENDENCE ON KEY PERSONNEL
The Company's success relies on the efforts and abilities of its executive
officers and certain other key employees, particularly Mr. Frederick B. Hegi,
Jr., the Company's non-executive Chairman of the Board, Mr. Randall W.
Larrimore, President and Chief Executive Officer, Mr. Daniel H. Bushell, an
Executive Vice President and the Chief Financial Officer of the Company, and Mr.
Michael D. Rowsey and Mr. Steven R. Schwarz, each an Executive Vice President of
the Company. The loss of any of these individuals could have a material adverse
effect on the Company. The Company has entered into
16
<PAGE>
employment agreements with the executive officers listed above. The Company
currently does not have any "key man" life insurance for its key personnel. See
"Management."
INFLUENCE OF CERTAIN STOCKHOLDERS
As of the date of this Prospectus and after giving effect to the Offering,
Wingate Partners, L.P. ("Wingate Partners") and Wingate Partners II, L.P.
("Wingate II" and, collectively with Wingate Partners "Wingate"), Cumberland
Capital Corporation ("Cumberland") and its affiliates, and Mr. Daniel J. Good
and his affiliates will beneficially own approximately 17.5%, 1.9% and 2.4%,
respectively, of the outstanding shares of Common Stock (17.1%, 1.8% and 2.4%,
respectively, if the Underwriters' over-allotment option is exercised in full).
Two of the current nine directors of United are affiliates of Wingate Partners
or Wingate II. In addition, Mr. Gary G. Miller, who is the President and a
stockholder of Cumberland, and Mr. Good each serve as directors of United.
Consequently, such persons and their affiliates will continue to have
significant influence over the policies of United and the Company and any
matters submitted to a stockholder vote. See "Management--Directors and
Executive Officers" and "Principal and Selling Stockholders."
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of this Offering, the Company
will have 18,377,191 shares of Common Stock outstanding. In addition, 1,547
shares will be issuable upon exercise of outstanding Warrants and 1,273,339
shares will be issuable upon exercise of outstanding Employee Stock Options. Of
the shares of Common Stock that will be outstanding after this Offering,
approximately 14,263,145 shares will be freely tradable without restriction or
further registration under the Securities Act. Subject to Rule 144 under the
Securities Act (as currently in effect), after expiration of certain lock-up
agreements between the Underwriters and the Company and certain of its officers
and directors and stockholders (or earlier with the consent of the
representative of the Underwriters), approximately 4,114,046 of the remaining
shares are eligible for sale in the public marketplace. In addition, certain
stockholders have previously been granted registration rights entitling them to
demand, in certain circumstances, that the Company register the shares of Common
Stock held by them for sale under the Securities Act. Following the consummation
of this Offering and expiration of the 60-day lock-up described in
"Underwriting," sales of substantial amounts of Common Stock in the public
market, pursuant to Rule 144 or otherwise, or the availability of such shares
for sale, could adversely affect the prevailing market price of the Common Stock
and impair the Company's ability to raise additional capital through the sale of
equity securities. See "Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECTS
The Company has available for issuance 1,500,000 shares of preferred stock,
which the Board of Directors is authorized to issue, in one or more series,
without any further action on the part of the Company's stockholders. At the
discretion of the Board of Directors, and subject to its fiduciary duties, the
preferred stock could be used to deter any takeover attempt, by tender offer or
otherwise. In addition, preferred stock could be issued with voting and
conversion rights which could adversely affect the voting power and/or economic
value to holders of Common Stock. The issuance of preferred stock could also
result in a series of securities outstanding that would have preferences over
the Common Stock with respect to dividends and in liquidation. No shares of
preferred stock are currently outstanding. See "Description of Capital
Stock--Preferred Stock."
The Company's Restated Certificate of Incorporation (as amended from time to
time, the "Charter") and Restated Bylaws (as amended from time to time, the
"Bylaws") contain certain other provisions that may be deemed to have
anti-takeover effects and may delay, deter or prevent a takeover attempt that a
stockholder of the Company might consider to be in the best interests of the
Company or its stockholders. See "Description of Capital Stock--Special
Provisions of the Charter and Bylaws." In addition, the New
17
<PAGE>
Credit Agreement provides that the occurrence of a change of control of USSC
shall constitute an event of default thereunder, and the lenders thereunder may
declare all borrowings outstanding under the New Credit Agreement to become due
and payable immediately, which could have a material adverse effect on the
Company and could have the effect of deterring or delaying a takeover attempt.
See "Description of Certain Indebtedness--New Credit Facilities." Finally, the
8 3/8% Notes Indenture and the 12 3/4% Notes Indenture each provide that, upon
the occurrence of a change of control (which term includes the acquisition by
any person or group of more than 50% of the voting power of the outstanding
common stock of either the Company or USSC or certain significant changes in the
composition of the Board of Directors of either the Company or USSC), USSC shall
be obligated to offer to repurchase all outstanding 8 3/8% Notes and 12 3/4%
Notes at a purchase price of 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of redemption. Such obligation, if it
arose, could have a material adverse effect on the Company and could have the
effect of deterring or delaying a takeover attempt. See "Description of Certain
Indebtedness--12 3/4% Notes" and "--8 3/8% Notes."
18
<PAGE>
RECENT TRANSACTIONS
AZERTY ACQUISITION
On April 3, 1998, the Company completed the acquisition of all of the
capital stock of Azerty Incorporated ("Azerty"), Azerty de Mexico, S.A. de C.V.
("Azerty Mexico"), Positive ID Wholesale Inc. ("Positive ID"), and AP Support
Services Incorporated ("AP Support Services"), which comprised substantially all
of the United States and Mexican operations of the Office Products Division of
Abitibi-Consolidated Inc. The aggregate purchase price paid by the Company for
the Azerty Business was approximately $115.1 million (including fees and
expenses) following an initial post-closing adjustment and subject to final
audit and review by the Company. For the fiscal year ended December 31, 1997,
the Azerty Business had combined net sales and pro forma operating income of
$355.4 million and $9.7 million, respectively.
AZERTY
Azerty was founded in 1983 and is a leading wholesale distributor of
computer consumables, peripherals and accessories in the United States. Azerty
serves over 12,000 major customers in the United States which consist primarily
of information product dealers and value-added resellers. Azerty distributes a
broad range of products consisting of printers, printer supplies, magnetic and
optical data storage media, workstation accessories, fax machines and basic
office products essentials. Azerty provides a high level of customer service,
including high order fill rates, late order cut-off times and guaranteed
next-day delivery for orders weighing under 100 pounds.
Azerty sells through marketing employees who utilize advanced data
management and telesales capabilities that enable highly customized and
segmented marketing, whereby customers' calls are automatically routed to sales
representatives familiar with their accounts. In addition, Azerty runs catalog
marketing programs, collecting co-op allowances from vendors to produce product
catalogs for their customers. Azerty also has established a new world wide web
site on the Internet that allows on-line inventory availability, pricing and UPS
order tracking, as well as vendor and product information, applications for new
accounts and general company information.
Azerty currently operates through four distribution facilities that stock
approximately 7,200 SKUs. Azerty's primary competitors are Daisytek
International, Ingram Micro, Tech Data and Merisel. For the fiscal year ended
December 31, 1997, Azerty accounted for approximately 88% of the net sales of
the combined Azerty Business.
AZERTY MEXICO
Azerty Mexico was founded in 1995 to distribute computer consumables,
peripherals and accessories under the Azerty name in Mexico. Azerty Mexico
operates through a single distribution facility located in Mexico City, Mexico.
POSITIVE ID
Positive ID is a wholesale distributor of bar code scanning products.
Founded in 1996, Positive ID has attempted to capitalize on an emerging
opportunity for wholesale distribution of products using the bar code scanning
technology that has been created by the increasing use of such technology by
small and medium-sized companies, as well as new applications in the medical and
insurance industries. Positive ID offers approximately 2,000 SKUs primarily to
information products dealers and value-added resellers and distributes products
consisting of scanners, printers, consumables, data collection terminals and
software through its distribution facility located in Tonawanda, New York.
19
<PAGE>
AP SUPPORT SERVICES
Formed in 1996, AP Support Services is a third-party service provider that
offers telemarketing, direct response marketing, logistics and data management
services to companies that are outsourcing such non-core activities. AP Support
Services offers a unique combination of sophisticated telemarketing support and
the ability to physically handle product. The strategy of AP Support Services is
to differentiate itself as a third-party service provider by offering vendors a
broad range of services from marketing through product delivery and invoicing.
NEW CREDIT FACILITIES
On April 3, 1998, the Company entered into the New Credit Facilities
concurrently with the closing of the Azerty Acquisition in order to fund the
purchase price of the Azerty Acquisition, refinance borrowings under the
Existing Credit Facilities and pay related fees and expenses in connection
therewith. The New Credit Facilities initially consisted of a $250.0 million
Revolving Credit Facility, a $150.0 million Tranche A Term Loan Facility and a
$100.0 million Tranche B Term Loan Facility. The net proceeds of the Notes
Offering were used to repay permanently a substantial portion of indebtedness
then outstanding under the Tranche B Term Loan Facility and the remainder of the
Tranche B Term Loan Facility was permanently repaid with proceeds from the sale
of certain receivables, following which the Tranche B Term Loan Facility was
terminated.
For a description of the terms of the New Credit Facilities, see
"Description of Certain Indebtedness--New Credit Facilities."
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into the $163.0 million 364-day Receivables
Securitization Program pursuant to which the Company sells its Eligible
Receivables (except for certain excluded receivables, which initially includes
all receivables from the Azerty Business and Lagasse) to the Receivables
Company, a wholly-owned offshore, bankruptcy-remote special purpose limited
liability company. The Receivables Company then transfers the Eligible
Receivables to a third-party, multi-seller asset-backed commercial paper program
existing solely for the purpose of issuing commercial paper rated A-1/P-1 or
higher. The sale of trade receivables includes not only those Eligible
Receivables that were existing on the closing date of the Receivables
Securitization Program, but also Eligible Receivables created thereafter. The
Company received approximately $160.0 million in proceeds from the initial sale
of Eligible Receivables on April 3, 1998. The Unaudited Consolidated Pro Forma
Financial Statements included in this Prospectus reflect $150.0 million in
proceeds from the sale of Eligible Receivables under the Receivables
Securitization Program, as this amount was deemed to more fairly represent the
average amount of receivables that would have been sold in 1997. Management of
the Company believes that the Unaudited Consolidated Pro Forma Financial
Statements included herein represent a fair presentation of how the historical
financial statements of the Company might have been affected if the transactions
described therein had been consummated at the beginning of the periods
presented. See "Unaudited Consolidated Pro Forma Financial Statements."
The Chase Manhattan Bank acts as funding agent and, together with other
commercial banks rated at least A-1/P-1, provides standby liquidity funding to
support the purchase of the receivables by the Receivables Company. The proceeds
from the Receivables Securitization Program were used to reduce borrowings under
the Company's Revolving Credit Facility and repay a portion of the Tranche B
Term Loan Facility. The Receivables Company retains an interest in the Eligible
Receivables transferred to the third party. The Receivables Securitization
Program carries an effective interest rate of LIBOR plus 0.37%. As a result of
the Receivables Securitization Program, actual balance sheet assets of the
Company as of March 31, 1998 of approximately $160.0 million, consisting of
accounts receivable, have been sold to the Receivables Company and do not secure
the Company's obligations under the New Credit Facilities.
20
<PAGE>
THE NOTES OFFERING
On April 15, 1998, USSC consummated the private sale of $100.0 million of
its 8 3/8% Notes in the Notes Offering. The 8 3/8% Notes were immediately resold
by the initial purchasers thereof in reliance on Rule 144A under the Securities
Act. The 8 3/8% Notes are unsecured and are subordinated in right of payment to
all existing and future Senior Indebtedness (as defined in the 8 3/8% Notes
Indenture) of USSC, which includes indebtedness under the New Credit Facilities.
The 8 3/8% Notes rank PARI PASSU in right of payment with USSC's 12 3/4% Notes
and all other existing and future senior subordinated Indebtedness (as defined
in the 8 3/8% Notes Indenture) of USSC, and rank senior in right of payment to
all Subordinated Indebtedness (as defined in the 8 3/8% Notes Indenture) of
USSC.
The 8 3/8% Notes bear interest at the rate of 8 3/8% per annum and mature on
April 15, 2008. The 8 3/8% Notes are generally not callable by USSC prior to
five years following the issue date, subject to certain exceptions. The 8 3/8%
Notes are fully and unconditionally guaranteed on a senior subordinated basis by
the Company and all of USSC's existing and future domestic Restricted
Subsidiaries (as defined in the 8 3/8% Note Indenture) that incur Indebtedness
(the "Guarantors"). In connection with the Notes Offering, the Company, USSC and
the other Guarantors entered into an exchange and registration rights agreement
with the initial purchasers thereof, providing for certain rights with respect
to exchange or registration of the 8 3/8% Notes under the Securities Act.
The proceeds from the sale of the 8 3/8% Notes were used to (i) repay a
substantial portion of indebtedness outstanding under the Tranche B Term Loan
Facility, and (ii) pay fees and expenses related to the Notes Offering.
For a more detailed description of the terms of the 8 3/8% Notes, see
"Description of Certain Indebtedness--8 3/8% Notes."
COMPUTER SERVICES CONTRACT WRITE-OFF
As a condition to the spinoff of ASI from the Wholesale Division of Boise
Cascade Office Products Corporation in January 1992, ASI entered into the
Computer Services Contract with a third-party service provider to perform
certain computer services.
Upon completion of the systems integration between USSC and ASI, increasing
differences in the operating processes and technical environment between the
Company and the third-party service provider became evident. The Computer
Services Contract was modified to allow the Company, at its discretion, not to
perform any processing at the third-party service provider's facilities.
Accordingly, related fees were reduced. Payments made to the third-party service
provider subsequent to this latest renegotiation were effectively for disaster
recovery purposes only. The Company has recently consolidated its disaster
recovery services under an agreement with another third-party service provider.
In May 1998, the Company completed an assessment of the future utility of the
Computer Services Contract. Based upon such assessment, the Company has
determined that it is no longer feasible to use the prior third-party service
provider for disaster recovery purposes.
In May 1998, the Company will write-off the remaining term of the Computer
Services Contract. Accordingly, $2.6 million of prepaid expense related to the
Computer Services Contract has been eliminated and $2.6 million and $8.7 million
of current and long-term payments, respectively, have been added to the
supplemental pro forma March 31, 1998 balance sheet to reflect a non-recurring
$13.9 million pre-tax charge to write off the remainder of the Computer Services
Contract. A related deferred tax asset of $5.6 million will also be recorded.
This $8.3 million charge, net of tax benefit of $5.6 million, shown as a
reduction to supplemental pro forma retained earnings at March 31, 1998, has
been excluded from supplemental pro forma income statement purposes as it is
non-recurring in nature.
For supplemental pro forma income statement purposes, the three months ended
March 31, 1998 and the twelve months ended December 31, 1997 reflect $0.8
million and $3.2 million in cost savings, respectively, related to the Computer
Services Contract had such agreement been written off prior to each period
presented.
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering (using an assumed
offering price of $62.75, the closing price on May 6, 1998, and after deducting
applicable underwriting discounts, but excluding fees and expenses payable by
the Company) are estimated to be approximately $105.1 million (approximately
$126.0 million if the Underwriters' over-allotment option is exercised in full).
Such net proceeds will be contributed or advanced by the Company to USSC and
used to repay a portion of the indebtedness outstanding under the Tranche A Term
Loan Facility. The repayment of indebtedness under the Tranche A Term Loan
Facility will cause a permanent reduction of the amount borrowable thereunder.
The Tranche A Term Loan Facility bears interest at a base rate (i.e., the
higher of the prime rate or federal funds rate plus 0.50%) plus 0% to 0.75% or,
at the Company's option, LIBOR plus 1.00% to 2.00%. The Tranche A Term Loan
Facility is payable in 24 quarterly installments, and matures on or about March
31, 2004.
The Company will not receive any of the proceeds from the sale of the
569,418 shares of Common Stock offered by the Selling Stockholders, other than
an aggregate of approximately $7.9 million payable by the Selling Stockholders
upon exercise of Employee Stock Options in connection with the Offering, which
also will be applied to the permanent repayment of indebtedness under the
Tranche A Term Loan Facility.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is quoted on the Nasdaq National Market under the symbol
"USTR." The following table sets forth on a per share basis, for the periods
indicated, the high and low closing sale prices per share for the Common Stock,
as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------------ ------------
<S> <C> <C> <C>
1996
First Quarter............................................................................. $ 301/4 $ 211/2
Second Quarter............................................................................ 241/2 191/2
Third Quarter............................................................................. 241/2 171/2
Fourth Quarter............................................................................ 23 191/2
1997
First Quarter............................................................................. $ 213/4 $ 183/4
Second Quarter............................................................................ 271/4 19
Third Quarter............................................................................. 381/4 237/8
Fourth Quarter............................................................................ 485/8 371/4
1998
First Quarter............................................................................. $ 655/16 $ 437/8
Second Quarter (through May 6, 1998)...................................................... $ 641/2 $ 601/4
</TABLE>
On May 6, 1998, the last reported sale price of the Common Stock as quoted
on the Nasdaq National Market was $62.75 per share, and there were approximately
1,000 holders of record of Common Stock.
The Company does not currently intend to pay any cash dividends on the
Common Stock. Furthermore, as a holding company, the ability of 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
to the Company for purposes of paying dividends to holders of Common Stock is
restricted by the New Credit Agreement, the 8 3/8% Notes Indenture and the
12 3/4% Notes Indenture and is subject to statutory restrictions. See "Risk
Factors--Restrictions Imposed by Terms of Indebtedness" and "Description of
Certain Indebtedness."
22
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of March 31, 1998 on a historical basis and on an as adjusted basis giving
effect to (i) the Senior Credit Facilities Refinancing, (ii) the Azerty
Acquisition, (iii) the Notes Offering and the application of the net proceeds
therefrom and (iv) the Offering and the application of the net proceeds
therefrom, as described in "Use of Proceeds." The table set forth below should
be read in conjunction with the Unaudited Consolidated Pro Forma Financial
Statements and the Consolidated Financial Statements of the Company, together
with the related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................................................ $ 19,551 $ 10,649
Long-term debt:
Revolving credit facility.............................................................. 224,000 55,633(1)
Term loan facilities................................................................... 100,020 34,855
12 3/4% Notes.......................................................................... 100,000 100,000
8 3/8% Notes........................................................................... -- 100,000
Other long-term debt................................................................... 31,630 31,980
---------- -----------
Total long-term debt................................................................. 455,650 322,468
Stockholders' equity:
Common Stock, $0.10 par value; 40,000,000 shares authorized;
16,024,019 shares issued and outstanding (historical)................................ 1,602
18,240,515 shares issued and outstanding (as adjusted)(2)............................ 1,824
Capital in excess of par value......................................................... 211,261 320,101
Retained earnings...................................................................... 23,766 17,553
---------- -----------
Total stockholders' equity........................................................... 236,629 339,478
---------- -----------
Total capitalization (including current portion of long-term debt)................... $ 711,830 $ 672,595
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The Revolving Credit Facility under the New Credit Agreement provides for
borrowings of up to $250.0 million. See "Description of Certain
Indebtedness--New Credit Facilities."
(2) Assuming Employee Stock Options exercisable for an aggregate of 629,199
shares of Common Stock will be exercised in connection with the Offering.
See "Principal and Selling Stockholders." Does not include (i) 1,458,789
shares of Common Stock issuable upon exercise of Employee Stock Options that
the Company expects to be outstanding after the Offering, and (ii) 1,547
shares of Common Stock issuable upon exercise of outstanding Warrants.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
THE COMPANY
Set forth below and on the following pages are selected historical
consolidated financial data for the Company. 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 income statement and operating and other data for the year ended
December 31, 1995 reflect the financial information of Associated only for the
three months ended March 30, 1995 and the results of post-Merger United for the
nine months ended December 31, 1995. The balance sheet data at December 31, 1995
reflects the consolidated balances of post-Merger United, including various
Merger-related adjustments.
The selected consolidated financial data set forth below for the fiscal
years ended December 31, 1993 and 1994 have been derived from the audited
consolidated financial statements of Associated. The selected consolidated
financial data of the Company for the fiscal years ended December 31, 1995
(which for income statement and operating and other data includes Associated
only for the three months ended March 30, 1995 and the results of post-Merger
United for the nine months ended December 31, 1995), 1996 and 1997 have been
derived from the consolidated financial statements of the Company, which have
been audited by Ernst & Young LLP, independent auditors. The data for the three
months ended March 31, 1997 and 1998 are derived from unaudited condensed
consolidated financial statements and in the opinion of management reflect all
adjustments considered necessary for the fair presentation of such data. Results
for the three months ended March 31, 1998 are not necessarily indicative of
results that may be achieved for a full twelve-month period. All selected
consolidated financial data set forth below should be read in conjunction with,
and are qualified in their entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Historical Results of Operations"
and "--Liquidity and Capital Resources" and the Consolidated Financial
Statements of the Company, together with the related notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $ 455,731 $ 470,185 $1,751,462 $2,298,170 $2,558,135 $ 635,021 $ 712,517
Cost of goods sold................. 375,226 382,299 1,446,949 1,907,209 2,112,204 526,279 589,455
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................... 80,505 87,886 304,513 390,961 445,931 108,742 123,062
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Warehousing, marketing and
administrative expenses........ 69,527 69,765 246,956(1) 277,957 311,002 76,704 85,037
Non-recurring charges(2)......... -- -- -- -- 64,698 -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses........... 69,527 69,765 246,956 277,957 375,700 76,704 85,037
--------- --------- --------- --------- --------- --------- ---------
Income from operations............. 10,978 18,121 57,557 113,004 70,231 32,038 38,025
Interest expense................... 7,235 7,725 46,186 57,456 53,511 14,661 11,826
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item............... 3,743 10,396 11,371 55,548 16,720 17,377 26,199
Income taxes....................... 781 3,993 5,128 23,555 8,532 7,368 11,108
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item... 2,962 6,403 6,243 31,993 8,188 10,009 15,091
Extraordinary item(3).............. -- -- (1,449) -- (5,884) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income......................... 2,962 6,403 4,794 31,993 2,304 10,009 15,091
Preferred stock dividends.......... 2,047 2,193 1,998 1,744 1,528 455 --
--------- --------- --------- --------- --------- --------- ---------
Net income attributable to common
stockholders..................... $ 915 $ 4,210 $ 2,796 $ 30,249 $ 776 $ 9,554 $ 15,091
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per common share--
assuming dilution:
Income before extraordinary
item........................... $ 0.11 $ 0.51 $ 0.33 $ 2.03 $ 0.43 $ 0.65 $ 0.88
Extraordinary item............... -- -- (0.11) -- (0.38) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income....................... $ 0.11 $ 0.51 $ 0.22 $ 2.03 $ 0.05 $ 0.65 $ 0.88
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares outstanding
and assumed conversions (in
thousands)....................... 8,071 8,309 12,809 14,923 15,380 14,608 17,098
Cash dividends, declared per
share............................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(4).......................... $ 16,481 $ 23,505 $ 81,241 $ 139,046 $ 96,272 $ 38,573 $ 45,458
Adjusted EBITDA(5)................. 16,481 23,505 91,000 139,046 160,970 38,573 45,458
EBITDA margin(6)................... 3.6% 5.0% 4.6% 6.1% 3.8% 6.1% 6.4%
Adjusted EBITDA margin............. 3.6% 5.0% 5.2% 6.1% 6.3% 6.1% 6.4%
Cash provided by (used in)
operating activities............. $ (12,084) $ 14,088 $ 26,329 $ 1,609 $ 41,768 $ 48,928 $ 67,500
Cash (used in) provided by
investing activities............. (3,276) (554) (266,291) (49,871) (12,991) (1,612) (3,975)
Cash provided by (used in)
financing activities............. 8,095 (12,676) 249,773 47,221 (27,029) (40,351) (64,388)
OTHER DATA BEFORE CHARGES(7)(8):
Income from operations............. $ 10,978 $ 18,121 $ 67,316 $ 113,004 $ 134,929 $ 32,038 $ 38,025
Net income attributable to common
stockholders..................... 915 4,210 10,081 30,249 45,364 9,544 15,091
Net income per common share--
assuming dilution................ 0.11 0.51 0.79 2.03 2.95 0.65 0.88
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 57,302 $ 56,454 $ 355,465 $ 404,973 $ 451,449 $ 403,269 $ 431,324
Total assets..................... 190,979 192,479 1,001,383 1,109,867 1,148,021 1,065,172 1,087,692
Total debt(9).................... 86,350 64,623 551,990 600,002 537,135 559,119 475,201
Redeemable preferred stock....... 20,996 23,189 18,041 19,785 -- 20,240 --
Redeemable warrants.............. 1,435 1,650 39,692 23,812 -- 24,807 --
Total stockholders' equity....... 11,422 24,775 30,024 75,820 223,308 84,369 236,629
</TABLE>
- ------------------------------
(1) For the year ended December 31, 1995, includes restructuring charge of $9.8
million related to United's consolidation plan in conjunction with the
Merger.
(2) In the fourth quarter of 1997, United 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 the Merger Incentive
Options and Management Agreements Termination, respectively.
(3) Loss on early retirement of debt of $2.4 million ($1.4 million net of tax
benefit of $1.0 million) in 1995 and $9.8 million ($5.9 million net of tax
benefit of $3.9 million) in 1997.
(4) "EBITDA" refers to earnings before interest, income taxes, depreciation and
amortization, costs associated with the sale of certain accounts receivable
and the extraordinary items discussed in note 3 above. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt and is also one of the financial measures by
which certain covenants under the Company's New Credit Agreement are
calculated. However, EBITDA should not be considered in isolation or as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. Also, the EBITDA definition used herein may not
be comparable to similarly titled measures reported by other companies.
(5) "Adjusted EBITDA" is defined as in note 4 above except for the add back of
restructuring and non-recurring charges discussed in notes 1 and 2 above.
(6) EBITDA margin represents EBITDA as a percentage of net sales.
(7) In the fourth quarter of 1997, United 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 the Merger Incentive
Options and the Management Agreements Termination, respectively. In
addition, during the fourth quarter of 1997, United 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.
(8) During 1995, United 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.
(9) Includes current maturities and capital lease obligation.
25
<PAGE>
PRE-MERGER UNITED
The selected consolidated financial data of pre-Merger United (a predecessor
of post-Merger United) set forth below for the seven months ended March 30, 1995
(at which time pre-Merger United and Associated merged to create United) have
been derived from the Consolidated Financial Statements of pre-Merger 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 reflect all adjustments considered
necessary for a fair presentation of such data. The selected consolidated
financial data of pre-Merger United for each of the two fiscal years ended
August 31, 1993 and 1994 have been derived from the audited consolidated
financial statements of pre-Merger United.
<TABLE>
<CAPTION>
PRE-MERGER UNITED
--------------------------------------------------
SEVEN MONTHS ENDED
YEARS ENDED AUGUST 31, ------------------------
------------------------ MARCH 31, MARCH 30,
1993 1994 1994 1995
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................................... $ 1,470,115 $ 1,473,024 $ 871,585 $ 980,575
Cost of sales................................................... 1,197,664 1,220,245 717,546 814,780
----------- ----------- ----------- -----------
Gross profit on sales........................................... 272,451 252,779 154,039 165,795
Operating expenses.............................................. 226,337 216,485 128,594 133,098
Merger-related costs(1)......................................... -- -- -- 27,780
----------- ----------- ----------- -----------
Income from operations.......................................... 46,114 36,294 25,445 4,917
Interest expense, net........................................... 9,550 10,461 5,837 7,500
Other income, net............................................... 355 225 117 41
----------- ----------- ----------- -----------
Income (loss) before income taxes............................... 36,919 26,058 19,725 (2,542)
Income taxes.................................................... 15,559 10,309 8,185 4,692
----------- ----------- ----------- -----------
Net income (loss)............................................... $ 21,360 $ 15,749 $ 11,540 $ (7,234)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per common share--assuming dilution........... $ 1.15 $ 0.85 $ 0.62 $ (0.39)
Cash dividends declared per share............................... 0.40 0.40 0.30 0.30
OTHER DATA:
EBITDA(2)....................................................... $ 67,712 $ 57,755 $ 37,665 $ 17,553
EBITDA margin(3)................................................ 4.6% 3.9% 4.3% 1.8%
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................. $ 216,074 $ 239,827 $ 297,099 $ 257,600
Total assets.................................................... 634,786 618,550 608,728 711,839
Total debt(4)................................................... 150,251 155,803 227,626 233,406
Total stockholders' equity...................................... 237,697 246,010 243,636 233,125
</TABLE>
- --------------------------
(1) In connection with the Merger, pre-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) For purposes of this table only, 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) Includes current maturities and capital lease obligation.
26
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Consolidated Pro Forma Financial Statements are
based on the historical financial statements of the Company. The pro forma
balance sheet is presented giving effect to (i) the Senior Credit Facilities
Refinancing, (ii) the Azerty Acquisition, (iii) the Notes Offering (including
the application of net proceeds to the Company therefrom), and (iv) the Offering
(including the application of net proceeds to the Company therefrom), all as
more fully described in the notes to Unaudited Consolidated Pro Forma Financial
Statements below, as if all such transactions were effected on March 31, 1998.
The pro forma income statement gives effect to (i) the Senior Credit Facilities
Refinancing, (ii) the Azerty Acquisition, (iii) the Notes Offering (including
the application of net proceeds to the Company therefrom) and (iv) the Offering
(including the application of net proceeds to the Company therefrom), all as
more fully described in the notes to Unaudited Consolidated Pro Forma Financial
Statements below, as if all such transactions were effected as of January 1,
1997. The supplemental pro forma balance sheet is presented giving effect to (i)
the Senior Credit Facilities Refinancing, (ii) the Azerty Acquisition, (iii) the
Notes Offering (including the application of net proceeds to the Company
therefrom), (iv) the Offering (including the application of net proceeds to the
Company therefrom) and (v) the Computer Services Contract Write-off, as if all
such transactions occurred on March 31, 1998. The 1997 supplemental pro forma
income statement is presented giving effect to (i) the October Equity Offering
(including the application of net proceeds to the Company therefrom), (ii) the
Preferred Stock Redemption, (iii) the Management Agreements Termination,
(collectively the "Financing Transactions") (iv) the Computer Services Contract
Write-Off, (v) the Senior Credit Facilities Refinancing, (vi) the Azerty
Acquisition, (vii) the Notes Offering (including the application of net proceeds
to the Company therefrom) and (viii) the Offering (including the application of
net proceeds to the Company therefrom), as if all such transactions occurred on
January 1, 1997. The supplemental pro forma income statement for the three
months ended March 31, 1998 is presented giving effect to (i) the Computer
Services Contract Write-Off, (ii) the Senior Credit Facilities Refinancing,
(iii) the Azerty Acquisition, (iv) the Notes Offering (including the application
of net proceeds to the Company therefrom) and (v) the Offering (including the
application of net proceeds to the Company therefrom), as if all such
transactions occurred on January 1, 1997.
The pro forma income statements exclude the extraordinary nonrecurring
charge of approximately $9.3 million ($5.5 million net of tax benefit of $3.8
million) related to the write-off of unamortized financing fees in conjunction
with the Senior Credit Facilities Refinancing. For pro forma balance sheet
purposes, this extraordinary nonrecurring charge has been reflected as a
reduction of retained earnings.
In addition to the above described extraordinary nonrecurring charge of $9.3
million, the 1997 Unaudited Consolidated Supplemental Pro Forma Income Statement
also excludes the following: (i) an extraordinary nonrecurring charge of $9.8
million ($5.9 million net of tax benefit of $3.9 million) on early retirement of
debt, (ii) a nonrecurring non-cash charge of $59.4 million ($35.5 million net of
tax benefit of $23.9 million) related to the vesting of the Merger Incentive
Options, and (iii) a nonrecurring cash charge of $5.3 million ($3.2 million net
of tax benefit of $2.1 million) related to the Management Agreements
Termination, all of which are related to the 1997 Financing Transactions. These
additional nonrecurring charges are reflected in the historical balance sheet as
of March 31, 1998.
The supplemental pro forma income statements also exclude the non-recurring
charge of approximately $13.9 million ($8.3 million net of tax benefit of $5.6
million) related to the Computer Servcies Contract Write-Off. For supplemental
pro forma balance sheet purposes, this non-recurring charge has been reflected
as a reduction of retained earnings.
The Unaudited Consolidated Pro Forma Financial Statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the Company after the
Senior Credit Facilities Refinancing, the Azerty Acquisition, the Notes Offering
and the Offering, or of the financial position or results of operations of the
Company that would have actually occurred had the Computer Services Contract
Write-Off, the 1997 Financing Transactions, the Senior Credit Facilities
Refinancing, the Azerty Acquisition, the Notes Offering or the Offering occurred
January 1, 1997. The Unaudited Consolidated Pro Forma Financial Statements and
the accompanying notes should be read in conjunction with, and are qualified in
their entirety by, the Consolidated Financial Statements of the Company,
together with the related notes thereto, included elsewhere herein.
27
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA
AND SUPPLEMENTAL PRO FORMA BALANCE SHEETS
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPUTER
SENIOR CREDIT SERVICES
FACILITIES AZERTY NOTES CONTRACT
REFINANCING ACQUISITION OFFERING OFFERING WRITE-OFF SUPPLEMENTAL
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 11,504 $ -- $ -- $ -- $ -- $ 11,504 $ -- $ 11,504
Accounts
receivable....... 282,237 (150,435)(a) 48,610(e) -- -- 180,412 -- 180,412
Inventories........ 484,911 -- 33,477(e) -- -- 518,388 -- 518,388
Other.............. 15,754 -- 488(e) -- -- 16,242 (2,639)(h) 13,603
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Total current
assets......... 794,406 (150,435) 82,575 -- -- 726,546 (2,639) 723,907
Net property, plant
and equipment...... 161,894 -- 5,847(e) -- -- 167,741 -- 167,741
Goodwill............. 111,110 -- 72,129(e) -- -- 183,239 -- 183,239
Other................ 20,282 (6,944)(b) -- 2,800(f) (410)(g) 15,728 -- 15,728
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Total assets..... $1,087,692 $(157,379) $160,551 $ 2,800 $ (410) $1,093,254 $ (2,639) $1,090,615
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt... $ 19,551 $ (9,004)(c) $ 102(e) $ -- $ -- $ 10,649 $ -- $ 10,649
Accounts payable... 235,915 -- 42,929(e) -- -- 278,844 -- 278,844
Accrued expenses... 107,616 (3,931)(d) 2,063(e) (80)(f) 3,816(g) 109,484 2,599(h) 112,083
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Total current
liabilities.... 363,082 (12,935) 45,094 (80) 3,816 398,977 2,599 401,576
Deferred income
taxes.............. 19,208 -- -- -- -- 19,208 (5,589)(h) 13,619
Long-term
obligations:
Long-term debt..... 455,650 (138,596)(c) 115,457(e) 3,000(f) (113,043)(g) 322,468 -- 322,468
Other long-term
liabilities...... 13,123 -- -- -- -- 13,123 8,665(h) 21,788
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Total long term
obligations.... 468,773 (138,596) 115,457 3,000 (113,043) 335,591 8,665 344,256
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Stockholders' equity:
Common stock
(voting)......... 1,602 -- -- -- 222(g) 1,824 -- 1,824
Capital in excess
of par value..... 211,261 -- -- -- 108,840(g) 320,101 -- 320,101
Retained
earnings......... 23,766 (5,848)(d) -- (120)(f) (245)(g) 17,553 (8,314)(h) 9,239
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Total
stockholders'
equity......... 236,629 (5,848) -- (120) 108,817 339,478 (8,314) 331,164
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
Total liabilities
and
stockholders'
equity......... $1,087,692 $(157,379) $160,551 $ 2,800 $ (410) $1,093,254 $ (2,639) $1,090,615
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
---------- ------------- ----------- ----------- ----------- ---------- ----------- ------------
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
28
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA
AND SUPPLEMENTAL PRO FORMA INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SENIOR CREDIT
FACILITIES AZERTY NOTES
REFINANCING ACQUISITION OFFERING OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $2,558,135 $ -- $ 355,423(l) $ -- $ -- $2,913,558
Cost of goods sold................. 2,112,204 -- 323,160 -- -- 2,435,364
--------- ------------- ------------- ------------- ------------- -----------
Gross profit....................... 445,931 -- 32,263(l) -- -- 478,194
Operating expense:
Warehousing, marketing and
administrative expenses.......... 311,002 -- 22,599(m) -- -- 333,601
Non-recurring charges.............. 64,698 -- -- -- -- 64,698
--------- ------------- ------------- ------------- ------------- -----------
Total operating expenses........... 375,700 -- 22,599 -- -- 398,299
--------- ------------- ------------- ------------- ------------- -----------
Income from operations............. 70,231 -- 9,664 -- -- 79,895
Interest expenses.................. 53,511 (15,872)(i) 8,775(n) 1,230(o) (8,106)(p) 39,538
Other expense...................... -- 9,251(j) -- -- -- 9,251
--------- ------------- ------------- ------------- ------------- -----------
Income before income taxes and
extraordinary item............... 16,720 6,621 889 (1,230) 8,106 31,106
Income taxes....................... 8,532 2,661(k) 1,055(k) (494)(k) 3,259(k) 15,013
--------- ------------- ------------- ------------- ------------- -----------
Income before extraordinary item... 8,188 3,960 (166) (736) 4,847 16,093
Extraordinary item--loss on early
retirement of debt, net of tax
benefit of $3,956................ (5,884) -- -- -- -- (5,884)
--------- ------------- ------------- ------------- ------------- -----------
Net income......................... 2,304 3,960 (166) (736) 4,847 10,209
Preferred stock dividends issued
and accrued...................... 1,528 -- -- -- -- 1,528
--------- ------------- ------------- ------------- ------------- -----------
Net income attributable to common
stockholders..................... $ 776 $ 3,960 $ (166) $ (736) $ 4,847 $ 8,681
--------- ------------- ------------- ------------- ------------- -----------
--------- ------------- ------------- ------------- ------------- -----------
Net income per common share--basic:
Income before extraordinary item... $ 0.51 $ 0.96
Extraordinary item................. (0.45) (0.39)
--------- -----------
Net income......................... $ 0.06 $ 0.57
--------- -----------
--------- -----------
Weighted average shares (in
thousands)....................... 13,064 15,281
Net income per common share--
assuming dilution:
Income before extraordinary item... $ 0.43 0.84
Extraordinary item................. (0.38) (0.34)
--------- -----------
Net income......................... $ 0.05 $ 0.50
--------- -----------
--------- -----------
Weighted average shares and assumed
conversions (in thousands)......... 15,380 17,358
OTHER DATA:
EBITDA............................. $ 96,272 $ 108,903
EBITDA margin...................... 3.8% 3.7%
OTHER DATA BEFORE CHARGES:
Income from operations............. $ 134,929 $ 144,593
Net income attributable to common
stockholders..................... 45,364 53,254
Net income per common share
assuming dilution................ 2.95 3.07
EBITDA............................. 160,970 173,601
EBITDA margin...................... 6.3% 6.0%
<CAPTION>
COMPUTER
SERVICES 1997
CONTRACT FINANCING
WRITE-OFF TRANSACTIONS SUPPLEMENTAL
ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------------- ------------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $ -- $ -- $2,913,558
Cost of goods sold................. -- -- 2,435,364
------- ------------- ------------
Gross profit....................... -- -- 478,194
Operating expense:
Warehousing, marketing and
administrative expenses.......... (3,240)(q) (708)(r) 329,653
Non-recurring charges.............. -- (64,698)(r) --
------- ------------- ------------
Total operating expenses........... (3,240) (65,406) 329,653
------- ------------- ------------
Income from operations............. 3,240 65,406 148,541
Interest expenses.................. -- (5,096)(s) 34,442
Other expense...................... -- -- 9,251
------- ------------- ------------
Income before income taxes and
extraordinary item............... 3,240 70,502 104,848
Income taxes....................... 1,302(k) 28,342(k) 44,657
------- ------------- ------------
Income before extraordinary item... 1,938 42,160 60,191
Extraordinary item--loss on early
retirement of debt, net of tax
benefit of $3,956................ -- 5,884(t) --
------- ------------- ------------
Net income......................... 1,938 48,044 60,191
Preferred stock dividends issued
and accrued...................... -- (1,528)(u) --
------- ------------- ------------
Net income attributable to common
stockholders..................... $ 1,938 $ 49,572 $ 60,191
------- ------------- ------------
------- ------------- ------------
Net income per common share--basic:
Income before extraordinary item... $ 3.94
Extraordinary item................. 0.00
------------
Net income......................... $ 3.94
------------
------------
Weighted average shares (in
thousands)....................... 15,281
Net income per common share--
assuming dilution:
Income before extraordinary item... $ 3.47
Extraordinary item................. (0.00)
------------
Net income......................... $ 3.47
------------
------------
Weighted average shares and assumed
conversions (in thousands)......... 17,358
OTHER DATA:
EBITDA............................. $ 177,549
EBITDA margin...................... 6.1%
OTHER DATA BEFORE CHARGES:
Income from operations............. $ 148,541
Net income attributable to common
stockholders..................... 60,191
Net income per common share
assuming dilution................ 3.47
EBITDA............................. 177,549
EBITDA margin...................... 6.1%
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
29
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA
AND SUPPLEMENTAL PRO FORMA INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SENIOR CREDIT
FACILITIES AZERTY NOTES
REFINANCING ACQUISITION OFFERING OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $ 712,517 $ -- $ 99,801(l) $ -- $ -- $ 812,318
Cost of goods sold......................... 589,455 -- 91,996 -- -- 681,451
---------- ------------- ----------- ----------- ----------- ----------
Gross profit............................... 123,062 -- 7,805(l) -- -- 130,867
Operating expense:
Warehousing, marketing and administrative 85,037
expenses................................. -- 5,791(m) -- -- 90,828
Non-recurring charges...................... -- -- -- -- -- --
---------- ------------- ----------- ----------- ----------- ----------
Total operating expenses................... 85,037 -- 5,791 -- -- 90,828
---------- ------------- ----------- ----------- ----------- ----------
Income from operations..................... 38,025 -- 2,014 -- -- 40,039
Interest expense........................... 11,826 (3,700)(i) 2,218(n) 287(o) (2,054)(p) 8,577
Other expense.............................. -- 2,313 -- -- -- 2,313
---------- ------------- ----------- ----------- ----------- ----------
Income before income taxes and 26,199
extraordinary item....................... 1,387 (204) (287) 2,054 29,149
Income taxes............................... 11,108 558(k) 95(k) (115)(k) 826(k) 12,472
---------- ------------- ----------- ----------- ----------- ----------
Income before extra item................... 15,091 829 (299) (172) 1,228 16,677
Extraordinary item......................... -- -- -- -- -- --
---------- ------------- ----------- ----------- ----------- ----------
Net income................................. 15,091 829 (299) (172) 1,228 16,677
Preferred dividends........................ -- -- -- -- -- --
---------- ------------- ----------- ----------- ----------- ----------
Net income attributable to common $ 15,091
stockholders............................. $ 829 $ (299) $ (172) $ 1,228 $ 16,677
---------- ------------- ----------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------- ----------
Net income per common share--basic......... $ 0.94 $ 0.92
---------- ----------
---------- ----------
Weighted average shares (in thousands)..... 15,995 18,212
Net income per common share--assuming $ 0.88
dilution................................. $ 0.88
---------- ----------
---------- ----------
Weighted average shares and assumed 17,098
conversions (in thousands)............... 18,980
<CAPTION>
COMPUTER
SERVICES
CONTRACT
WRITE-OFF SUPPLEMENTAL
ADJUSTMENTS PRO FORMA
------------ ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $ -- $ 812,318
Cost of goods sold......................... -- 681,451
------------ ------------
Gross profit............................... -- 130,867
Operating expense:
Warehousing, marketing and administrative
expenses................................. (802)(q) 90,026
Non-recurring charges...................... -- --
------------ ------------
Total operating expenses................... (802) 90,026
------------ ------------
Income from operations..................... 802 40,841
Interest expense........................... -- 8,577
Other expense.............................. -- 2,313
------------ ------------
Income before income taxes and
extraordinary item....................... 802 29,951
Income taxes............................... 322(k) 12,794
------------ ------------
Income before extra item................... 480 17,157
Extraordinary item......................... -- --
------------ ------------
Net income................................. 480 17,157
Preferred dividends........................ -- --
------------ ------------
Net income attributable to common
stockholders............................. $ 480 $ 17,157
------------ ------------
------------ ------------
Net income per common share--basic......... $ 0.94
------------
------------
Weighted average shares (in thousands)..... 18,212
Net income per common share--assuming
dilution................................. $ 0.90
------------
------------
Weighted average shares and assumed
conversions (in thousands)............... 18,980
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
30
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The pro forma financial statements have been prepared giving effect to the
following:
(1) The offering price for the shares of Common Stock is assumed to be $62.75
per share.
(2) The New Credit Facilities and Receivables Securitization Program replaced
all preexisting debt under the Existing Credit Agreement (which, as of
December 31, 1997 and March 31, 1998, consisted of $148.8 million and $119.0
million of term loan facilities and $256.0 million and $224.0 million in a
revolving credit facility, respectively). Accordingly, $9.3 million of
unamortized financing fees as of March 31, 1998 related to the credit
agreement governing the Existing Credit Facilities ($5.6 million net of tax
benefit of $3.7 million) were expensed as an extraordinary charge due to the
early retirement of such debt. As this extraordinary charge will be
non-recurring it is not considered for pro forma income statement purposes.
Proceeds from the receivables sold under the Receivables Securitization
Program of approximately $150.0 million and will be used to reduce
borrowings under the New Credit Facilities. The Company received
approximately $160.0 million in proceeds from the sale of certain Eligible
Receivables on April 3, 1998. These Unaudited Consolidated Pro Forma
Financial Statements reflect $150.0 million in proceeds from the sale of
certain Eligible Receivables under the Receivables Securitization Program as
this amount was deemed to more fairly represent the average amount of
receivables that would have been sold in 1997. The anticipated annual costs
related to the sale of certain accounts receivable is estimated to be $9.3
million and is shown in other expense.
(3) The Tranche B Term Loan Facility ($100.0 million) and a portion of the
Revolving Credit Facility under the New Credit Facilities ($15.1 million)
were used to purchase the Azerty Business and pay approximately $1.0 million
in acquisition fees and expenses.
(4) The total purchase price for the Azerty Business (including fees and
expenses) was approximately $115.1 million and has been preliminarily
allocated as follows:
<TABLE>
<S> <C>
Current assets.................................................... $ 82,575
Property, plant and equipment..................................... 5,847
Goodwill.......................................................... 72,129
Liabilities assumed............................................... (45,444)
---------
Total purchase price............................................ $ 115,107
---------
---------
</TABLE>
31
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) The operating results for the year ended December 31, 1997 and for the three
months ended March 31, 1998 for the Azerty Business have been included as
follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
<S> <C> <C>
Net sales....................................................... $ 355,423 $ 99,801
Cost of goods sold.............................................. 323,160 91,996
------------ -------------
Gross Profit.................................................. 32,263 7,805
Warehousing, marketing and administrative expenses(a)(b)........ 22,599 5,791
------------ -------------
Earnings before interest and taxes.............................. $ 9,664 $ 2,014
------------ -------------
------------ -------------
- ------------------------
</TABLE>
(a) Includes $1.8 million of annual goodwill amortization based on
$72.1 million of goodwill as computed above amortized over 40
years.
(b) Excludes special bonuses paid by Abitibi-Consolidated Inc.,
amounting to approximately $3.5 million, to senior Azerty
Business executives related to the Azerty Acquisition; such
bonuses do not represent continuing obligations of the Azerty
Business. Also excludes approximately $1.5 million of annual
goodwill amortization related to the purchase cost paid by
Abitibi-Consolidated, Inc. for the Azerty Business; such goodwill
is eliminated under purchase accounting as applied to the Azerty
Acquisition.
(6) Pro forma interest expense has been calculated based upon pro forma debt
levels and the applicable interest rates. The Existing Credit Facilities'
term loan facilities and revolving credit facility were assumed to bear
interest at their respective current rates of 7.71% and 7.67%, respectively,
for the year ended December 31, 1997 and 7.71% and 7.67%, respectively, for
the three months ended March 31, 1998. The Revolving Credit Facility, the
Tranche A Term Loan Facility and the Tranche B Term Loan Facility under the
New Credit Facilities were assumed to bear interest at rates of 7.45%, 7.15%
and 7.65%, respectively, for the year ended December 31, 1997 and 7.45%,
7.15% and 7.65%, respectively, for the three months ended March 31, 1998,
based on current LIBOR/prime rates and spread terms. A variation of 0.125%
in effective interest rates used for pro forma purposes has a $0.5 million
impact for the year ended December 31, 1997 and a $0.1 million impact for
the three months ended March 31, 1998 on pro forma interest expense.
(7) Income taxes have been provided for all adjustments at an assumed rate of
40.2%. Goodwill resulting from the Azerty Acquisition will not be tax
deductible and as such is not tax affected.
32
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The December 31, 1997 supplemental pro forma income statement reflecting the
1997 Financing Transactions and the Computer Services Contract Write-Off has
been prepared giving effect to all the assumptions made in the pro forma income
statement and the following:
(1) The Computer Services Contract Write-Off results in a $13.9 million
non-recurring charge ($8.3 million net of tax benefit of $5.6 million) and
$3.2 million in annual cost savings.
(2) The October Equity Offering and the resulting proceeds thereof were
contributed to the Company and used to redeem $50.0 million of the Company's
12 3/4% Notes, pay the redemption premium of $6.4 million thereon, and pay
down $15.5 million of indebtedness under the Existing Credit Facilities. The
resulting extraordinary loss of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) on early retirement of debt was eliminated for pro
forma purposes.
(3) The October Equity Offering also resulted in the recognition of a 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
the Merger Incentive Options and the Management Agreements Termination,
respectively. These non-recurring charges have been eliminated for pro forma
purposes. Approximately $0.7 million in management advisory service
agreement fees were paid prior to the Management Agreements Termination.
Accordingly, these fees which were charged to 1997 operating expenses have
been eliminated for pro forma purposes.
(4) On September 2, 1997, United completed the redemption of all outstanding
shares of its Series A and Series C Preferred Stock for an aggregate
redemption price of approximately $21.3 million. Accordingly, the $1.5
million of Preferred Stock dividends issued and accrued for the year ended
December 31, 1997 has been eliminated for pro forma purposes.
The supplemental pro forma income statement for the three months ended March
31, 1998 has been prepared giving effect to all assumptions made in the pro
forma income statement and the adjustment for the Computer Services Contract
Write-Off described above. Approximately $2.6 million in prepaid expense related
to the Computer Services Contract has been eliminated for supplemental pro forma
balance sheet purposes and $2.6 million and $8.7 million of current and
long-term payments have been added to current and long-term liabilities,
respectively, as a result of the Computer Services Contract Write-Off.
Pro forma adjustments have been made to the pro forma and supplemental pro
forma balance sheets to reflect the following effects of the Senior Credit
Facilities Refinancing, the Azerty Acquisition, the Notes Offering, the
Offering, and the Computer Services Contract Write-off:
<TABLE>
<C> <S> <C>
(a) Reflects the sale of accounts receivable related to the Receivables
Securitization Program.
(b) Write-off of capitalized financing costs associated with the $ (9,344)
retirement of the Existing Credit Facilities' revolving credit
facility, tranche A and tranche B term loans........................
Capitalize financing costs related to the New Credit Facilities..... 2,400
---------
$ (6,944)
---------
---------
</TABLE>
33
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(c) Reflects retirement of debt under the Existing Credit Facilities and the
issuance of new debt under the New Credit Facilities:
<TABLE>
<S> <C>
Retirement of existing tranche A term loan....................... $ (18,337)
Retirement of existing tranche B term loan....................... (667)
Tranche A Term Loan Facility..................................... 10,000
---------
Adjustment to current maturities of long-term debt(1).......... $ (9,004)
---------
---------
Retirement of existing tranche A term loan....................... $ (58,345)
Retirement of existing tranche B term loan....................... (41,675)
Retirement of existing revolving credit facility................. (224,000)
Tranche A Term Loan Facility..................................... 140,000
Revolving Credit Facility........................................ 45,424
---------
Adjustment to long-term debt(1)................................ $(138,596)
---------
---------
- ------------------------
</TABLE>
(1) Totals $147.6 million and combined with the $2.4 million of financing
costs related to the New Credit Facilities (see Note b) reflects the
use of proceeds from the Receivables Securitization Program.
(d) Adjustment to current income tax liability for the tax effect and to
retained earnings for the net effect of the write-off of the capitalized
financing costs and the initial costs related to the sale of certain
accounts receivable.
(e) Reflects the use of $100.0 million of the Tranche B Term Loan Facility
and $15.1 million of the Revolving Credit Facility under the New Credit
Facilities to purchase the Azerty Business. The Company has also assumed
$0.4 million of debt from the Azerty Business. The assets and liabilities
of the Azerty Business (including fees and expenses) are preliminarily
allocated as follows:
<TABLE>
<S> <C>
Current assets.................................................... $ 82,575
Property, plant and equipment..................................... 5,847
Goodwill.......................................................... 72,129
Liabilities assumed............................................... (45,444)
---------
Purchase price.................................................. $ 115,107
---------
---------
</TABLE>
(f) Reflects net proceeds of $97.0 million from the Notes Offering ($100.0
million net of approximately $3.0 million in financing costs) plus an
additional $3.0 million in borrowings under the Revolving Credit Facility
used to pay down the indebtedness outstanding under the Tranche B Term
Loan Facility, and as a result $0.2 million ($0.12 million net of tax
benefit of $0.08 million) in financing fees associated with the Tranche B
Term Loan Facility was expensed as an extraordinary loss due to the early
retirement of debt (which loss is excluded for pro forma income statement
purposes as it is non-recurring).
34
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(g) The pro forma adjustments related to the Offering consist of the
following:
<TABLE>
<S> <C>
Adjustment to other assets:
Write-off of capitalized financing costs associated with the
reduction of the Tranche A Term Loan Facility................ $ (410)
---------
---------
Adjustments to accrued expenses:
Tax benefit related to options exercised....................... $ (6,229)
Tax benefit related to write-off of capitalized financing costs
associated with the reduction of the Tranche A Term Loan
Facility..................................................... (165)
Employee withholding tax liability associated with options
exercised.................................................... 10,210
---------
Increase in accrued expenses..................................... $ 3,816
---------
---------
Adjustments to long-term obligations:
Proceeds from the exercise of stock options.................... $ (7,898)
Proceeds from the issuance of Common Stock by the Company in
conjunction with the Offering (net of underwriting discounts
and commissions and expenses)................................ (105,145)
---------
Decrease in long-term obligations................................ $(113,043)
---------
---------
Adjustments to stockholders' equity:
Common Stock:
Issuance of shares of Common Stock by the Company in
conjunction with the Offering.............................. $ 175
Issuance of shares of Common Stock by the Company in
conjunction with the exercise of stock options............. 47
---------
Increase in Common Stock..................................... $ 222
---------
---------
Capital in excess of par value:
Issuance of shares of Common Stock by the Company in
conjunction with the Offering (net of underwriting
discounts and commissions and expenses).................... $ 104,970
Issuance of shares of Common Stock by the Company in
conjunction with the exercise of stock options............. 3,870
---------
Increase in capital in excess of par value................... $ 108,840
---------
---------
Retained earnings:
Write-off of capitalized financing costs associated with the
reduction of the Tranche A Term Loan Facility, net of tax
benefit.................................................... (245)
---------
---------
Increase in stockholders' equity................................. $ 108,817
---------
---------
</TABLE>
(h) The supplemental pro forma adjustments for the Computer Services
Contract Write-Off consist of the following:
(1) Reduction in other current assets of $2,639 reflecting the write-off
of the prepaid expense related to the Computer Services Contract
Write-Off.
35
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) Increase in accrued expenses of $2,599 reflecting the current portion
of the remaining payments on the Computer Services Contract.
(3) Reduction in deferred income taxes of $5,589 reflecting the future
tax benefit of the Computer Services Contract Write-Off.
(4) Increase in long-term liabilities of $8,665 reflecting the long-term
portion of the remaining payments on the Computer Services Contract.
(5) Reduction in retained earnings of $8,314 reflecting the after tax
impact of the Computer Services Contract Write-Off.
Pro forma adjustments have been made to the pro forma and supplemental pro
forma income statements to reflect the following effects of the Senior Credit
Facilities Refinancing, the Azerty Acquisition, the Notes Offering, the
Offering, the Computer Services Contract Write-Off and the 1997 Financing
Transactions:
(i) The pro forma adjustments to interest expense related to the Senior
Credit Facilities Refinancing consist of the following:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
<S> <C> <C>
Elimination of interest related to Existing Credit Facilities:
Revolving credit facility.......................................... $ (12,540) $ (3,896)
Tranche A term loan................................................ (9,412) (1,812)
Tranche B term loan................................................ (4,794) (1,048)
Elimination of amortization of deferred financing costs on retired
debt............................................................. (3,027) (717)
------------ -------------
Decrease in interest expense......................................... (29,773) (7,473)
------------ -------------
Interest on new indebtedness (New Credit Facilities):
Revolving Credit Facility.......................................... 3,133 954
Tranche A Term Loan Facility....................................... 10,368 2,719
Amortization of deferred financing costs on the New Credit
Facilities(1).................................................... 400 100
------------ -------------
Increase in interest expense....................................... 13,901 3,773
------------ -------------
Net decrease in interest expense..................................... $ (15,872) $ (3,700)
------------ -------------
------------ -------------
- ------------------------
</TABLE>
(1) Debt issuance costs are amortized over the life of the related
new debt, 6 years.
(j) Reflects the costs related to the sale of certain accounts receivable
under the Receivables Securitization Program.
(k) Income taxes provided at a 40.2% effective rate.
(l) Reflects the historical Azerty Business net sales and gross profit.
36
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(m) Reflects the Azerty Business historical operating expenses for the year
ended December 31, 1997, as adjusted (see page 32 note (5)), and the
three months ended March 31, 1998 for the Azerty Business plus $1.8
million and $0.4 million, respectively, of goodwill amortization related
to the Azerty Acquisition.
(n) The pro forma adjustments to interest expense related to the Azerty
Acquisition consist of the following:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------- ---------------
<S> <C> <C>
Interest on new indebtedness (New Credit Facilities):
Tranche B Term Loan Facility....................................... $ 7,650 $ 1,938
Revolving Credit Facility.......................................... 1,125 280
------ ------
Increase in interest expense..................................... $ 8,775 $ 2,218
------ ------
------ ------
</TABLE>
(o) The pro forma adjustments to interest expense related to the Notes
Offering consist of the following:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
<S> <C> <C>
Elimination of interest related to New Credit Facilities:
Tranche B Term Loan Facility....................................... $ (7,650) $ (1,938)
------------ -------------
Interest on new indebtedness (New Credit Facilities and the 8 3/8%
Notes):
Revolving Credit Facility.......................................... 205 56
Notes Offering..................................................... 8,375 2,094
Amortization of deferred financing costs on 8 3/8% Notes(1)........ 300 75
------------ -------------
Increase in interest expense....................................... 8,880 2,225
------------ -------------
Net increase in interest expense................................. $ 1,230 $ 287
------------ -------------
------------ -------------
- ------------------------
</TABLE>
(1) Debt issuance costs are amortized over the life of the related
new debt, 10 years.
37
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(p) The pro forma adjustments to interest expense related to the Offering
consist of the following:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
<S> <C> <C>
Elimination of interest expense related to the reduction of Tranche A
Term Loan Facility with the proceeds from the Offering............. $ (7,518) $ (1,906)
Elimination of interest expense related to the reduction of the
Revolving Credit Facility with the proceeds realized from the
exercise of stock options.......................................... (588) (148)
------------ -------------
Net decrease in interest expense..................................... $ (8,106) $ (2,054)
------------ -------------
------------ -------------
</TABLE>
Additional pro forma adjustments have been made in the supplemental pro
forma income statement to give effect to the following:
(q) Reflects the cost savings associated with the Computer Services Contract
Write-Off.
(r) In the fourth quarter of 1997, United 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 the
Merger Incentive Options and the Management Agreements Termination,
respectively. In addition, approximately $0.7 million in management
advisory service fees were paid in 1997 prior to the Management
Agreements Termination. These charges and expenses are excluded for pro
forma income statement purposes as they are non-recurring.
(s) The pro forma adjustments to interest expense related to the 1997
Financing Transactions consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Addition (Elimination) of interest related to:
Existing Credit Facilities.................................................... $ 701
12 3/4% Notes................................................................. (5,467)
Elimination of amortization of deferred financing costs on retired debt....... (330)
------------
Decrease in interest expense.................................................... $ (5,096)
------------
------------
</TABLE>
(t) In the fourth quarter of 1997, United 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. This non-recurring charge is excluded for pro
forma purposes.
(u) On September 2, 1997, United completed the redemption of all outstanding
shares of its Series A and Series C Preferred Stock for an aggregate
redemption price of approximately $21.3 million. Accordingly, no
Preferred Stock dividends would be paid or accrued on a pro forma basis.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and related notes appearing elsewhere in
this Prospectus.
Certain information set forth in this discussion 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 the October Equity Offering. The
shares of Common Stock sold by the Company in the October Equity Offering were
priced at $38.00 per share, before underwriting discounts and a commission of
$1.90 per share. The aggregate net proceeds from this October 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 contributed to
USSC and used to (i) redeem $50.0 million of 12 3/4% Notes and pay the
redemption premium thereon of $6.4 million, (ii) pay fees related to the October
Equity Offering, and (iii) reduce the indebtedness under the Existing Credit
Facilities' 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 Existing Credit 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 reflect the financial information of Associated only for the three
months ended March 30, 1995 and the results of the Company for the nine months
ended December 31, 1995. As a result of the Merger, the results of operations of
the Company for the year ended December 31, 1995 are not comparable to those of
previous and subsequent periods.
To facilitate a meaningful comparison of the years ended December 31, 1996
and 1995, a supplemental discussion and analysis is included and based on the
supplemental pro forma results of operations for the Company for the year ended
December 31, 1995. The supplemental 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 Company's Management Equity Plan allows the
Board of Directors of the Company to designate, and the directors have
designated the Performance Incentive Compensation Committee as the option
committee to administer the Management Equity Plan. The Management Equity Plan
provides for the issuance of options to purchase shares of Common Stock to key
officers and management employees of the Company, either as incentive stock
options or as non-qualified stock options.
Effective November 1997, the Company's stockholders approved an amendment to
the Management Equity Plan which provided for the issuance of approximately 1.5
million additional options to key
39
<PAGE>
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 1998 to date, the Company has granted 460,075 options 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 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 from April 1, 1996 through
October 1, 1997.
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 October Equity Offering in
October 1997. All Common Stock issued upon the exercise of Merger Incentive
Options is subject to a six month holding period which expired 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 of Merger Incentive Options. 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 Merger 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 Merger. 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. Management believes the restructuring reserve balance at December
31, 1997 of $0.3 million is adequate to cover the remaining estimated
expenditures related to Merger integration and transition costs. See Note 5 to
the Consolidated Financial Statements of the Company included elsewhere herein.
ACTUAL AND SUPPLEMENTAL PRO FORMA RESULTS OF OPERATIONS
The following table of summary actual and supplemental pro forma results of
operations (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
40
<PAGE>
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, including the related notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------- -------------------------------
SUPPLEMENTAL
PRO FORMA
1995 1996 1997 1997 1998
-------------------- -------------------- -------------------- -------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $2,201,860 100.0% $2,298,170 100.0% $2,558,135 100.0% $ 635,021 100.0% $ 712,517
Gross profit............... 381,270 17.3 390,961 17.0 445,931 17.4 108,742 17.1 123,062
Operating expenses......... 299,861 13.6 277,957 12.1 311,002 12.2 76,704 12.1 85,037
Non-recurring charges...... -- -- -- -- 64,698 2.5 -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from operations..... $ 81,409 3.7% $ 113,004 4.9% $ 70,231 2.7% $ 32,038 5.0% $ 38,025
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
Net sales.................. 100.0%
Gross profit............... 17.2
Operating expenses......... 11.9
Non-recurring charges...... --
---------
Income from operations..... 5.3%
---------
---------
</TABLE>
COMPARISON OF ACTUAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET SALES. Net sales were $712.5 million in the first quarter of 1998, a
12.2% increase over net sales of $635.0 million in the first quarter of 1997.
However, the first quarter of 1998 benefited from the timing of the Easter
holiday that occurred in the first quarter of 1997. Excluding this effect, sales
would have increased approximately 11%. The Company experienced sales strength
in all geographic regions and across all product categories.
GROSS PROFIT. Gross profit as a percent of net sales of 17.2% in the first
quarter of 1998 was up from 17.1% in the comparable period of 1997.
OPERATING EXPENSES. Operating expenses as a percent of net sales decreased
to 11.9% in the first quarter of 1998 from 12.1% in the first quarter of 1997.
The reduction in operating expenses as a percent of net sales is primarily due
to the leveraging of fixed expenses on a higher sales base.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 5.3% in the first quarter of 1998 from 5.0% in the first quarter of
1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 1.7% in
the first quarter of 1998, compared with 2.3% in the comparable period in 1997.
In addition to the impact of leveraging such expense against a higher sales
base, this reduction also reflects the prepayment of $50.0 million of the
12 3/4% Notes and $15.5 million of term loans during the fourth quarter of 1997
with a portion of the proceeds from the October Equity Offering.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes as a percent of net sales was 3.6% in the first quarter of 1998, compared
with 2.7% in the first quarter of 1997.
NET INCOME. Net income before preferred stock dividends was $15.1 million
in the first quarter of 1998, compared with $10.0 million in the first quarter
of 1997.
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. Excluding the Lagasse acquisition, sales
growth for 1997 was 8.8%.
41
<PAGE>
GROSS PROFIT. Gross profit as a percent of net sales 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 the Merger
Incentive Options and the Management Agreements Termination, respectively.
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.
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, United 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 the Merger Incentive Options and the Management
Agreements Termination (see Notes 10 and 13 to the Consolidated Financial
Statements of the Company included elsewhere herein), respectively, 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 the
Company's sales.
42
<PAGE>
GROSS PROFIT. Gross profit as a percent of net sales declined to 17.0% in
1996 from 17.4% in 1995. This decrease reflected a shift in product mix, the
continuing consolidation of the Company's dealer base and deflation across the
Company's product mix.
OPERATING EXPENSES. Operating expenses decreased as a 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 (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.
COMPARISON OF ACTUAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
SUPPLEMENTAL 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, the Micro United division continued to
report strong growth resulting from the underlying strength in the marketplace.
The Company's year-long focus on improving the consistency and reliability of
its service led to increased sales and higher customer and consumer
satisfaction.
GROSS PROFIT. Gross profit as a percent of net sales declined to 17.0% in
1996 from 17.3% in 1995. This decrease reflected a shift in product mix, the
continuing consolidation of the Company's dealer base and deflation across the
Company's product mix.
OPERATING EXPENSES. Operating expenses decreased as a 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.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.7% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $119.0 million of term
loan borrowings (the "Term Loan Facilities"),
43
<PAGE>
and $224.0 million of borrowings under a $325.0 revolving loan facility under
the Existing Credit Facilities. In addition, the Company has $100.0 million of
12 3/4% Notes due 2005, $29.8 million of industrial revenue bonds and a $2.0
million mortgage.
The term loan facilities under the Existing Credit Facilities consisted of a
$76.7 million tranche A term loan facility and a $42.3 million tranche B term
loan facility. On March 31, 1998, principal payments of $15.8 million and $8.7
million were paid from Excess Cash Flow (as defined in the Credit Agreement) for
the tranche A and tranche B facilities, respectively.
The Credit Agreement contained representations and warranties, affirmative
and negative covenants and events of default customary for financings of this
type. As of March 31, 1998, the Company was in compliance with all covenants
contained in the Credit Agreement.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the New Credit
Facilities (as defined), will be sufficient to meet the short-term (less than
twelve months) and long-term operating and capital needs of the Company as well
as to service its debt in accordance with its terms. There is, however, no
assurance that this will be accomplished.
United is a holding company, and, as a result, its primary source of funds
is cash generated from operating activities of its operating subsidiary, USSC,
and bank borrowings by USSC. The New Credit Agreement, the 8 3/8% Notes
Indenture and the 12 3/4% Notes Indenture 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 26,329 $ 1,609 $ 41,768 $ 48,928 $ 67,500
Net cash used in investing
activities...................... (266,291) (49,871) (12,991) (1,612) (3,975)
Net cash provided by (used in)
financing activities............ 249,773 47,221 (27,029) (40,351) (64,388)
</TABLE>
COMPARISON OF ACTUAL CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
Net cash provided by operating activities during the first three months of
1998 increased to $67.5 million from $48.9 million in the comparable prior-year
period. This increase was due to higher net income, a decrease in accounts
receivable and a decrease in inventory, partially offset by a decrease in
accrued liabilities.
Net cash used in investing activities during the first three months of 1998
was $4.0 million compared with $1.6 million used in the first three months of
1997. The increase in cash used was due solely to an increase in capital
investments during 1998.
Net cash used in financing activities during the first three months of 1998
was $64.4 million compared with $40.4 million for the first three months of
1997. This increase was due primarily to the reduction of debt due to lower
working capital requirements.
COMPARISON OF ACTUAL CASH FLOWS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND
1996
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
44
<PAGE>
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
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.
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 12 3/4% Notes, a reduction of indebtedness
under the term loan facilities related to the Existing Credit Facilities of
$15.5 million, redemption of Series A and Series 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 in the
October Equity Offering 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.
NEW CREDIT FACILITIES
On April 3, 1998, USSC entered into the New Credit Agreement with United as
guarantor, The Chase Manhattan Bank, as agent, and a group of banks and
financial institutions (including Chase, the "Senior Lenders"). The following is
a summary of the principal terms of the New Credit Agreement which summary does
not purport to be complete and is subject, and is qualified in its entirety by
reference, to all the provisions of the New Credit Agreement, as it may be
further amended from time to time, a copy of which is available upon request to
the Company.
The New Credit Agreement provides for the funding of the Azerty Acquisition,
the refinancing of certain existing indebtedness and for other general corporate
purposes of the Company and its subsidiaries. The New Credit Facilities under
the New Credit Agreement consist of $150.0 million of borrowings pursuant to the
Tranche A Term Loan Facility and commitments of up to $250.0 million of
revolving loan borrowings pursuant to the Revolving Credit Facility (including a
sublimit of $90.0 million under the Revolving Credit Facility for letters of
credit). A portion of the Revolving Credit Facility is allocated for swingline
loans. The New Credit Facilities also included borrowings of $100.0 million
under the Tranche B Term Loan Facility. A substantial portion of the Tranche B
Term Loan Facility was repaid with the net proceeds from the Notes Offering. The
remainder of the Tranche B Term Loan Facility was permanently repaid with
proceeds from the sale of certain receivables under the Receivables
Securitization Program.
The loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility generally bear interest as determined within a set range with the rate
based on the ratio of total debt (which excludes the face amount of any undrawn
letters of credit) of United and its subsidiaries to EBITDA (as defined in the
New Credit Agreement). The Tranche A Term Loan Facility and the Revolving Credit
Facility bear interest, at the option of the Company and based upon financial
performance, at the base rate (i.e., the higher of the prime rate or federal
funds plus 0.50%) plus 0% to 0.75% or London Interbank Offered Rate ("LIBOR")
plus 1.00% to 2.00%.
As of the date of this filing, the outstanding principal balance of the
Tranche A Term Loan Facility consists of $150.0 million and matures on or about
March 31, 2004, and no amount of the Tranche B Term Loan Facility remained
outstanding, which had been scheduled to mature on or about December 31, 2004.
The term loans under the Tranche A Term Loan Facility are repayable in
consecutive quarterly installments commencing on or about June 30, 1998, the
first four of which are each in the amount of $2.5 million, the next four of
which are each in the amount of $3.75 million, the next four of which are each
45
<PAGE>
in the amount of $6.25 million, the next four of which are each in the amount of
$7.5 million and the last eight of which are each in the amount of $8.75
million.
Loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility may be prepaid at any time, and are subject to certain mandatory
prepayments out of (i) net proceeds received from the issuance of equity by
United or any of its subsidiaries subject to certain exceptions provided in the
New Credit Agreement, (ii) net proceeds from certain asset sales in excess of
$15.0 million, (iii) 50% of the Company's Excess Cash Flow (as defined in the
New Credit Agreement) for any fiscal year (commencing with the fiscal year
ending December 31, 1998), but only if the Debt to Cash Flow Ratio (as defined
in the New Credit Agreement) as of the last day of the fiscal year is greater
than 3.75 to 1, (iv) net proceeds received from casualty events subject to
certain exceptions provided within the New Credit Agreement and (v) net proceeds
received from certain debt issuances. Prepayments under the Tranche A Term Loan
Facility will be applied pro rata to the remaining installments due under the
Tranche A Term Loan Facility and, next, to the permanent reduction of
commitments (and the payment of loans outstanding) under the Revolving Credit
Facility. Net proceeds of this Offering will be used to repay a portion of the
indebtedness under the Tranche A Term Loan Facility. See "Use of Proceeds."
The Tranche A Term Loan Facility and the Revolving Credit Facility are
guaranteed, on a joint and several basis, by the Company and all of the direct
and indirect domestic subsidiaries of USSC.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
secured by perfected first priority pledges of the stock of the Company, all of
the stock of the domestic direct and indirect subsidiaries of the Company and
certain of the stock of all of the foreign direct and indirect subsidiaries
(other than the Receivables Company) of the Company and security interests in,
and liens upon, certain accounts receivable, inventory, contract rights and
other personal and certain real property of the Company and its domestic
subsidiaries. The New Credit Agreement provides for the complete release, upon
request by the Company, of the liens upon achievement of an investment grade
rating for the unsecured long-term debt of United or the Company for any
quarter, and a partial release in the event the Leverage Ratio (as defined in
the New Credit Agreement) may request that the security interests be regranted
if the Leverage Ratio for any subsequent quarter exceeds 3 to 1. The Majority
Lenders (as defined in the New Credit Agreement) may request that the security
interests be regranted if the Leverage Ratio for any subsequent quarter exceeds
3 to 1. In addition, the New Credit Agreement permits the release of the Senior
Lenders' lien in connection with the sale of specified receivables under the
Receivables Securitization Program.
The New Credit Agreement contains certain restrictive covenants that, among
other things, limit the ability of the Company and its subsidiaries to dispose
of assets, incur indebtedness or liens, pay dividends or make other payments in
respect of capital stock or subordinated indebtedness, make investments or other
acquisitions, engage in mergers or consolidations, engage in transactions with
affiliates, and engage in any business other than specified businesses. In
addition, the New Credit Agreement requires the Company to comply with certain
financial ratios and tests, including ratios of total debt to EBITDA, cash flow
to fixed charges, and EBITDA to interest expense, and a minimum net worth test.
12 3/4% NOTES
The 12 3/4% Notes were originally issued on May 3, 1995 pursuant to the
12 3/4% Notes Indenture. As of the date hereof, the aggregate outstanding
principal amount of the 12 3/4% Notes was $100.0 million. The 12 3/4% Notes are
unsecured senior subordinated obligations of USSC, and payment of the 12 3/4%
Notes is fully and unconditionally guaranteed by the Company and USSC's domestic
"restricted" subsidiaries on a senior subordinated basis. The 12 3/4% Notes
mature on May 1, 2005, and bear interest at the rate of 12 3/4% per annum,
payable semi-annually on May 1 and November 1 of each year.
The 12 3/4% Notes Indenture governing the 12 3/4% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the making
of restricted payments, transactions with affiliates, the existence of liens,
disposition of proceeds of asset sales, the making of guarantees by restricted
subsidiaries,
46
<PAGE>
transfer and issuances of stock of subsidiaries, the imposition of certain
payment restrictions on restricted subsidiaries and certain mergers and sales of
assets. See "Description of Certain Indebtedness--12 3/4% Notes."
8 3/8% NOTES
The 8 3/8% Notes were issued on April 15, 1998 pursuant to the 8 3/8% Notes
Indenture. As of the date hereof, the aggregate outstanding principal amount of
8 3/8% Notes was $100.0 million. The 8 3/8% Notes are unsecured senior
subordinated obligations of USSC, and payment of the 8 3/8% Notes is fully and
unconditionally guaranteed by the Company and USSC's domestic subsidiaries that
incur Indebtedness (as defined in the 8 3/8% Notes Indenture) on a senior
subordinated basis. The 8 3/8% Notes mature on April 15, 2008, and bear interest
at the rate of 8 3/8% per annum, payable semi-annually on April 15 and October
15 of each year.
The 8 3/8% Notes Indenture governing the 8 3/8% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the making
of restricted payments, transactions with affiliates, the existence of liens,
disposition of proceeds of asset sales, the making of guarantees by restricted
subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of
certain payment restrictions on restricted subsidiaries and certain mergers and
sales of assets. In addition, the 8 3/8% Notes Indenture provides for the
issuance thereunder of up to $100.0 million aggregate principal amount of
additional 8 3/8% Notes having substantially identical terms and conditions to
the 8 3/8% Notes, subject to compliance with the covenants contained in the
8 3/8% Notes Indenture, including compliance with the restrictions contained in
the 8 3/8% Notes Indenture relating to incurrence of indebtedness. See
"Description of Certain Indebtedness--8 3/8% Notes."
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into the $163.0 million 364-day Receivables
Securitization Program pursuant to which the Company sells its Eligible
Receivables (except for certain excluded receivables, which initially includes
all receivables from the Azerty Business and Lagasse) to the Receivables
Company, a wholly-owned offshore, bankruptcy-remote special purpose limited
liability company. The Receivables Company then transfers the Eligible
Receivables to a third-party, multi-seller asset-backed commercial paper program
existing solely for the purpose of issuing commercial paper rated A-1/P-1 or
higher. The sale of trade receivables includes not only those Eligible
Receivables that were existing on the closing date of the Receivables
Securitization Program, but also Eligible Receivables created thereafter. The
Company received approximately $160.0 million in proceeds from the initial sale
of Eligible Receivables on April 3, 1998.
The Chase Manhattan Bank acts as funding agent and, together with other
commercial banks rated at least A-1/P-1, provides standby liquidity funding to
support the purchase of the receivables by the Receivables Company. The proceeds
from the Receivables Securitization Program were used to reduce borrowings under
the Company's Revolving Credit Facility. The Receivables Company retains an
interest in the Eligible Receivables transferred to the third party. The
Receivables Securitization Program carries an effective interest rate of LIBOR
plus 0.37%. As a result of the Receivables Securitization Program, actual
balance sheet assets of the Company as of March 31, 1998 of approximately $160.0
million, consisting of accounts receivable, have been sold to the Receivables
Company and do not secure the Company's obligations under the New Credit
Facilities.
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.
47
<PAGE>
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 of expenses related to
this issue and expects to incur an additional $2.6 million to $3.3 million of
such expenses over the next two years. For the three months ended March 31,
1998, the Company incurred $0.3 million of such expenses.
SEASONALITY
Although the Company's sales are generally 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 "--Liquidity
and Capital Resources."
48
<PAGE>
BUSINESS
OVERVIEW
United Stationers is the largest broad line wholesale distributor of
business products in North America, with annual sales of more than twice its
next largest competitor. The Company offers more than 35,000 SKUs, including
traditional office products, office furniture, information technology products,
facilities management supplies and janitorial and sanitation supplies. The
Company's customer base is comprised of more than 20,000 reseller customers,
including office products dealers, office furniture dealers, office products
superstores, mass merchandisers, information technology resellers, mail order
companies, and sanitary supply distributors. United Stationers serves its
customers through integrated nationwide networks of 41 business products
distribution centers, 18 janitorial and sanitation distribution centers and five
information technology products distribution centers. In addition to its broad
product offering, the Company provides value-added marketing and logistics
services to both manufacturers and resellers. For the year ended December 31,
1997, the Company's net sales and operating income were $2.6 billion and $70.2
million (after non-recurring charges of $64.7 million), respectively, and the
Company's supplemental pro forma net sales and operating income were $2.9
billion and $148.5 million, respectively.
THE BUSINESS PRODUCTS INDUSTRY
The Company operates in a large and fragmented industry (with sales of more
than $120 billion in manufacturers' shipments in 1996 based on independent
industry sources) that has been experiencing consolidation. The business
products industry consists of several different channels by which business
products are distributed from the manufacturer to the end user, including
resellers buying through wholesalers and resellers purchasing directly from
manufacturers. Consolidation has occurred in recent years throughout all levels
of the business products industry. As a result of this consolidation, the
distinct boundaries that once clearly defined distribution channels have become
blurred. Over the last decade, office products superstores (which largely buy
directly from manufacturers) have entered virtually every major metropolitan
market. Despite the industry consolidation, no single reseller accounted for
more than 6% of the Company's pro forma net sales in 1997. The business products
industry consists principally of wholesalers, business products dealers
(including commercial, contract and retail), office products superstores,
computer resellers, office furniture dealers, sanitary supply distributors, mail
order companies and mass merchandisers, each as described in greater detail
below:
BUSINESS PRODUCTS WHOLESALERS. The wholesale segment of the business
products industry consists of national, specialty and regional wholesalers. The
Company competes with one other national business products wholesaler on the
basis of breadth and depth of product offering, price and the provision of
extensive marketing and distribution services for their reseller customers.
Specialty office products wholesalers focus on limited product lines such as
computer supplies, legal supplies, writing instruments, office furniture and
facilities management supplies. Regional office products wholesalers generally
offer a broad range of office products and marketing services on a smaller and
more limited scale and within a much more limited geographic area than national
office products wholesalers.
BUSINESS PRODUCTS DEALERS. Business products dealers include commercial
dealers, contract stationers (e.g., Boise Cascade Office Products, BT Office
Products International, Corporate Express, U.S. Office Products) and the
contract stationer divisions of national office product superstores (e.g.,
Staples and Office Depot) and retail dealers. The most significant reseller
channel for office products distribution continues to be commercial dealers and
contract stationers that serve medium and large-sized business customers through
the use of catalogs and sales forces. These resellers typically stock products
in distribution centers and deliver them to customers on a next-day basis
against orders received electronically, by telephone or fax, or taken by a
salesperson while calling on a customer. Major commercial dealers and contract
stationers purchase in large quantities directly from manufacturers and rely
upon wholesalers
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for safety stock and certain slower-moving generally higher margin SKUs in order
to provide product breadth and offer significant volume-related discounts and a
high level of service to their customers.
Retail office products dealers typically serve small and medium-sized
businesses, home offices and individuals. For many years, retail dealers
consisted principally of a large number of independent dealers, operating one or
a few relatively small stores in a single local area. During the last decade,
however, the office products retail market has undergone significant change,
including the elimination or consolidation of many retail dealers (including
most traditional stationery stores), as a result of the emergence and rapid
growth of discount office supply retailers, which are known as superstores. To
compete with the lower prices generally offered on commodity products by
superstores, many independent retail dealers have joined marketing or buying
groups to negotiate on a collective basis directly with manufacturers and
wholesalers, or have altered their business strategies to adapt to lower gross
margins and reduce their operating expenses.
OFFICE PRODUCTS SUPERSTORES. Office products superstores (e.g., Office
Depot, OfficeMax, Staples) employ a warehouse format, are typically open for
business seven days a week, stock a select number of items in inventory
(typically in the range of 5,000 to 7,000 products), purchase in volume,
typically take delivery at their stores directly from manufacturers and offer
many of their products at discounts from manufacturers' suggested list prices.
Virtually every major metropolitan area in the United States is now served by at
least one, and most by more than one, office products superstore. Office
products superstores may also purchase from wholesalers for "fill-in" needs and
to fill customer orders from special wholesaler catalogs made available to end
users in certain superstores when the superstore does not carry an item. This
allows the office products superstores to expand the range of products offered
without increasing their inventory levels.
COMPUTER RESELLERS. Because computers are now widely used in offices, more
business products are computer related and, therefore, are sold through computer
resellers (e.g., Computer Discount Warehouse, CompUSA). In addition, most
computer resellers now offer a limited selection of more traditional office
products.
OFFICE FURNITURE DEALERS. Office furniture is a major product category
within the business products industry. Although nearly all broad line office
products dealers sell office furniture, approximately 75% of all new office
furniture is sold through office furniture dealers.
SANITARY SUPPLY DISTRIBUTORS. This customer class is now included in the
business products industry as wholesalers have expanded their product offerings
to include janitorial and sanitation supplies.
MAIL ORDER COMPANIES. Mail order marketers of office products (e.g., Quill,
Reliable Office Products, Viking Office Products) typically serve small and
medium-sized business customers and home offices. While their procurement and
order fulfillment functions are similar to contract stationers, they rely
exclusively on catalogs and other database marketing programs, rather than
direct sales forces, to sell their product offerings. Their operations are based
upon large, proprietary customer data bases and sophisticated circulation
strategies drawn from end-user marketing programs. Mail order companies purchase
from both wholesalers and manufacturers.
MASS MERCHANDISERS. The mass market retailers (e.g., Kmart, Price/Costco,
Sears, Target, Wal-Mart Stores/Sam's Club) have recently taken a growing
interest in business products. Office supplies is one of many categories of
products typically available in these stores. Certain of these retailers rely on
wholesalers to fulfill a portion of their customers' orders.
COMPETITIVE STRENGTHS
During the last several years, the Company has strengthened its competitive
position in the business products industry through the following:
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SIGNIFICANT SCALE. As the largest broad line business products wholesaler
in North America, the Company qualifies for substantial volume allowances and
can realize significant economies of scale. In addition, the Company's size and
nationwide service and distribution capabilities enable it to: (i) service the
demands of large national, regional, local and individual reseller accounts by
offering products from over 550 manufacturers; (ii) seek cost-effective sourcing
of products both in North America and internationally; and (iii) mitigate the
effect of local or regional economic downturns.
COST EFFECTIVE OPERATIONS. The Company seeks cost reductions at both the
corporate and operating levels in order to improve its efficiency. Examples of
such cost reduction efforts include: (i) reduced merchandise procurement and
handling costs through higher manufacturers' incentives and better terms; (ii)
continued efforts to increase inventory efficiency without lowering order fill
rates; (iii) reduced payroll and benefits costs through improved labor
allocation and higher productivity; (iv) reduced freight costs through ongoing
refinements to delivery systems; (v) increased sourcing of certain products from
lower cost sources; (vi) streamlined work practices and procedures; and (vii)
increased leveraging of fixed costs over an increasing sales base.
BROAD PRODUCT SELECTION. Stocking over 35,000 SKUs, the Company offers the
broadest selection of business products in the industry, providing resellers
with one-stop shopping for their business products needs. The Company's size
allows it to maintain a broad product selection, thereby enabling its customers
to hold less inventory while still providing end users with a high level of
service.
HIGH LEVEL OF CUSTOMER SERVICE. The Company believes that a key component
of its success has been its focus on customer service and support. Customer
service includes: ease of ordering, rapid access to information, high order fill
rates, on-time accurate shipments and value-added management and marketing
assistance. The Company's integrated computer information systems serve an
important role in providing a high level of customer service, as it allows the
Company to provide resellers with the ability to manage electronically critical
business functions, including order entry, purchasing, pricing, accounts
receivable, accounts payable and inventory control. These integrated computer
systems also are designed, in part, to enable the Company to monitor five key
measures of customer satisfaction: order fill rate, order accuracy, inventory
accuracy, on-time delivery and accessibility of the Company's personnel to
customers. The Company also supports resellers' marketing efforts by designing
informative, user-friendly catalogs and other marketing materials.
The Company continues to introduce additional services, such as its "wrap
and label" program that offers resellers the option to receive prepackaged
orders customized (and labeled with the reseller's name) to meet the
specifications of particular end users. The Company can also drop ship orders
directly to end users on behalf of resellers. These services allow resellers to
lower their inventory investment and minimize handling costs.
BUSINESS STRATEGY
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution, the
Company believes its role as a wholesaler will continue to grow and that it can
achieve above industry average growth rates by:
CAPTURING A GREATER SHARE OF EXISTING CUSTOMERS' PURCHASES. The Company
believes that it has the opportunity to capture a portion of the sales of
business products currently sold directly by manufacturers to resellers and end
users without wholesaler involvement. The Company estimates that only
approximately 20% of business products sales are made through wholesale
distributors and that approximately 80% are made directly from manufacturers to
resellers. As resellers intensify their focus on asset management and return on
investment, the Company believes that they will increasingly rely on the
Company's value-added marketing and logistics services to meet end-user
requirements for a high and accurate order fill rate on an overnight basis. The
Company also believes that the focus by resellers on
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inventory efficiency leading to de-stocking will continue in the foreseeable
future, creating an opportunity to capture a greater percentage of the
resellers' purchases. Further, the Company believes that manufacturers support
this shift to wholesaler involvement for products that are ordered in
less-than-case quantities because of the relatively high handling costs of such
orders.
EXPANDING ITS CUSTOMER BASE. The Company plans to continue to expand its
customer base by: (i) maintaining and building its business with commercial
dealers and contract stationers (including the contract stationer divisions of
national office products superstores) who, through consolidation, have continued
to increase in size; (ii) developing additional programs for marketing and
buying groups that represent groups of dealers; (iii) continuing to focus on
complementary markets, including specialty dealers (e.g., furniture, computer
and janitorial and sanitation supply distributors); and (iv) expanding
geographically and potentially into international markets.
OFFERING A BROADER LINE OF PRODUCTS AND SERVICES. While United Stationers
carries the broadest product line in the industry, it continues to enhance its
product and service offerings to meet changing end-user demands. The Company's
product line expansion plans include developing its newer product categories,
such as office furniture, computer supplies and peripherals, facilities
management supplies and janitorial and sanitation supplies as well as
potentially offering new products and services. The Company believes that these
product categories will allow it to make additional sales to existing reseller
customers and thereby strengthen its position with such resellers as a one-stop
shopping experience. Such products also allow the Company to enter into new
distribution channels and add new types of resellers beyond broad line office
products dealers, thereby expanding its customer base.
The Company also continues to expand its line of private brand products,
including approximately 1,200 products under the Universal brand name. Private
brand products represented approximately 9% of the Company's pro forma net sales
in 1997. The Company believes its private brand products offer significant
benefits both to resellers, by providing an alternative to brand name products
that offers similar quality at a moderate price, and to manufacturers, by
enabling the manufacturer to increase sales without diluting its brand name
pricing structure. To further develop the Universal brand, the Company operates
a trading office in Hong Kong to facilitate the global purchasing of products.
CAPITALIZING ON CROSS-SELLING OPPORTUNITIES. Historically, the Company has
marketed its business products and services primarily to office products
resellers, including commercial dealers, contract stationers, retail dealers and
office products superstores. As the Company has expanded into new product lines
(e.g., janitorial and sanitation supplies), its sales efforts have been focused
primarily on traditional distributors of these specialty products. Although the
Company will continue to utilize these marketing channels as its primary method
of product distribution, the Company believes that its various products and
services are complementary and that significant opportunities exist to
cross-sell to its existing customer base. It is the Company's goal to become
known among its customers not just as an office products distributor, but as a
distributor of a broad range of products and services for the office. Management
believes that by implementing this strategy, the Company can enhance sales to
its existing customer base as resellers purchase a broader selection of products
offered by the Company, thereby reducing procurement costs and enhancing
reseller profitability.
INCREASING TECHNOLOGICAL CAPABILITIES AND UTILIZING ELECTRONIC
COMMERCE. The Company intends to continue to invest in systems enhancements as
well as customer interfaces to make its systems more user friendly. Increased
electronic linkages for transactions with customers and suppliers enable both
the Company and its business partners to reduce their costs and execute
transactions faster and more accurately. In 1997, approximately 80% of the
Company's orders (on a pro forma basis) were received electronically. As the
Company increases the functionality of its proprietary systems, the Company
believes it will be able to garner a growing percentage of its customers'
business.
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As the Internet becomes increasingly important as a marketing channel, the
Company is positioned to participate in this trend. The Company currently
provides resellers with access to its general line catalog online through
seamless links to its web site. This service allows resellers to place orders
electronically with the Company for overnight delivery as well as to provide a
hot link on their own web site to the Company's general line catalog for use by
end users.
MAKING STRATEGIC ACQUISITIONS. The Company believes it can enhance its
growth by continuing to make strategic acquisitions. For example, the
acquisition of Lagasse in 1996 substantially increased the Company's position in
the janitorial and sanitation supplies product category. The Azerty Acquisition
also will expand its product offerings and will make the Company one of the
largest distributors of computer consumable supplies in the United States. The
Company intends to continue, from time to time, to pursue acquisitions that
expand its customer base, increase its geographic reach and/or broaden its
product offering.
PRODUCTS
The Company's current product offerings, comprised of more than 35,000 SKUs,
may be divided into five primary categories:
TRADITIONAL OFFICE PRODUCTS. The Company's core business continues to be
traditional office products, which includes both brand-name products and the
Company's private brand products. Traditional office products include writing
instruments, paper products, organizers and calendars and various office
accessories. This product category represents approximately half of the
Company's 1997 pro forma net sales.
INFORMATION TECHNOLOGY PRODUCTS. The Company offers computer supplies,
peripherals and hardware with major brand names to information technology
products resellers and office products dealers. These products represented
approximately 32% of the Company's 1997 pro forma net sales.
OFFICE FURNITURE. The Company's sale of office furniture such as leather
chairs, wooden and steel desks and computer furniture has enabled it to become
the nation's largest office furniture wholesaler, with the Company currently
offering nearly 4,000 furniture items from 50 different manufacturers. Office
furniture represented approximately 13% of the Company's 1997 pro forma 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 18
Lagasse distribution centers. Janitorial and sanitation supplies represented
approximately 4% of the Company's 1997 pro forma net sales.
OTHER PRODUCTS. The Company's newest product categories encompass
facilities management supplies, specialty mailroom and warehouse items, kitchen
and cafeteria items, first aid products and ergonomic products designed to
enhance worker productivity, comfort and safety. Another one of the Company's
niche markets is business presentation products, including audio visual
equipment, flip charts and dry erase boards. Additionally, the Company offers
its "Signature Image" program, which provides resellers with access into the
advertising specialties market (such as imprinted and logo items).
PURCHASING AND MERCHANDISING
As the largest business products wholesaler in North America, the Company
qualifies for substantial volume allowances and can realize significant
economies of scale. The Company obtains products from
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over 550 manufacturers, for many of whom the Company believes it is a
significant customer. In 1997 (on a pro forma basis), no supplier accounted for
more than 17% 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.
CUSTOMERS
The Company sells principally to resellers of office products, consisting
primarily of commercial dealers and contract stationers, retail dealers,
superstores, mail order companies and mass merchandisers. In addition, the
Company sells to office furniture dealers, computer resellers and janitorial and
sanitary supply distributors. No single reseller accounted for more than 6% of
the Company's pro forma 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 has relationships with
most major office products superstore chains. In addition, the Company supplies
inventory and other fulfillment services to the retail operations of certain
superstores, including their direct-to-business delivery programs and to
non-stocking resellers.
MARKETING AND CUSTOMER SUPPORT
The Company concentrates its marketing efforts on providing value-added
services to resellers. The Company distributes products that are generally
available at similar prices from multiple sources, and most of its customers
purchase their products from more than one source. As a result, the Company
seeks to differentiate itself from its competitors through a broader product
offering, a higher degree of product availability, a variety of high quality
customer services and prompt distribution capabilities. In addition to
emphasizing its broad product line, extensive inventory, computer integration
and national distribution capabilities, the Company's marketing programs have
relied upon two additional major components. First, the Company produces an
extensive array of catalogs for commercial dealers, contract stationers and
retail dealers that are usually custom imprinted with each reseller's name and
sold to these resellers who, in turn, distribute the catalogs to their
customers. Second, the Company provides its resellers with a variety of dealer
support and marketing services, including business management systems,
promotional programs and pricing services. These services are designed to aid
the reseller in differentiating itself from its competitors by addressing the
steps in the end-user's procurement process.
Substantially all of the Company's 35,000 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
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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.
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 (on a pro forma basis), it received approximately 80% 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 150 salespersons.
The sales force is responsible for sales and service to resellers with which the
Company has an existing relationship, as well as for establishing new
relationships with additional resellers. The Company supplements the efforts of
its sales force through telemarketing.
PRODUCT DISTRIBUTION AND DELIVERY SYSTEMS
The Company has a network of 41 business products regional distribution
centers located in 25 states in the United States, most of which carry the
Company's full line of inventory. The Company also maintains 18 Lagasse
distribution centers that carry a full line of janitorial and sanitation
supplies and five information technology distribution centers serving the U.S.
and Mexico. 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.
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. See "Risk Factors--Potential Service Interruptions."
Another service offered by the Company to resellers is its "wrap and label"
program, that offers resellers the option to receive prepackaged orders
customized to meet the specifications of particular end
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users. For example, when a reseller receives orders from a number of separate
end users, the Company can group and wrap the items separately by end user so
that the reseller need only deliver the package. The "wrap and label" program is
attractive to resellers because it eliminates the need to break down case
shipments and to repackage the orders before delivering them to the end user.
The Company also can ship orders directly to end users on behalf of resellers.
TECHNOLOGY
The Company believes its management information systems, telecommunications
networks and warehouse automation systems, along with its participation in
electronic commerce are integral to the Company's success and have enabled the
Company to achieve one of the lowest cost structures and highest levels of
service in the industry.
The Company operates integrated management information systems. Order entry,
fulfillment and billing, along with inventory replenishment and accounts payable
disbursement, are all automated. The Company's management information systems
are designed to process over 600,000 customer orders per day, supporting
relatively short order-to-delivery time windows. Management believes speed and
accuracy are important in the highly competitive business products industry.
Over 80% of the orders received from the Company's customers are electronic
orders and over 85% of the Company's purchase orders to its 550 suppliers are
transmitted electronically.
The Company also employs a sophisticated warehouse automation system. In
certain locations, computerized conveyor systems, carousels and bar-code
scanning are utilized to increase efficiency and quality. The Company
continuously enhances its warehousing operations through the use of technology
to meet the changing business environment and customer and consumer
requirements.
The Company believes electronic commerce conducted over the Internet will
grow in importance in the future and has invested in developing its own
interactive web site (www.unitedstationers.com), an Intranet and software
products available to its reseller customers. Electronic product catalogs are
available both over the Internet and in CD-ROM versions.
Management plans to continue to invest in technology to improve quality,
reliability and cost-effective operations. The Company believes its systems are
sufficient to meet its current needs and management estimates the Company will
spend approximately $8 million in computer-related capital improvements in 1998.
COMPETITION
The Company competes with office products manufacturers and with other
national, regional and specialty wholesalers of office products, office
furniture, computers and related items. Competition between the Company and
manufacturers is based primarily upon net pricing, minimum order quantity and
product availability. Although manufacturers may provide lower prices to
resellers than the Company does, the Company's marketing and catalog programs,
combined with speed of delivery and its ability to offer resellers a broad line
of business products from multiple manufacturers on a "one-stop shop" basis and
with lower minimum order quantities, are important factors in enabling the
Company to compete effectively. Manufacturers typically sell their products
through a variety of distribution channels, including wholesalers and resellers.
See "--Marketing and Customer Support" and "--Product Distribution and Delivery
Systems."
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
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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 May 6, 1998, the Company employed approximately 5,900 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. See "Risk
Factors--Potential Service Interruptions."
LEGAL PROCEEDINGS
Although the Company is involved in legal proceedings arising in the
ordinary course of its business, the Company is not involved in any legal
proceeding that it believes will result, individually or in the aggregate, in a
material adverse effect upon the financial condition or results of operations of
the Company.
TRADEMARKS
The trade names United Stationers, Micro United, Universal, United Facility
Supply, Azerty and others, are actively used and are significant to the
Company's business. Certain of the Company's trademarks have been federally
registered with the United States Patent and Trademark Office.
PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
EXECUTIVE OFFICES. The Company owns its office facility in Des Plaines,
Illinois which has approximately 135,800 square feet of office and storage
space. In addition, the Company leases approximately 47,000 square feet of
office space located in Mount Prospect, Illinois. This lease expires in 1999,
with an option to renew for two consecutive three-year terms. Azerty owns its
corporate headquarters office facility in Orchard Park, New York, which has
approximately 28,000 square feet (19,000 square feet of which consists of
unutilized warehouse space).
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DISTRIBUTION CENTERS. The Company presently has more than 8.0 million
square feet of warehouse space in 41 business products distribution centers, 18
Lagasse distribution centers and five information technology distribution
centers. The Company also operates 24 local distribution points. The following
tables set forth information regarding the Company's principal leased and owned
distribution centers:
USSC AND LAGASSE FACILITIES:
<TABLE>
<CAPTION>
APPROX. SQUARE FEET
METROPOLITAN ----------------------
STATE CITY AREA SERVED OWNED LEASED
- --------------------------------------- --------------------- ------------------------- --------- -----------
<S> <C> <C> <C> <C>
Arizona................................ Tempe Phoenix -- 110,000
California............................. Bell Los Angeles -- 24,960
City of Industry(1).. Los Angeles 344,487 125,000
Sacramento(1) Sacramento -- 119,260
Sacramento Sacramento -- 267,284
Union City San Francisco -- 25,986
Colorado............................... Denver Denver 104,244 --
Denver Denver -- 134,893
Florida................................ Dania Miami -- 22,564
Jacksonville Jacksonville 95,500 --
Tampa Tampa 128,000 --
Tampa Tampa -- 30,000
Ft. Lauderdale Miami -- 151,500
Georgia................................ Atlanta Atlanta -- 54,400
Norcross Atlanta 372,000 --
Illinois............................... Carol Stream Chicago -- 139,444
Forest Park Chicago 222,280 81,000
Forest Park Chicago -- 34,600
Glendale Heights Chicago -- 50,533
Greenville St. Louis 210,000 --
Indiana................................ Indianapolis Indianapolis 128,000 --
Indianapolis Indianapolis -- 34,039
Louisiana.............................. Harahan New Orleans -- 104,885
Harahan(1) New Orleans -- 82,650
Maryland............................... Harmans Baltimore/Wash., D.C. 323,980 45,000
Harmans Baltimore/Wash., D.C. -- 37,597
Massachusetts.......................... Sharon Boston -- 40,000
Woburn Boston 309,000 --
Michigan............................... Livonia Detroit 229,700 33,500
Van Buren Detroit -- 52,924
Minnesota.............................. Brooklyn Park Minneapolis/St. Paul 127,480 --
Eagan Minneapolis/St. Paul 210,468 --
Missouri............................... Kansas City Kansas City -- 95,205
New Jersey............................. Edison New York 257,579 133,177
Edison New York -- 44,855
Pennsauken Philadelphia 231,000 25,316
New York............................... Coxsackie Albany 256,000 --
</TABLE>
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<TABLE>
<CAPTION>
APPROX. SQUARE FEET
METROPOLITAN ----------------------
STATE CITY AREA SERVED OWNED LEASED
- --------------------------------------- --------------------- ------------------------- --------- -----------
<S> <C> <C> <C> <C>
North Carolina......................... Charlotte Charlotte -- 24,800
Charlotte Charlotte 104,000 67,183
Ohio................................... Cincinnati Cincinnati 108,778 --
Columbus Columbus -- 171,665
Twinsburg Cleveland 206,136 136,966
Valley View Cleveland -- 28,000
Oklahoma............................... Tulsa Tulsa 52,600 22,500
Oregon................................. Portland Portland -- 91,603
Pennsylvania........................... Pittsburgh Pittsburgh -- 84,176
Tennessee.............................. Memphis Memphis -- 78,286
Nashville Nashville -- 66,000
Nashville Nashville -- 59,250
Nashville(2) Nashville -- 191,250
Texas.................................. Dallas(1) Dallas/Fort Worth 223,230 159,864
Dallas Dallas -- 72,000
Houston Houston -- 143,859
Houston Houston -- 24,600
Houston Houston -- 69,500
Lubbock Lubbock -- 58,725
San Antonio San Antonio -- 63,098
San Antonio San Antonio -- 31,750
Utah................................... Salt Lake City Salt Lake City -- 101,324
Washington............................. Kent Seattle -- 24,000
Tukwila Seattle -- 144,031
Wisconsin.............................. Milwaukee Milwaukee 67,300 --
</TABLE>
- ------------------------
(1) A portion of such property is subleased to a third party.
(2) This new facility is expected to replace the other two existing Nashville
facilities before the end of 1998.
AZERTY BUSINESS LEASED FACILITIES:
<TABLE>
<CAPTION>
APPROXIMATE
STATE/COUNTRY CITY USE SQUARE FEET
- ----------------------------------------------------------- ---------------- -------------------- -------------
<S> <C> <C> <C>
California................................................. Visalia Warehouse 30,000
Florida.................................................... Miami Warehouse 25,000
Call Center 3,200
Indiana.................................................... Fort Wayne Warehouse 75,000
Mexico..................................................... Mexico City Office/Warehouse 12,800
Pennsylvania............................................... Chambersburg Warehouse 65,000
</TABLE>
All property rights of the Company are pledged to secure its obligations
under the New Credit Agreement. See "Description of Certain Indebtedness--New
Credit Facilities."
59
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information, as of May 8, 1998, with respect to
those individuals who are serving as members of the Boards of Directors of the
Company or as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------ --- ----------------------------------------------------
<S> <C> <C>
Frederick B. Hegi, Jr................................. 54 Chairman of the Board
Randall W. Larrimore.................................. 51 Director; President and Chief Executive Officer
Daniel H. Bushell..................................... 46 Executive Vice President, Chief Financial Officer
and Assistant Secretary
Michael D. Rowsey..................................... 45 Director; Executive Vice President
Steven R. Schwarz..................................... 44 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
R. Thomas 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
Gary G. Miller........................................ 48 Director
Daniel J. Good........................................ 58 Director
James A. Johnson...................................... 44 Director
Joel D. Spungin....................................... 60 Director
Benson P. Shapiro..................................... 56 Director
Roy W. Haley.......................................... 51 Director
</TABLE>
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There is no family relationship between any
director or executive officer of the Company. Officers of the Company are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
FREDERICK B. HEGI, JR. was elected to the Board of Directors upon
consummation of the Merger and served as Chairman, interim President and Chief
Executive Officer upon the resignation of Thomas W. Sturgess in November 1996
and until Randall Larrimore became President and Chief Executive Officer in May
1997. Prior to the Merger, he had been a director of Associated since 1992. Mr.
Hegi is a general partner of various Wingate entities, including the indirect
general partner of each of Wingate Partners and Wingate II. Since May 1982, Mr.
Hegi has served as President of Valley View Capital Corporation, a private
investment firm. Mr. Hegi also currently serves as Chairman of the Executive
Committee of the Board of Loomis, Fargo & Co., an armored car service company;
Chairman of Tahoka First Bancorp, Inc., a bank holding company; and Chairman of
Cedar Creek Bancshares, Inc., a bank holding company. Additionally, he is a
director of Lone Star Technologies, Inc., a diversified company engaged in the
manufacture of tubular products; ITCO Tire Company, the largest independent
wholesaler of replacement tires in the U.S.; and Cattle Resources, Inc., a
manufacturer of animal feeds and operator of commercial cattle feedlots.
RANDALL W. LARRIMORE was elected to the Board of Directors and became
President and Chief Executive Officer of the Company on May 23, 1997. From
February 1988 to May 1997, Mr. Larrimore had been President and Chief Executive
Officer of MasterBrand Industries, Inc., a manufacturer of leading brands
60
<PAGE>
including Master Lock-Registered Trademark- padlocks and
Moen-Registered Trademark- 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, a
diversified manufacturer of chemicals, metals, micro-electronic materials and
sporting ammunition.
DANIEL H. BUSHELL became Executive Vice President and Chief Financial
Officer of the Company upon consummation of the Merger. Mr. Bushell has served
as Assistant Secretary of the Company since January 1996, and served as
Secretary of the Company from June 1995 through such date. Mr. Bushell also
served as Assistant Secretary of the Company from the consummation of the Merger
until June 1995. Prior thereto, Mr. Bushell had been Chief Administrative and
Chief Financial Officer of Associated and ASI since January 1992. From 1978 to
January 1992, Mr. Bushell served in various capacities with ACE Hardware
Corporation, most recently as Vice President of Finance.
MICHAEL D. ROWSEY was elected to the Board of Directors upon consummation of
the Merger and became Executive Vice President of the Company upon consummation
of the Merger with primary responsibility for field operations. Prior to the
Merger, Mr. Rowsey had been a director of Associated since 1992 and President
and Chief Operating Officer of Associated since January 1992. From 1979 to
January 1992, Mr. Rowsey served in various capacities with Boise Cascade Office
Products, most recently as the North Regional Manager.
STEVEN R. SCHWARZ became Executive Vice President of the Company upon
consummation of the Merger with primary responsibility for marketing and
merchandising. Prior thereto, he was Senior Vice President, Marketing of the
Company 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 of the Company
in July 1997. Ms. Dvorak began her career at the Company 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 November 1, 1995. From 1986 through March 1995 he had been Vice
President, Secretary and General Counsel of the Company.
MARK J. HAMPTON has served as Vice President of Marketing of the Company
since September 1994. Mr. Hampton began his career at the Company in 1980 and
held various positions in the sales and marketing area. In 1991, Mr. Hampton
left the Company 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.
R. THOMAS HELTON became Vice President of Human Resources of the Company in
February 1998. Prior to joining the Company, 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 resources 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.
61
<PAGE>
JAMES A. PRIBEL became Treasurer of the Company in 1992. Mr. Pribel
previously had been Assistant Treasurer of the Company since 1984 and had served
in various positions since joining the Company 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 the Company since March 1994. He had been a Vice President of the
Company since 1992 and prior to that had served in various management positions
since joining the Company in 1974.
ERGIN USKUP became Vice President, Management Information Systems and Chief
Information Officer of the Company in February 1994. Prior thereto, since 1987,
Mr. Uskup had been Vice President, Corporate Information Services for Baxter
International Inc., a global manufacturer and distributor of health care
products.
GARY G. MILLER was elected to the Board of Directors upon consummation of
the Merger. Mr. Miller served as Vice President and Secretary of the Company
from consummation of the Merger until June 27, 1995, and Assistant Secretary of
the Company from June 27, 1995 to May 8, 1996. Prior thereto, Mr. Miller had
been a director of Associated since 1992 and Vice President and Secretary of
Associated since January 1992. Mr. Miller also currently serves as President of
Cumberland, a private investment firm which is located in Fort Worth, Texas. In
addition, from 1977 to December 1993, Mr. Miller served as Executive Vice
President, Chief Financial Officer and a director of AFG Industries, Inc., and
its parent company, Clarity Holdings Corp. He is Chairman of the Board of both
CFData Corp., a nationwide provider of check collection and check verification
services, and Fore Star Golf, Inc., which was formed in 1993 to own and operate
golf course facilities.
DANIEL J. GOOD was elected to the Board of Directors upon consummation of
the Merger. Prior to the Merger, he had been a director of Associated since
1992. Mr. Good is Chairman of Good Capital Co., Inc. ("Good Capital"), an
investment firm in Lake Forest, Illinois. Until June 1995, Mr. Good was Vice
Chairman of Golden Cat Corp., the largest producer of cat litter in the United
States, and prior thereto he was Managing Director of Merchant Banking for
Shearson Lehman Bros. and President of A.G. Becker Paribas, Inc. Mr. Good serves
as a director of Supercuts, Inc.
JAMES A. JOHNSON was elected to the Board of Directors upon consummation of
the Merger. Prior to the Merger, he had been a director of Associated since
1992. Mr. Johnson is a general partner of various Wingate entities, including
the indirect general partner of Wingate II. From 1980 until he joined Wingate
Partners in 1990, Mr. Johnson served as a Principal of Booz-Allen & Hamilton, an
international management consulting firm. Mr. Johnson currently serves as a
director of Century Products Company, a manufacturer and distributor of baby
seats and other juvenile products.
JOEL D. SPUNGIN has served as a member of the Board of Directors since 1972
and prior to the consummation of the Merger was Chairman of the Board of
Directors and Chief Executive Officer of the Company since August 1988. From
October 1989 until April 1991, he was also President of the Company. Prior to
that, since March 1987, Mr. Spungin was Vice Chairman of the Board and Chief
Executive Officer of the Company. Previously, since August 1981, Mr. Spungin was
President and Chief Operating Officer of the Company. 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.
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. Mr.
Shapiro is also a
62
<PAGE>
director of WESCO Distribution, Inc. ("WESCO"), a distributor of electrical
products to industrial users and contractors.
ROY W. HALEY was elected to the Board of Directors in March 1998. Mr. Haley
currently serves as President and Chief Executive Officer of WESCO. Prior to
joining WESCO in 1994, he served as President and Chief Operating Officer of
American General Corporation, one of the nation's largest consumer financial
services organizations. Mr. Haley also serves as a director for the National
Association of Wholesalers and The National Association of Electrical
Distribution Education Foundation.
COMPOSITION OF THE BOARD OF DIRECTORS
The Company's Restated Certificate of Incorporation (as amended from time to
time, 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, Johnson and Spungin;
Class II (having terms expiring in 2000)--Messrs. Hegi, Miller and Rowsey; and
Class III (having terms expiring in 1998)-- Messrs. Larrimore, Shapiro and
Haley.
63
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 6, 1998 with respect to
the beneficial ownership of Common Stock by (i) each person who is known by the
Company to own beneficially more than five percent of the Company's Common
Stock, (ii) the Company's directors and executive officers and (iii) all current
directors and executive officers as a group. Unless otherwise indicated, each
person has sole voting power and investment power with respect to the shares
attributed to him/her.
<TABLE>
<CAPTION>
SHARES
SHARES TO BE SOLD BENEFICIALLY
SHARES BENEFICIALLY OWNED IN THE OFFERING OWNED AFTER
-------------------------------- THE
BEFORE THE OFFERING(1) AMOUNT AMOUNT USED OFFERING(1)
-------------------------- FOR THE BENEFIT TO SATISFY SHARES WITHHELD -----------
NUMBER OF PERCENT OF OF SELLING OPTION EXERCISE TO SATISFY TAX NUMBER OF
NAMES OF BENEFICIAL OWNER SHARES CLASS STOCKHOLDER PRICE(2) WITHHOLDING(3) SHARES
- ---------------------------- ----------- ------------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Wingate Partners, L.P. ..... 3,210,380(4) 19.9% -- -- -- 3,210,380
750 N. St. Paul Street
Suite 1200
Dallas, TX 75201
Daniel H. Bushell........... 224,148(5) 1.4 92,992 8,664 37,492 85,000
Kathleen S. Dvorak.......... 5,022(6) * -- -- -- 5,022
Daniel J. Good.............. 76,180(7) * -- -- -- 76,180
Roy W. Haley(8)............. -- -- -- -- -- --
Otis H. Halleen............. 10,415 * -- -- -- 10,415
Mark J. Hampton............. 15,166(9) * 14,166 -- -- 1,000
Frederick B. Hegi, Jr....... 91,906(10) * -- -- -- 91,906
R. Thomas Helton(11)........ -- -- -- -- -- --
James A. Johnson............ 24,279(12) * -- -- -- 24,279
Randall W. Larrimore........ 50,000(13) * -- -- -- 50,000
Gary G. Miller(14).......... -- -- -- -- -- --
James A. Pribel............. 6,975(15) * -- -- -- 6,975
Michael D. Rowsey........... 150,032(16) * 32,993 1,156 15,851 100,032
Steven R. Schwarz........... 120,628(17) * 53,750 25,428 25,822 15,628
Benson P. Shapiro(18)....... -- -- -- -- -- --
Albert H. Shaw.............. 20,429(19) * 17,000 -- -- 3,429
Joel D. Spungin............. 18,520(20) * -- -- -- 18,520
Ergin Uskup................. 60,126(21) * 25,926 14,119 12,455 7,626
All current directors and
executive officers as a
group (18 persons)........ 873,826(22) 5.2 236,827 49,367 91,620 496,012
<CAPTION>
PERCENT OF
NAMES OF BENEFICIAL OWNER CLASS
- ---------------------------- -------------
<S> <C>
Wingate Partners, L.P. ..... 17.5%
750 N. St. Paul Street
Suite 1200
Dallas, TX 75201
Daniel H. Bushell........... *
Kathleen S. Dvorak.......... *
Daniel J. Good.............. *
Roy W. Haley(8)............. --
Otis H. Halleen............. *
Mark J. Hampton............. *
Frederick B. Hegi, Jr....... *
R. Thomas Helton(11)........ --
James A. Johnson............ *
Randall W. Larrimore........ *
Gary G. Miller(14).......... --
James A. Pribel............. *
Michael D. Rowsey........... *
Steven R. Schwarz........... *
Benson P. Shapiro(18)....... --
Albert H. Shaw.............. *
Joel D. Spungin............. *
Ergin Uskup................. *
All current directors and
executive officers as a
group (18 persons)........ 2.7
</TABLE>
- ------------------------------
* Represents less than 1.0%.
(1) For purposes of calculating the beneficial ownership of each stockholder,
it was assumed (in accordance with the Commission's definition of
"beneficial ownership") that such stockholder had exercised all options,
conversion rights or warrants by which such stockholder had the right
within 60 days following May 6, 1998, to acquire shares of such class of
stock.
(2) Pursuant to the terms of certain Employee Stock Option grants, the optionee
can exercise his or her options, through arrangements with independent
brokers, on a "cashless" basis. The proceeds from a portion of the shares
to be sold hereunder will be paid to the Company to satisfy the exercise
price of certain Employee Stock Options exercised by certain Selling
Stockholders in connection with this Offering.
(3) A portion of the shares of Common Stock issuable upon exercise of such
options will be withheld by the Company in partial satisfaction of the
optionee's tax liability related to the exercise of Employee Stock Options
in connection with this Offering.
(4) Includes (i) 2,422,620 shares owned by Wingate Partners, (ii) 782,780
shares owned by Wingate II, (iii) 4,340 shares owned by Wingate Management
Corporation, and (iv) 640 shares owned by Wingate Management Limited,
L.L.C.
(5) Includes (i) 14,949 shares owned by Mr. Bushell and (ii) 209,199 shares
issuable upon exercise of employee stock options. Does not include 15,000
options which are not exercisable within 60 days of the date hereof.
(6) Does not include 5,000 options which are not exercisable within 60 days of
the date hereof.
64
<PAGE>
(7) Does not include 363,899 shares owned by Good Capital. Mr. Good is Chairman
and a controlling stockholder of Good Capital and, accordingly, may be
deemed to beneficially own the shares owned of record by Good Capital. Does
not include 15,000 options which are not exercisable within 60 days of the
date hereof.
(8) Does not include 15,000 options which are not exercisable within 60 days of
the date hereof.
(9) Does not include 6,000 options which are not exercisable within 60 days of
the date hereof.
(10) Includes (i) 46,328 shares owned by Mr. Hegi, (ii) 134 shares held of
record by a family company of which he is managing partner, (iii) 23,853
shares held in trust for his benefit and for which he serves as trustee,
and (iv) 21,591 shares held in trusts for unrelated third parties of which
he is trustee. Does not include (i) 2,422,620 shares held by Wingate
Partners, (ii) 782,780 shares held by Wingate II, (iii) 4,340 shares held
by Wingate Management Corporation, (iv) 640 shares held by Wingate
Management Limited, L.L.C., and (v) 15,000 options which are not
exercisable within 60 days of the date hereof. Mr. Hegi is an indirect
general partner of each of Wingate Partners and Wingate II, President of
Wingate Management Corporation, and a manager of Wingate Management
Limited, L.L.C. and accordingly, may be deemed to beneficially own the
shares owned of record by these entities. See Note (1) above and
"Management."
(11) Does not include 31,000 options which are not exercisable within 60 days
of the date hereof.
(12) Includes 18,477 shares owned by Mr. Johnson and 5,802 shares held in a
self-directed individual retirement account for the benefit of Mr.
Johnson. Does not include (i) 782,780 shares held by Wingate II, (ii) 640
shares held by Wingate Management Limited, L.L.C., and (iii) 15,000
options which are not exercisable within 60 days of the date hereof. Mr.
Johnson is an indirect general partner of Wingate II and a manager of
Wingate Management Limited, L.L.C. and, accordingly, may be deemed to
beneficially own the shares owned of record by these entities. See Note
(1) above and "Management."
(13) Includes 50,000 shares issuable upon exercise of employee stock options.
Does not include 235,000 options which are not exercisable within 60 days
of the date hereof.
(14) Does not include (i) 338,084 shares owned by Cumberland, (ii) Warrants
exercisable for 1,547 shares held by ASI Partners III, L.P. (of which
Cumberland serves as general partner), and (iii) 15,000 options which are
not exercisable within 60 days of the date hereof. Mr. Miller is President
and stockholder of Cumberland and, accordingly, may be deemed to
beneficially own the shares and Warrants owned of record by Cumberland and
ASI Partners III, L.P.
(15) Does not include 2,500 options which are not exercisable within 60 days of
the date hereof.
(16) Includes (i) 9,318 shares owned by Mr. Rowsey and (ii) 140,714 shares
issuable upon exercise of employee stock options. Does not include 15,000
options which are not exercisable within 60 days of the date hereof.
(17) Includes (i) 628 shares owned by Mr. Schwarz and (ii) 120,000 shares
issuable upon exercise of employee stock options. Does not include 15,000
options which are not exercisable within 60 days of the date hereof.
(18) Does not include 15,000 options which are not exercisable within 60 days
of the date hereof.
(19) Does not include 6,000 options which are not exercisable within 60 days of
the date hereof.
(20) Does not include 15,000 options which are not exercisable within 60 days
of the date hereof.
(21) Includes (i) 126 shares owned by Mr. Uskup and (ii) 60,000 shares issuable
upon exercise of employee stock options. Does not include 6,000 options
which are not exercisable within 60 days of the date hereof.
(22) Includes all securities beneficially owned by the current directors and
executive officers of United and the Company, including an aggregate of
(i) 293,913 shares of Common Stock and (ii) 579,913 shares issuable upon
exercise of employee stock options. Does not include 441,500 options which
are not exercisable within 60 days of the date hereof.
65
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the number of shares of Common Stock (on a
fully diluted basis) (i) owned by the Selling Stockholders as of the date of
this Prospectus, (ii) to be sold by the Selling Stockholders in the Offering,
and (iii) to be owned by the Selling Stockholders immediately following the
Offering. Shares beneficially owned include Common Stock issuable upon the
exercise of Employee Stock Options exercisable within 60 days of the date of
this Prospectus.
<TABLE>
<CAPTION>
SHARES TO BE SOLD IN THE
OFFERING
----------------------------
AMOUNT
USED TO SHARES
SHARES AMOUNT SATISFY SHARES BENEFICIALLY
BENEFICIALLY FOR THE BENEFIT OPTION WITHHELD TO OWNED PERCENT
OWNED OF SELLING EXERCISE SATISFY TAX AFTER THE OF
SELLING STOCKHOLDER BEFORE OFFERING STOCKHOLDER PRICE(1) WITHHOLDING(2) OFFERING CLASS
- ----------------------------- --------------- --------------- ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Oran Ashley.................. 6,311 2,300 -- -- 4,011 *
Ronald C. Berg............... 10,284 4,000 -- -- 6,284 *
Daniel H. Bushell............ 224,148 92,992 8,664 37,492 85,000 *
Robert W. Eberspacher........ 96,000 15,764 6,663 7,573 66,000 *
James K. Fahey............... 12,285 1,400 -- -- 10,885 *
Stanley W. Feldman........... 60,000 28,541 14,731 16,728 -- --
Mark J. Hampton.............. 15,166 14,166 -- -- 1,000 *
Jeffrey G. Howard............ 37,500 12,962 7,060 6,228 11,250 *
John D. Kennedy.............. 24,965 20,000 -- -- 4,965 *
Randy C. Kravitz............. 6,856 2,250 -- -- 4,606 *
Linda C. Micallef............ 30,040 12,962 7,060 6,228 3,790 *
Lawrence E. Miller........... 51,857 37,146 7,366 7,345 -- *
Michael D. Rowsey............ 150,032 32,993 1,156 15,851 100,032 *
Steven R. Schwarz............ 120,628 53,750 25,428 25,822 15,628 *
Albert H. Shaw............... 20,429 17,000 -- -- 3,429 *
Thomas W. Sturgess(3)........ 176,933 64,403 33,616 26,981 51,933 *
Joseph R. Templet............ 19,500 5,000 -- -- 14,500 *
Ergin Uskup.................. 60,126 25,926 14,119 12,455 7,626 *
</TABLE>
- ------------------------------
* Represents less than 1.0%.
(1) Pursuant to the terms of certain Employee Stock Option grants, the optionee
can exercise his or her options, through arrangements with independent
brokers, on a "cashless" basis. The proceeds from a portion of the shares to
be sold hereunder will be paid to the Company to satisfy the exercise price
of certain Employee Stock Options exercised by certain Selling Stockholders
in connection with this Offering.
(2) A portion of the shares of Common Stock issuable upon exercise of such
options will be withheld by the Company in partial satisfaction of the
optionee's tax liability related to the exercise of Employee Stock Options
in connection with this Offering.
(3) Includes 16,933 shares held in an individual retirement trust account and
Employee Stock Options to purchase 160,000 shares of Common Stock. Does not
include (i) 2,422,620 Shares of Common Stock owned by Wingate Partners, and
(ii) 4,340 shares of Common Stock owned by Wingate Management Corporation.
Mr. Sturgess is a general partner of Wingate Management Company, L.P., the
managing general partner of Wingate Partners and an officer of Wingate
Management Corporation and, accordingly, may be deemed to beneficially own
shares of Common Stock owned by such entities.
For a description of affiliations between certain Selling Stockholders, see
"--Security Ownership of Certain Beneficial Owners and Management." The Company
will pay all expenses of the Offering attributable to the Selling Stockholders
(excluding underwriting discounts and commissions). As of the date of this
Prospectus, all Selling Stockholders except for Mr. Sturgess were employees of
the Company.
66
<PAGE>
CERTAIN RELATIONSHIPS BETWEEN THE COMPANY AND SELLING STOCKHOLDERS
In connection with the employment of certain persons by the Company (the
"Optionees"), the Company granted the Optionees certain Employee Stock Options
(the "Selling Stockholder Options"). The Selling Stockholder Options are
currently exercisable in whole or in part and the Optionees presently have the
right to sell all or part of the Common Stock received upon exercise of the
Selling Stockholder Options and all other shares of Common Stock owned by them.
To facilitate the orderly distribution of the Common Stock held or to be held by
the Optionees, the Optionees and the Company have entered into an Agreement to
Sell (the "Agreement to Sell"), by which the Optionees have agreed to sell their
Common Stock exclusively by means of this Offering, refrain from disposing of
their Common Stock until the closing of the Offering and enter into a lock-up
agreement with the Underwriters pursuant to which the Optionees will agree not
to dispose of any Common Stock for 60 days after the closing of the Offering. In
consideration of this Agreement to Sell, the Company will reimburse the Optionee
an amount equal to (i) the underwriting discount and commission paid by the
Optionee in respect of the sale of Common Stock, less (ii) the product of (A)
the number of shares of Common Stock sold by the Optionee and (B) an amount per
share representing the standard commission that would otherwise have been
charged to the Optionee in connection with the sale of Optionee's shares of
Common Stock. The aggregate amount expected to be reimbursed by the Company to
the Optionee pursuant to the terms of this Agreement to Sell as a result of this
Offering is $ . All Selling Stockholders are parties to the Agreement to
Sell.
As a result of United's redemption of all of its outstanding Series A
Preferred Stock effected on September 2, 1997, Messrs. Rowsey, Miller and
Eberspacher each received $92,166 in aggregate proceeds from such redemption.
United has granted to Messrs. Rowsey, Eberspacher, Bushell, Kennedy and
Miller Employee Stock Options exercisable for an aggregate of (i) 94,506,
70,390, 89,199, 6,937 and 59,740 shares, respectively, at an exercise price of
$1.45 per share (which were originally granted in 1992 in connection with the
Associated transaction); (ii) 15,000, 7,500, 15,000, 7,500 and 3,750 shares,
respectively, at an exercise price of $5.12 per share; and (iii) 105,000,
52,500, 105,000, 52,500 and 26,250 shares, respectively, at an exercise price of
$16.875 per share. United has also granted Employee Stock Options to Messrs.
Schwarz, Uskup, Feldman, Howard, Ashley, Berg, Fahey, Hampton, Kravitz, Shaw and
Templet and Ms. Micallef exercisable for an aggregate of (i) 15,000, 7,500,
7,500, 3,750, 2,500, 3,750, 3,750, 3,750, 2,500, 7,500, 7,500 and 3,750 shares,
respectively, at an exercise price of $5.12 per share and (ii) 105,000, 52,500,
52,500, 33,750, 17,500, 26,250, 26,250, 33,750, 17,500, 52,500, 52,500 and
26,250 shares, respectively, at an exercise price of $16.875 per share.
Additionally, on January 28, 1998, Messrs. Rowsey, Bushell, Schwarz, Uskup,
Ashley, Berg, Eberspacher, Fahey, Feldman, Hampton, Howard, Kennedy, Kravitz,
Miller, Shaw and Templet and Ms. Micallef were granted options for 15,000,
15,000, 15,000, 6,000, 2,500, 2,500, 6,000, 2,500, 6,000, 6,000, 2,500, 6,000,
2,500, 2,500, 6,000, 6,000, and 2,500 respectively, at an exercise price of
$46.75, under the Management Equity Plan. All such options vest in 20%
increments on each anniversary of the grant, except that vesting may be
accelerated on the third or fourth anniversary of the grant if the stock price
has increased by at least a 15% compounded annual growth rate.
Effective January 1, 1996, United granted to Mr. Sturgess, the Company's
former Chairman, President and Chief Executive Officer, in consideration of
services rendered in such capacity (i) options exercisable for an aggregate of
240,000 shares of Common Stock at an exercise price of $16.875 per share and
(ii) options exercisable for an aggregate of 120,000 shares of Common Stock at
an exercise price of $5.12 per share. In November 1996, in connection with the
resignation of Mr. Sturgess as Chairman, President and Chief Executive Officer
of the Company, United and Mr. Sturgess entered into a termination agreement
whereby Mr. Sturgess retained options currently exercisable for an aggregate of
160,000 shares of Common Stock at an exercise price of $16.875 per share.
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In July 1997, in connection with the negotiation of the executive vice
president employment agreements discussed below, United and each of Messrs.
Rowsey, Bushell and Schwarz entered into amendments to their respective stock
option agreements under United's Management Equity Plan. The amendments revised
the terms of exercisability of such options following a termination of such
employee without Cause or such employee's termination for Good Reason (each as
defined in such employee's respective employment agreement).
Effective as of June 1, 1997, the Company entered into new employment
agreements with Messrs. Bushell, Rowsey and Schwarz. Pursuant to such
agreements, the term of employment began on June 1, 1997 and continues until the
executive or the Company notifies the other party. If the executive notifies the
Company, the term of employment ends 90 days after such notification, and if the
Company notifies the executive, the term of employment ends at the later of (i)
June 1, 2000 or (ii) two years after such notification. The term of employment
may also be terminated earlier by either the executive or the Company. The
agreements provide for an annual base salary of at least $265,000, plus
participation in all bonus, stock option and other benefit plans generally
available to executive officers of the Company.
If the executive's employment is terminated due to death or disability, he
generally is entitled to an amount equal to the sum of his annual base salary
and his previous year's annual incentive compensation award payable over a
12-month period. If the executive's employment is terminated by the Company
without Cause (as defined in the agreement) or by him for Good Reason (as
defined in the agreement), he generally is entitled to a severance amount
(subject to mitigation) equal to the sum of his base salary and bonuses for the
months remaining in the term of employment (or which would have been remaining
in the term of employment if the Company had given notice on the termination
date) payable over the severance period, and continued welfare benefit coverage
over such severance period. If the executive's employment is terminated for any
reason other than for Cause, the Company will allow the executive, his spouse,
and his eligible dependents to participate in the Company's health plan for a
specified period, subject to certain limitations on nonemployee participation
and subject to the executive (or his spouse or dependents) paying for such
coverage.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
18,377,191 shares of Common Stock. In addition, 1,547 shares of Common Stock
will be issuable upon exercise of outstanding Warrants and 1,273,339 shares will
be issuable upon exercise of Employee Stock Options, subject to the mandatory
redemption and cancellation of shares issuable upon exercise of certain Employee
Stock Options to satisfy tax withholding obligations. Of the shares of Common
Stock that will be outstanding after this Offering, 14,263,145 shares will be
freely tradable without restriction or further registration under the Securities
Act. All of the remaining 4,114,046 shares of Common Stock held by existing
stockholders and 1,547 shares issuable upon the exercise of Warrants will be
"restricted" securities within the meaning of the Securities Act as a result of
the issuance thereof in private transactions not involving a public offering.
The "restricted" securities may not be resold unless they are registered under
the Securities Act or are sold pursuant to an available exemption from
registration, including Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an "affiliate" (as
that term is defined in Rule 144)) is entitled to sell, within any three-month
period, a number of those shares that does not exceed the greater of (i) 1% of
the then outstanding shares of the Common Stock (183,771 shares immediately
after this Offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and requirements as to the availability of current public
information concerning the Company. Rule 144 provides that a person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years (including, in certain
circumstances, the holding period of any prior owner) is entitled to sell those
shares under Rule 144(k) without regard to the limitations described above.
After completion of the Offering and expiration of the 60-day lockup
agreement described below, all shares of Common Stock that are "restricted"
securities will be eligible for sale on the open market under Rule 144 (as
currently in effect), subject to the volume and manner of sales limitations
referred to above. Certain stockholders have been granted certain rights with
respect to registration under the Securities Act of shares of Common Stock held
by them.
The Company's directors and certain executive officers, the Selling
Stockholders and certain other significant stockholders of the Company have
agreed that, for the period of up to 60 days following the date of this
Prospectus, each will not (i) directly or indirectly, offer to sell, contract to
sell or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition"), any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively, the
"Securities"), now owned or hereafter acquired by the undersigned or with
respect to which the undersigned has or hereafter acquires the power of
disposition, otherwise than (a) the shares offered hereby by such persons, (b)
as a bona fide gift or gifts, provided the donee or donees thereof agree to be
bound in writing by the terms of the "lock-up" agreement, (c) as a distribution
to limited partners or stockholders of the undersigned, provided that the
distributees thereof agree in writing to be bound by the terms of the "lock-up"
agreement, or (d) with prior written consent of the Representatives or (ii) make
any demand for or exercise any right with respect to the registration of any
Securities. In addition, the Company has agreed that, during the period of up to
60 days from the date of this Prospectus, it will not, without the prior written
consent of the Representatives, either directly or indirectly, effect a
Disposition with respect to any Securities, other than the shares offered hereby
and the Company's issuance of Common Stock upon exercise of Employee Stock
Options.
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The Company can make no prediction as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices. See "Risk Factors--Impact of Shares Eligible for
Future Sale."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 46,500,000 shares,
consisting of (i) 1,500,000 shares of a class designated as preferred stock,
$0.01 par value ("preferred stock"), (ii) 40,000,000 shares of Common Stock, and
(iii) 5,000,000 shares of Nonvoting Common Stock. Of the authorized shares of
capital stock, 16,160,695 shares of Common Stock, no shares of Nonvoting Common
Stock and no shares of preferred stock were outstanding as of May 6, 1998. In
addition, Employee Stock Options exercisable for an aggregate of 1,902,538
shares of Common Stock and Warrants exercisable for an aggregate of 1,547 shares
of Common Stock were outstanding as of such date.
COMMON STOCK AND NONVOTING COMMON STOCK
Holders of shares of Common Stock and Nonvoting Common Stock are entitled to
share ratably in such dividends as may be declared by the Board of Directors and
paid by the Company out of funds legally available therefor, subject to prior
rights of outstanding shares of any preferred stock and certain restrictions
under agreements governing the Company's indebtedness. See "Common Stock Price
Range and Dividend Policy" and "Description of Indebtedness." In the event of
any dissolution, liquidation or winding up of the Company, holders of shares of
Common Stock and Nonvoting Common Stock are entitled to share ratably in assets
remaining after payment of all liabilities and liquidation preferences, if any.
Except as otherwise required by law, the holders of Common Stock are
entitled to one vote per share on all matters voted on by stockholders,
including the election of directors. The holders of a majority of shares of
Common Stock represented at a meeting of stockholders can elect all of the
directors to be elected at such a meeting.
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The currently outstanding shares
of Common Stock are fully paid and nonassessable, and the shares of Common Stock
to be outstanding upon completion of the Offering will be fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to the rights of any series of preferred stock which the Company may
issue in the future. Shares of Nonvoting Common Stock are entitled to all rights
granted to, and subject to all restrictions imposed on, shares of Common Stock,
other than the right to vote, except in certain limited circumstances. Subject
to certain restrictions, shares of Nonvoting Common Stock are convertible at any
time at the option of the holder thereof into shares of Common Stock for no
additional consideration.
PREFERRED STOCK
The Company is authorized to issue 1,500,000 shares of preferred stock. The
Board of Directors of the Company, in its sole discretion, may designate and
issue one or more series of preferred stock from the authorized and unissued
shares of preferred stock. Subject to limitations imposed by law or the
Company's Charter, the Board of Directors is empowered to determine the
designation of and the number of shares constituting a series of preferred
stock, the dividend rate thereon, the terms and conditions of any voting and
conversion rights for the series, the amounts payable on the series upon
redemption or upon the liquidation, dissolution or winding-up of the Company,
the provisions of any sinking fund for the redemption or purchase of shares of
any series, and the preferences and relative rights among the series of
preferred stock. Such rights, preferences, privileges and limitations could
adversely affect the rights of holders of Common Stock. In addition, the Board
of Directors of the Company, subject to its fiduciary
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duties, may issue shares of preferred stock in order to deter a takeover
attempt. See "Risk Factors-- Possible Anti-Takeover Effects."
WARRANTS
As of May 6, 1998, Warrants exercisable for an aggregate of 1,547 shares of
Common Stock were outstanding. The Warrants contain customary antidilution
provisions and are exercisable through January 31, 2002. The Warrants provide
the holders thereof with certain "tag along rights" which entitle such holders
to participate, on a pro rata basis, in certain sales of shares of Common Stock
by Wingate Partners, Cumberland, Good Capital or certain of their affiliates.
Pursuant to the Warrants, Wingate Partners has been granted certain "go along
rights" which are triggered (subject to certain exceptions) in the event (i)
Wingate Partners sells 100% of its equity interest in the Company in a private
offering, (ii) all or substantially all of the assets of the Company are sold
and the proceeds of such sale are distributed to the stockholders of the Company
or (iii) the Company participates in a merger or consolidation. In the event
Wingate Partners exercises its "go along rights" in connection with the
occurrence of one of the events described above, each holder of Warrants would
become obligated to sell all Warrants and shares of Common Stock held by such
holders in the applicable transaction and to vote all shares of Common Stock in
favor of such transaction.
Pursuant to the terms of the Warrants, if at any time the Company does not
have securities registered under Section 12(b) or 12(g) of the Exchange Act and
is not required to file reports under Section 15(d) of the Exchange Act, the
holders of the Warrants will be entitled to preemptive rights with respect to
certain issuances of shares of Common Stock by the Company and to board
observation rights for meetings of the Boards of Directors of the Company and
its subsidiaries. The Warrants also contain certain covenants and agreements
with respect to, among other things, (i) transactions with affiliates (other
than certain specified transactions with Wingate Partners, Cumberland and Good
Capital), (ii) certain mergers, reorganizations, recapitalizations and other
events with respect to the shares of Common Stock, (iii) the repurchase or
redemption of shares of Common Stock, (iv) changes of the fiscal year of the
Company, (v) the taking of actions that would cause the Company or any
subsidiary of the Company to own less than 80% of any subsidiary of the Company,
except that the Company and each subsidiary of the Company may own a percentage
of the stock of any such subsidiary not lower than the percentage owned at the
effective time of the Merger, (vi) delivery of financial statements of the
Company, and (vii) indemnification.
SPECIAL PROVISIONS OF THE CHARTER AND BYLAWS
The Charter and Bylaws provide include certain provisions that could have
anti-takeover effects. The provisions are intended to enhance the likelihood of
continuity and stability in the composition of, and in the policies formulated
by, the Board of Directors. These provisions are also intended to help ensure
that the Board of Directors, if confronted by an unsolicited proposal from a
third party that has acquired a block of stock of the Company, will have
sufficient time to review the proposal, to develop appropriate alternatives to
the proposal, and to act in what the Board of Directors believes to be the best
interests of the Company and its stockholders. The provisions of the Charter
described under "Classified Board of Directors" and "Vote Required for Certain
Business Combinations" below may not be amended or repealed unless approved by
holders of at least 80% of the voting power of the then outstanding Common
Stock. The following is a summary of the provisions of the Charter and Bylaws
and is qualified in its entirety by reference to such documents in their
respective forms filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
CLASSIFIED BOARD OF DIRECTORS. The Charter provides for three classes of
directors, which serve staggered three-year terms and which shall be elected by
the holders of the Common Stock. Under certain circumstances, the classification
of directors has the effect of making it more difficult for stockholders to
change the composition of the Board of Directors in a relatively short period of
time. Given the current structure of the Company's Board of Directors, at least
two annual meetings of stockholders, instead of
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one, will generally be required to effect a change in a majority of the Board of
Directors at any time when the Company has seven or more directors.
VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. The Company is subject to
Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"),
which prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless one of the following events occurs: (i) prior to the date of
the business combination, the transaction is approved by the board of directors
of the corporation; (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock; or (iii) on or after such
date the business combination is approved by the board and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" for purposes of the DGCL is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.
In addition, the Charter provides that certain transactions involving an
"interested stockholder" require the affirmative vote of the holders of at least
80% of the voting power of the then outstanding Common Stock. Such transactions
include certain (i) mergers or consolidations of the Company, (ii) sales,
leases, pledges and similar transactions involving the Company's assets, (iii)
issuances or transfers of the Company's securities, (iv) adoptions of a plan of
liquidation or dissolution of the Company and (v) reclassifications and
recapitalizations of the Company. Such vote requirement is in addition to that
required by the DGCL as described in the preceding paragraph. An "interested
stockholder" for purposes of the Charter is a person who beneficially owns 20%
or more of the Company's voting stock or an affiliate of the Company who at any
time within the previous two years beneficially owned 20% or more of the
Company's voting stock. Wingate constitutes an "interested stockholder" for
purposes of both the DGCL and the Charter.
LIMITATIONS ON DIRECTORS' LIABILITY. The Charter provides that, to the
fullest extent permitted by Delaware law, no director shall be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director. By virtue of these provisions, a director of the Company is not
personally liable for monetary damages for a breach of such director's fiduciary
duty except for liability for (i) breach of the duty of loyalty to the Company
or to its stockholder, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) dividends or stock
repurchases or redemptions that are unlawful under the DGCL, and (iv) any
transaction from which such director receives an improper personal benefit. In
addition, the Charter provides that if the DGCL is amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the DGCL.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITIES
On April 3, 1998, USSC entered into the New Credit Agreement with United as
guarantor, The Chase Manhattan Bank, as agent, and a group of banks and
financial institutions (including Chase, the "Senior Lenders"). The following is
a summary of the principal terms of the New Credit Agreement which summary does
not purport to be complete and is subject, and is qualified in its entirety by
reference to, all the provisions of the New Credit Agreement, as it may be
further amended from time to time, a copy of which is available upon request to
the Company. See "Available Information."
The New Credit Agreement provides for the funding of the Azerty Acquisition,
the refinancing of certain existing indebtedness and for other general corporate
purposes of the Company and its subsidiaries. The New Credit Facilities under
the New Credit Agreement consist of $150.0 million of borrowings pursuant to the
Tranche A Term Loan Facility and commitments of up to $250.0 million of
revolving loan borrowings pursuant to the Revolving Credit Facility (including a
sublimit of $90.0 million under the Revolving Credit Facility for letters of
credit) of which approximately $ million (excluding approximately $ million
of outstanding letters of credit under the Revolving Credit Facility) is
expected to be outstanding as of the date of the consummation of the Offering. A
portion of the Revolving Credit Facility is allocated for swingline loans. The
New Credit Facilities also included borrowings of $100.0 million under the
Tranche B Term Loan Facility. A substantial portion of the Tranche B Term Loan
Facility was repaid with the net proceeds from the Notes Offering. The remainder
of the Tranche B Term Loan Facility was permanently repaid with proceeds from
the sale of certain receivables. The net proceeds to the Company from the
Offering will be used to repay a portion of the indebtedness outstanding under
the Tranche A Term Loan Facility. See "Use of Proceeds." The repayment of
indebtedness under the Tranche A Term Loan Facility will result in a permanent
reduction in the amount borrowable thereunder.
The loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility generally bear interest as determined within a set range with the rate
based on the ratio of total debt (which excludes the face amount of any undrawn
letters of credit) of United and its subsidiaries to EBITDA (as defined in the
New Credit Agreement). The Tranche A Term Loan Facility and the Revolving Credit
Facility bear interest, at the option of the Company and based upon financial
performance, at the base rate (i.e., the higher of the prime rate or federal
funds plus 0.50%) plus 0% to 0.75% or LIBOR plus 1.00% to 2.00%.
As of the date of this Prospectus, the outstanding principal balance of the
Tranche A Term Loan Facility consists of $150.0 million and matures on or about
March 31, 2004, and no amount of the Tranche B Term Loan Facility remained
outstanding, which had been scheduled to mature on or about December 31, 2004.
The term loans under the Tranche A Term Loan Facility are repayable in
consecutive quarterly installments commencing on or about June 30, 1998, the
first four of which are each in the amount of $2.5 million, the next four of
which are each in the amount of $3.75 million, the next four of which are each
in the amount of $6.25 million, the next four of which are each in the amount of
$7.5 million and the last eight of which are each in the amount of $8.75
million.
Loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility may be prepaid at any time, and are subject to certain mandatory
prepayments out of (i) net proceeds received from the issuance of equity by
United or any of its subsidiaries subject to certain exceptions provided in the
New Credit Agreement, (ii) net proceeds from certain asset sales in excess of
$15.0 million, (iii) 50% of the Company's Excess Cash Flow (as defined in the
New Credit Agreement) for any fiscal year (commencing with the fiscal year
ending December 31, 1998), but only if the Debt to Cash Flow Ratio (as defined
in the New Credit Agreement) as of the last day of the fiscal year is greater
than 3.75 to 1, (iv) net proceeds received from casualty events subject to
certain exceptions provided within the New Credit Agreement and (v) net proceeds
received from certain debt issuances. Prepayments under the Tranche A Term Loan
Facility will be applied PRO RATA to the remaining installments due under the
Tranche A Term Loan Facility
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and, next, to the permanent reduction of commitments (and the payment of loans
outstanding) under the Revolving Credit Facility.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
guaranteed, on a joint and several basis, by the Company and all of the direct
and indirect domestic subsidiaries of USSC.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
secured by perfected first priority pledges of the stock of the Company, all of
the stock of the domestic direct and indirect subsidiaries of the Company and
certain of the stock of all of the foreign direct and indirect subsidiaries
(other than the Receivables Company) of the Company and security interests in,
and liens upon, certain accounts receivable, inventory, contract rights and
other personal and certain real property of the Company and its domestic
subsidiaries. The New Credit Agreement provides for the complete release, upon
request by the Company, of the liens upon achievement of an investment grade
rating from S&P or Moody's for the unsecured long-term debt of United or the
Company for any quarter, and a partial release in the event the Leverage Ratio
(as defined in the New Credit Agreement) is less than or equal to 3 to 1. The
Majority Lenders (as defined in the New Credit Agreement) may request that the
security interests be regranted if the Leverage Ratio for any subsequent quarter
exceeds 3 to 1. In addition, the New Credit Agreement permits the release of the
Senior Lenders' lien in connection with the sale of specified receivables under
the Receivables Securitization Program. See "Recent Transactions--Receivables
Securitization Program."
The New Credit Agreement contains certain restrictive covenants that, among
other things, limit the ability of the Company and its subsidiaries to dispose
of assets, incur indebtedness or liens, pay dividends or make other payments in
respect of capital stock or subordinated indebtedness, make investments or other
acquisitions, engage in mergers or consolidations, engage in transactions with
affiliates, and engage in any business other than specified businesses. In
addition, the New Credit Agreement requires the Company to comply with certain
financial ratios and tests, including ratios of total debt to EBITDA, cash flow
to fixed charges, and EBITDA to interest expense, and a minimum net worth test.
Defaults under the New Credit Agreement include, among other things, (i)
failure to pay principal when due; (ii) failure to pay interest within three
business days after the due date; (iii) default in the performance of certain
covenants and other obligations which, in some cases, continues for ten days;
(iv) default by the Company, USSC or any of its subsidiaries in respect of any
of its indebtedness above specified levels; (v) certain bankruptcy events; (vi)
certain judgments against the Company or any of its subsidiaries; (vii) the
occurrence of a change of control (as defined in the New Credit Agreement); and
(viii) the existence of certain environmental claims or liabilities.
12 3/4% NOTES
The 12 3/4% Notes were originally issued on May 3, 1995 pursuant to the
12 3/4% Notes Indenture. As of the date hereof, the aggregate outstanding
principal amount of 12 3/4% Notes was $100.0 million. The 12 3/4% Notes are
unsecured senior subordinated obligations of USSC, and payment of the 12 3/4%
Notes is fully and unconditionally guaranteed by the Company and USSC's domestic
"restricted" subsidiaries on a senior subordinated basis. The 12 3/4% Notes
mature on May 1, 2005, and bear interest at the rate of 12 3/4% per annum,
payable semiannually on May 1 and November 1 of each year.
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In addition, the 12 3/4% Notes are redeemable at the option of USSC at any
time on or after May 1, 2000, in whole or in part, at the following redemption
prices (expressed as percentages of principal amount):
<TABLE>
<CAPTION>
REDEMPTION
YEAR BEGINNING MAY 1 PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2000............................................................................. 106.375%
2001............................................................................. 104.781%
2002............................................................................. 103.188%
2003............................................................................. 101.594%
</TABLE>
and thereafter at 100.0% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control (which term includes the
acquisition by any person or group of more than 50% of the voting power of the
outstanding common stock of either the Company or USSC or certain significant
changes in the composition of the Board of Directors of either the Company or
USSC), USSC shall be obligated to offer to redeem all or a portion of each
holder's 12 3/4% Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of such redemption. Such
obligation, if it arose, could have a material adverse effect on the Company.
The 12 3/4% Notes Indenture governing the 12 3/4% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the making
of restricted payments, transactions with affiliates, the existence of liens,
disposition of proceeds of asset sales, the making of guarantees by restricted
subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of
certain payment restrictions on restricted subsidiaries and certain mergers and
sales of assets.
8 3/8% NOTES
The 8 3/8% Notes were issued on April 15, 1998 pursuant to the 8 3/8% Notes
Indenture. As of the date hereof, the aggregate outstanding principal amount of
8 3/8% Notes was $100.0 million. The 8 3/8% Notes are unsecured senior
subordinated obligations of USSC, and payment of the 8 3/8% Notes is fully and
unconditionally guaranteed by the Company and USSC's domestic subsidiaries that
incur Indebtedness (as defined in the 8 3/8% Notes Indenture) on a senior
subordinated basis. The 8 3/8% Notes mature on April 15, 2008, and bear interest
at the rate of 8 3/8% per annum, payable semiannually on April 15 and October 15
of each year.
The 8 3/8% Notes Indenture provides that, prior to April 15, 2001, USSC may
redeem, at its option, up to 35% of the aggregate principal amount of the 8 3/8%
Notes within 180 days following one or more Public Equity Offerings (as defined
in the 8 3/8% Notes Indenture) with the net proceeds of such offerings at a
redemption price equal to 108.375% of the principal amount thereof, together
with accrued and unpaid interest and Additional Amounts (as defined in the
8 3/8% Notes Indenture), if any, to the date of redemption; provided that
immediately after giving effect to each such redemption, at least 65% of the
aggregate principal amount of the 8 3/8% Notes remain outstanding after giving
effect to such redemption.
In addition, the 8 3/8% Notes are redeemable at the option of USSC at any
time on or after April 15, 2003, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount):
<TABLE>
<CAPTION>
REDEMPTION
YEAR BEGINNING APRIL 15 PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. 104.188%
2004............................................................................. 102.792%
2005............................................................................. 101.396%
</TABLE>
75
<PAGE>
and thereafter at 100.000% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control (which term includes the
acquisition by any person or group of more than 50% of the voting power of the
outstanding common stock of either the Company or USSC or certain significant
changes in the composition of the Board of Directors of either the Company or
USSC), USSC shall be obligated to offer to redeem all or a portion of each
holder's 8 3/8% Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of such redemption. Such
obligation, if it arose, could have a material adverse effect on the Company.
The 8 3/8% Notes Indenture governing the 8 3/8% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the making
of restricted payments, transactions with affiliates, the existence of liens,
disposition of proceeds of asset sales, the making of guarantees by restricted
subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of
certain payment restrictions on restricted subsidiaries and certain mergers and
sales of assets. In addition, the 8 3/8% Notes Indenture provides for the
issuance thereunder of up to $100.0 million aggregate principal amount of
additional 8 3/8% Notes having substantially identical terms and conditions to
the 8 3/8% Notes, subject to compliance with the covenants contained in the
8 3/8% Notes Indenture, including compliance with the restrictions contained in
the 8 3/8% Notes Indenture relating to incurrence of indebtedness.
76
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Stanley & Co. Incorporated and Cleary Gull Reiland & McDevitt Inc. (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Bear, Stearns & Co. Inc. ............................................................
Donaldson, Lufkin & Jenrette Securities Corporation..................................
Morgan Stanley & Co. Incorporated....................................................
Cleary Gull Reiland & McDevitt Inc. .................................................
-----------------
Total..............................................................................
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that, if any of the foregoing
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares must be so purchased. The Company and,
to a limited extent, the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company and the Selling Stockholders have been advised that the
Underwriters propose initially to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain selected dealers (who may include the Underwriters) at such public
offering price less a concession not to exceed $ per share. The selected
dealers may reallow a concession to certain other dealers not to exceed $ per
share. After the Offering to the public, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Underwriters have agreed to reimburse the Company in the amount of
$ for expenses incurred by the Company in connection with the Offering.
In order to facilitate this Offering, certain persons participating in this
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after this Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company and the Selling Stockholders. The Underwriters
may elect to cover any such short position by purchasing shares of Common Stock
in the open market or by exercising the over-allotment option granted to the
Underwriters. In addition, such persons may stabilize or maintain the price of
the Common Stock by bidding for or purchasing shares of Common Stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this Offering are
reclaimed if shares of Common Stock previously distributed in this Offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the Common
Stock to the extent that it discourages resales thereof. No representation is
made as to the
77
<PAGE>
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Certain persons participating in this Offering may also engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103
permits, upon the satisfaction of certain conditions, underwriting and selling
group members participating in a distribution that are also registered Nasdaq
market makers in the security being distributed (or a related security) to
engage in limited passive market making transactions during the period when
Regulation M would otherwise prohibit such activity. In general, a passive
market maker may not bid for or purchase a security at a price that exceeds the
highest independent bid for those securities by a person that is not
participating in the distribution and must identify its passive market making
bids on Nasdaq electronic inter-dealer reporting system. In addition, the net
daily purchases made by a passive market maker generally may not exceed 30% of
such market maker's average daily trading volume in the security for the two
full consecutive calendar months (or any 60 consecutive days ending within 10
days) immediately preceding the date of filing of the Registration Statement of
which this Prospectus forms a part.
The Company has granted the Underwriters an option to purchase up to 347,912
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of this Prospectus. If the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of additional shares
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
No action has been taken in any jurisdiction by the Company or the
Underwriters that would permit a public offering of the Common Stock offered
pursuant to the Offering in any jurisdiction where action for that purpose is
required, other than the United States. The distribution of this Prospectus and
the offering or sale of the shares of Common Stock offered hereby in certain
jurisdictions may be restricted by law. Accordingly, the shares of Common Stock
offered hereby may not be offered or sold, directly or indirectly, and neither
this Prospectus nor any other offering material or advertisements in connection
with the Common Stock may be distributed or published, in or from any
jurisdiction, except under circumstances that will result in compliance with
applicable rules and regulations of any such jurisdiction. Such restrictions may
be set out in applicable Prospectus supplements. Persons into whose possession
this Prospectus comes are required by the Company and the Underwriters to inform
themselves about and to observe any applicable restrictions. This Prospectus
does not constitute an offer of, or an invitation to subscribe for purchase of,
any shares of Common Stock and may not be used for the purpose of an offer to,
or solicitation by, anyone in any jurisdiction or in any circumstances in which
such offer or solicitation is not authorized or is unlawful.
Each of the Company, its directors, certain executive officers, the Selling
Stockholders and certain other significant stockholders of the Company has
agreed that for a period of 60 days from the date of this Prospectus, it will
not, without prior written consent of the Representatives, issue, sell, offer or
agree to sell, grant any option for the sale, or otherwise dispose of, directly
or indirectly, any Common Stock or any securities substantially similar to the
Common Stock or any securities convertible into, exercisable for or exchangeable
for Common Stock or securities substantially similar to the Common Stock,
otherwise than in this Offering or upon the exercise of presently outstanding
stock options. See "Shares Eligible for Future Sale."
Certain of the Underwriters have in the past provided, and may in the future
provide, investment banking services for the Company. In particular, Bear,
Stearns & Co. Inc., Morgan Stanley & Co. Incorporated and Cleary Gull Reiland &
McDevitt Inc. served as underwriters for the October Equity Offering. In
addition, Bear, Stearns & Co. Inc. acted as one of the initial purchasers in the
Notes Offering.
78
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and certain Selling Stockholders by Weil, Gotshal
& Manges LLP, Dallas, Texas and New York, New York, and for the Underwriters by
Haynes and Boone, LLP, Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1997, and for each of the three years in the period ended December 31, 1997,
appearing in and incorporated by reference in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing and incorporated by reference herein.
Such consolidated financial statements are included herein and are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three months ended March 31, 1997 and 1998, Ernst & Young
LLP have reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report, included in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 and incorporated herein by reference, states that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted considering the limited nature of the review
procedures applied. The independent auditors are not subject to the liability
provisions of Section 11 of the Securities Act for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the Registration Statement prepared or certified by the auditors within the
meaning of Sections 7 and 11 of the Securities Act.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNITED STATIONERS INC. AND SUBSIDIARIES
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997......................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and
1997............................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997............................................................................... F-7
Notes to Consolidated Financial Statements........................................... F-8
Condensed Consolidated Balance Sheets as of December 31, 1997 (audited) and March 31,
1998 (unaudited)................................................................... F-29
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1997
and 1998 (unaudited)............................................................... F-30
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1998 (unaudited).......................................................... F-31
Notes to Condensed Consolidated Financial Statements................................. F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of
Directors of United Stationers Inc.
We have audited the accompanying consolidated balance sheets of United
Stationers Inc. and Subsidiaries as of December 31, 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
F-2
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 10,619 $ 12,367
Accounts receivable, less allowance for doubtful accounts of $6,318
in 1996 and $7,071 in 1997....................................... 291,401 311,920
Inventories........................................................ 463,239 511,555
Other.............................................................. 25,221 14,845
--------- ---------
TOTAL CURRENT ASSETS................................................. 790,480 850,687
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land............................................................... 21,878 21,857
Buildings.......................................................... 100,031 101,322
Fixtures and equipment............................................. 102,092 113,037
Leasehold improvements............................................. 1,040 1,026
--------- ---------
Total property, plant and equipment................................ 225,041 237,242
Less--accumulated depreciation and amortization.................... 51,266 72,699
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT.................................... 173,775 164,543
GOODWILL............................................................. 115,449 111,852
OTHER................................................................ 30,163 20,939
--------- ---------
TOTAL ASSETS......................................................... $1,109,867 $1,148,021
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............................... $ 46,923 $ 44,267
Accounts payable................................................... 238,124 236,475
Accrued expenses................................................... 93,789 107,935
Accrued income taxes............................................... 6,671 10,561
--------- ---------
TOTAL CURRENT LIABILITIES............................................ 385,507 399,238
DEFERRED INCOME TAXES................................................ 36,828 19,383
LONG-TERM DEBT....................................................... 552,613 492,868
OTHER LONG-TERM LIABILITIES.......................................... 15,502 13,224
REDEEMABLE PREFERRED STOCK
Preferred Stock Series A, $0.01 par value, 15,000 and 0,
respectively, authorized; 5,000 and 0, respectively, issued and
outstanding, 3,086 and 0, respectively, accrued.................. 8,086 --
Preferred Stock Series C, $0.01 par value; 15,000 and 0,
respectively, authorized; 11,699 and 0, 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
11,446,306 and 15,905,273, respectively, issued and
outstanding...................................................... 1,145 1,591
Common Stock (nonvoting), $0.01 par value, 5,000,000 authorized;
758,994 and 0, respectively, issued and outstanding.............. 8 --
Capital in excess of par value..................................... 44,418 213,042
Retained earnings.................................................. 30,249 8,675
--------- ---------
TOTAL STOCKHOLDERS' EQUITY........................................... 75,820 223,308
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $1,109,867 $1,148,021
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
NET SALES................................................ $1,751,462 $2,298,170 $2,558,135
COST OF GOODS SOLD....................................... 1,446,949 1,907,209 2,112,204
--------- --------- ---------
GROSS PROFIT............................................. 304,513 390,961 445,931
OPERATING EXPENSES:
Warehousing, marketing and administrative expenses..... 237,197 277,957 311,002
Non-recurring charges.................................. -- -- 64,698
Restructuring charge................................... 9,759 -- --
--------- --------- ---------
Total operating expenses............................... 246,956 277,957 375,700
--------- --------- ---------
Income from operations................................... 57,557 113,004 70,231
INTEREST EXPENSE......................................... 46,186 57,456 53,511
--------- --------- ---------
Income before income taxes and extraordinary item...... 11,371 55,548 16,720
INCOME TAXES............................................. 5,128 23,555 8,532
--------- --------- ---------
Income before extraordinary item....................... 6,243 31,993 8,188
EXTRAORDINARY ITEM--loss on early retirement of debt, net
of tax benefit of $967 in 1995 and $3,956 in 1997...... (1,449) -- (5,884)
--------- --------- ---------
NET INCOME............................................... 4,794 31,993 2,304
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED............. 1,998 1,744 1,528
--------- --------- ---------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS........... $ 2,796 $ 30,249 $ 776
--------- --------- ---------
--------- --------- ---------
NET INCOME PER COMMON SHARE:
Income before extraordinary item....................... $ 0.39 $ 2.48 $ 0.51
Extraordinary item..................................... (0.13) -- (0.45)
--------- --------- ---------
Net income per common share............................ $ 0.26 $ 2.48 $ 0.06
--------- --------- ---------
--------- --------- ---------
Average number of common shares (in thousands)........... 10,747 12,205 13,064
--------- --------- ---------
--------- --------- ---------
NET INCOME PER COMMON SHARE--ASSUMING DILUTION:
Income before extraordinary item....................... $ 0.33 $ 2.03 $ 0.43
Extraordinary item..................................... (0.11) -- (0.38)
--------- --------- ---------
Net income per common share............................ $ 0.22 $ 2.03 $ 0.05
--------- --------- ---------
--------- --------- ---------
Average number of common shares (in thousands)........... 12,809 14,923 15,380
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF
REDEEMABLE PREFERRED STOCK COMMON
------------------------------------------ REDEEMABLE SHARES
A B C TOTAL WARRANTS (VOTING)
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994..................................... $ 6,788 $ 6,560 $ 9,841 $ 23,189 $ 1,650 960,346
Net income.......................................... -- -- -- -- -- --
Preferred stock dividends........................... 649 332 763 1,744 -- --
Repurchase of Series B preferred stock.............. -- (6,892) -- (6,892) -- --
Cash dividends...................................... -- -- -- -- -- --
Accretion of warrants to fair market value.......... -- -- -- -- 37,275 --
Issuance of warrants from option grant.............. -- -- -- -- 2,900 --
Nonvoting common stock issued for services related
to financing the Acquisition issued in exchange
for common stock, warrants and options............ -- -- -- -- (460) (109,159)
Increase in value of stock option grants............ -- -- -- -- -- --
Common stock issued:
Acquisition....................................... -- -- -- -- -- 4,831,873
Exercise of warrants.............................. -- -- -- -- (1,673) 58,977
100% stock dividend -- -- -- -- -- 5,683,463
Stock option exercises............................ -- -- -- -- -- 20,806
Other............................................... -- -- -- -- -- --
--------- --------- --------- --------- ----------- -----------
DECEMBER 31, 1995..................................... 7,437 -- 10,604 18,041 39,692 11,446,306
Net income.......................................... -- -- -- -- -- --
Preferred stock dividends........................... 649 -- 1,095 1,744 -- --
Reduction of warrants to fair market value.......... -- -- -- -- (15,880) --
Decrease in value of stock option grants............ -- -- -- -- -- --
Other............................................... -- -- -- -- -- --
--------- --------- --------- --------- ----------- -----------
DECEMBER 31, 1996..................................... 8,086 -- 11,699 19,785 23,812 11,446,306
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
Issuance of common stock, net of offering
expenses.......................................... -- -- -- -- -- 2,000,000
Stock options exercised............................. -- -- -- -- -- 299,889
Conversion of nonvoting common stock into common
stock............................................. -- -- -- -- -- 758,994
Cancellation of common stock........................ -- -- -- -- -- (8,314)
Other............................................... -- -- -- -- -- --
--------- --------- --------- --------- ----------- -----------
DECEMBER 31, 1997..................................... $ -- $ -- $ -- $ -- $ -- 15,905,273
--------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- ----------- -----------
<CAPTION>
NUMBER OF CAPITAL TOTAL
COMMON COMMON COMMON IN STOCK-
STOCK SHARES STOCK EXCESS RETAINED HOLDERS'
(VOTING) (NONVOTING) (NONVOTING) OF PAR EARNINGS EQUITY
----------- ----------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994..................................... $ 10 -- $ -- $ 18,139 $ 6,626 $ 24,775
Net income.......................................... -- -- -- -- 4,794 4,794
Preferred stock dividends........................... -- -- -- -- (1,744) (1,744
)
Repurchase of Series B preferred stock.............. -- -- -- -- -- --
Cash dividends...................................... -- -- -- -- (254) (254
)
Accretion of warrants to fair market value.......... -- -- -- (28,538) (8,737) (37,275
)
Issuance of warrants from option grant.............. -- -- -- (2,900) -- (2,900
)
Nonvoting common stock issued for services related
to financing the Acquisition issued in exchange
for common stock, warrants and options............ (11) 139,474 1 2,749 -- 2,739
Increase in value of stock option grants............ -- -- -- 2,407 -- 2,407
Common stock issued:
Acquisition....................................... 563 215,614 3 35,223 -- 35,789
Exercise of warrants.............................. 6 -- -- 1,673 -- 1,679
100% stock dividend 575 403,906 4 -- (579) --
Stock option exercises............................ 2 -- -- 28 -- 30
Other............................................... -- -- -- 90 (106) (16
)
----------- ----------- --- --------- ----------- ---------
DECEMBER 31, 1995..................................... 1,145 758,994 8 28,871 -- 30,024
Net income.......................................... -- -- -- -- 31,993 31,993
Preferred stock dividends........................... -- -- -- -- (1,744) (1,744
)
Reduction of warrants to fair market value.......... -- -- -- 15,880 -- 15,880
Decrease in value of stock option grants............ -- -- -- (339) -- (339
)
Other............................................... -- -- -- 6 -- 6
----------- ----------- --- --------- ----------- ---------
DECEMBER 31, 1996..................................... 1,145 758,994 8 44,418 30,249 75,820
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............................................. 141 -- -- 47,074 -- 47,215
Issuance of common stock, net of offering
expenses.......................................... 200 -- -- 71,254 -- 71,454
Stock options exercised............................. 30 -- -- (8,270) -- (8,240
)
Conversion of nonvoting common stock into common
stock............................................. 76 (758,994) (8) (68) -- --
Cancellation of common stock........................ (1) -- -- 1 -- --
Other............................................... -- -- -- (230) (11) (241
)
----------- ----------- --- --------- ----------- ---------
DECEMBER 31, 1997..................................... $ 1,591 -- $ -- $ 213,042 $ 8,675 $ 223,308
----------- ----------- --- --------- ----------- ---------
----------- ----------- --- --------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 4,794 $ 31,993 $ 2,304
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation................................................. 19,708 22,766 21,963
Amortization................................................. 3,976 3,276 4,078
Amortization of capitalized financing costs.................. 4,172 5,333 4,323
Extraordinary item--early retirement of debt................. 2,416 -- 9,840
Deferred income taxes........................................ (163) 5,299 (16,091)
Compensation expense on stock option grants.................. 2,407 (339) 60,041
Other........................................................ 301 1,584 51
Changes in operating assets and liabilities, net of acquisition
in 1995 and 1996:
Increase in accounts receivable.............................. (32,330) (15,379) (20,519)
Decrease (increase) in inventory............................. 31,656 (71,282) (48,316)
Decrease in other assets..................................... 2,765 1,814 9,985
(Decrease) increase in accounts payable...................... (5,104) 36,352 (1,649)
Decrease (increase) in accrued liabilities................... (3,474) (17,185) 18,036
Decrease in other liabilities................................ (4,795) (2,623) (2,278)
--------- --------- ---------
Net cash provided by operating activities................ 26,329 1,609 41,768
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........................................... (8,086) (8,190) (13,036)
Proceeds from disposition of property, plant & equipment....... 69 11,076 45
Other.......................................................... 164 (861) --
--------- --------- ---------
Net cash used in investing activities.................... (266,291) (49,871) (12,991)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolver..................... (3,608) 22,000 49,000
Retirements and principal payments of debt..................... (412,342) (30,861) (117,776)
Borrowings under financing agreements.......................... 686,854 57,933 --
Financing costs................................................ (25,290) (1,851) --
Issuance of common stock....................................... 12,006 -- 71,606
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.................................................. (254) -- (141)
Other.......................................................... (701) -- --
--------- --------- ---------
Net cash provided (used in) financing activities............... 249,773 47,221 (27,029)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................ 9,811 (1,041) 1,748
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................... 1,849 11,660 10,619
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......................... $ 11,660 $ 10,619 $ 12,367
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5%
of the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million in
the aggregate pursuant to a tender offer (the "Offer"). Immediately thereafter,
Associated merged with and into United (the "Merger" and, collectively with the
Offer, the "Acquisition"), and Associated Stationers, Inc. ("ASI"), a wholly
owned subsidiary of Associated merged with and into United Stationers Supply Co.
("USSC"), a wholly owned subsidiary of United, with United and USSC continuing
as the respective surviving corporations. United, as the surviving corporation
following the Merger, is referred to herein as the "Company." As a result of
share conversions in the Merger, immediately after the Merger, (i) the former
holders of common stock and common stock equivalents of Associated owned shares
of Common Stock and warrants or options to purchase shares of Common Stock
constituting in the aggregate approximately 80% of the shares of Common Stock on
a fully diluted basis, and (ii) holders of pre-Merger United common stock owned
in the aggregate approximately 20% of the shares of Common Stock on a fully
diluted basis. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
The financial information for the year ended December 31, 1995 includes
Associated only for the three months ended March 30, 1995 and the results of the
Company for the nine months ended December 31, 1995. 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 diluted basis), of which (i) the former
holders of Class A Common Stock,
F-8
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING (CONTINUED)
$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 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 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.
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 ("October 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 October 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 October
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 October 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 (see Note
10) and the termination of certain management advisory service agreements (see
Note 13), respectively, 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
F-9
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. OPERATIONS (CONTINUED)
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.
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 92% and 91% of total inventories at
December 31, 1996 and 1997, 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 $4.8 million and $4.3 million higher
than reported at December 31, 1996 and 1997, 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.
F-10
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1996 and 1997 is $4.0 million and $7.6 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.
F-11
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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,
----------------------
1995(1) 1996
----------- ---------
<S> <C> <C>
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification.................... 21.8% 21.0%
Gross margin as reported.................................. 17.4% 17.0%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification......... 17.9%(2) 16.1%
Operating expense ratio as reported....................... 13.5 (2) 12.1%
</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 present (i) both basic and diluted EPS on the
face of the consolidated statement of income and (ii) 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
F-12
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
options. For those entities which do not elect to adopt the fair value method,
the new standard requires supplemental disclosure regarding the pro forma
effects of that method. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stocks Issued to Employees," and related Interpretations.
Adoption of SFAS No. 123 will have no impact on the financial position or
results of operations of the Company.
During 1996, the Company adopted 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.
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.
F-13
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EARNINGS PER SHARE (CONTINUED)
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
1995 1996 1997 CHARGES(1)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item..................... $ 6,243 $ 31,993 $ 8,188 $ 46,892
Preferred stock dividends............................ 1,998 1,744 1,528 1,528
--------- --------- --------- -----------
Numerator for basic and diluted earnings per share--
income available to common stockholders before
extraordinary item................................. $ 4,245 $ 30,249 $ 6,660 $ 45,364
--------- --------- --------- -----------
--------- --------- --------- -----------
Denominator:
Denominator for basic earnings per share--weighted
average shares..................................... 10,747 12,205 13,064 13,064
Effect of dilutive securities:
Employee stock options............................. 601 1,315 1,258 1,258
Warrants........................................... 1,461 1,403 1,058 1,058
--------- --------- --------- -----------
Dilutive potential common shares..................... 2,062 2,718 2,316 2,316
Denominator for diluted earnings per share--adjusted
weighted average shares and assumed conversions.... 12,809 14,923 15,380 15,380
--------- --------- --------- -----------
--------- --------- --------- -----------
Basic earnings per share............................... $ 0.39 $ 2.48 $ 0.51 $ 3.47
--------- --------- --------- -----------
--------- --------- --------- -----------
Diluted earnings per share............................. $ 0.33 $ 2.03 $ 0.43 $ 2.95
--------- --------- --------- -----------
--------- --------- --------- -----------
</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 (see Note 10) and the
termination of certain management advisory service agreements (see Note 13),
respectively, 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 is presented giving effect to the Acquisition as if it
had been consummated at the beginning of the respective 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-
F-14
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BUSINESS COMBINATION AND RESTRUCTURING CHARGE (CONTINUED)
recurring charges or credits directly attributable to the transaction (dollars
in thousands, except per share data):
<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.
F-15
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revolver.............................................................. $ 207,000 $ 256,000
Term Loans
Tranche A, due in installments until September 30, 2001............. 144,374 97,524
Tranche B, due in installments until September 30, 2003............. 64,750 51,275
Senior Subordinated Notes............................................. 150,000 100,000
Mortgage at 9.4%, due in installments until 1999...................... 2,071 1,957
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.................................................. 1,541 579
---------- ----------
599,536 537,135
Less--current maturities............................................ (46,923) (44,267)
---------- ----------
Total................................................................. $ 552,613 $ 492,868
---------- ----------
---------- ----------
</TABLE>
The prevailing prime interest rate at the end of 1996 and 1997 was 8.25% and
8.50%, respectively.
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 October 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
October 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
F-16
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
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, 1995, 1996 and 1997, the Company recorded $0.1 million, $0.9 million and
$0.6 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.
F-17
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
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, 1996 and 1997, the Company had available letters of credit
of $55.3 million and $52.9 million, respectively, of which $52.8 million and
$49.8 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 $14.2 million,
$18.8 million and $20.5 million in 1995, 1996 and 1997, respectively.
F-18
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The following table sets forth the plans' funded status at December 31, 1996
and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation
Vested benefits....................................................... $ 19,015 $ 22,611
Non-vested benefits................................................... 1,431 2,092
--------- ---------
Accumulated benefit obligation.......................................... 20,446 24,703
Effect of projected future compensation levels.......................... 3,110 4,070
--------- ---------
Projected benefit obligation............................................ 23,556 28,773
Plan assets at fair value............................................... 28,373 33,562
--------- ---------
Plan assets in excess of projected benefit obligation................... 4,817 4,789
Unrecognized prior service cost......................................... 720 888
Unrecognized net gain due to past experience different from
assumptions........................................................... (4,348) (6,020)
--------- ---------
Prepaid pension (asset) liability recognized in the Consolidated Balance
Sheets................................................................ $ 1,189 $ (343)
--------- ---------
--------- ---------
</TABLE>
The plans' assets consist of corporate and government debt securities and
equity securities. Net periodic pension cost for 1995, 1996 and 1997 for pension
and supplemental benefit plans includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefit earned during the period................. $ 1,142 $ 1,884 $ 2,333
Interest cost on projected benefit obligation................. 1,157 1,652 1,833
Actual return on assets....................................... (2,711) (3,468) (5,496)
Net amortization and deferral................................. 1,382 1,495 3,375
--------- --------- ---------
Net periodic pension cost..................................... $ 970 $ 1,563 $ 2,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PENSION PLANS AND DEFINED CONTRIBUTION PLAN (CONTINUED)
The assumptions used in accounting for the Company's defined benefit plans
for the three years presented are set forth below:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ----- ---------
<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 $0.6
million, $0.9 million and $1.0 million in 1995, 1996 and 1997, 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.
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheets as of December 31, 1996 and 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Retirees................................................................... $ 877 $ 618
Other fully eligible plan participants..................................... 632 632
Other active plan participants............................................. 1,588 1,795
--------- ---------
Total accumulated postretirement benefit obligation........................ 3,097 3,045
Unrecognized net gain...................................................... 1 415
--------- ---------
Accrued postretirement benefit obligation.................................. $ 3,098 $ 3,460
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. POSTRETIREMENT BENEFITS (CONTINUED)
The cost of postretirement health care benefits for the years ended December
31, 1995, 1996 and 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost.......................................................... $ 161 $ 239 $ 268
Interest on accumulated benefit obligation............................ 109 204 190
Unrecognized net gain................................................. -- -- (15)
--------- --------- ---------
Net postretirement benefit cost....................................... $ 270 $ 443 $ 443
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumptions used in accounting for the Company's postretirement plan for
the three years presented are set forth below. 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>
1995 1996 1997
----- ----- ---------
<S> <C> <C> <C>
Assumed average heath care cost trend rate............................... 3.0% 3.0% 3.0%
Assumed discount rate.................................................... 7.5% 7.5% 7.25%
</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 October 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
F-21
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
$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).
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>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
MANAGEMENT EQUITY PLAN EXERCISE EXERCISE EXERCISE
(EXCLUDING RESTRICTED STOCK) 1995 PRICES 1996 PRICES 1997 PRICES
- ------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of the
period................................... 217,309 $ 1.45 2,030,996 $ 10.73 2,497,768 $ 11.61
Granted.................................... 1,854,649 11.65 650,772 7.95 269,000 22.87
Exercised.................................. (20,804) 1.45 -- -- (846,871) 15.41
Canceled................................... (20,158) 1.45 (184,000) 7.64 (121,000) 14.76
---------- ---------- ----------
Options outstanding at end of the period... 2,030,996 $ 10.73 2,497,768 $ 11.61 1,798,897 $ 13.77
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes information concerning outstanding options of
the Plan at
December 31, 1997:
<TABLE>
<CAPTION>
REMAINING
NUMBER CONTRACTUAL
EXERCISE 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
F-22
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
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 October Equity Offering constituted a Vesting
Event; as a result, all Merger Incentive Options vested and became exercisable
by the optionees.
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 1995 and 1997 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 1995, 1996 and 1997, net income and
earnings per share would have been adjusted as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income attributable to common stockholders
As reported............................................................. $ 2,796 $ 30,249 $ 776
Before charges.......................................................... 10,081(1) 30,249 45,364(2)
Pro forma............................................................... 2,796 30,249 18,396
Net income per common share--basic
As reported............................................................. $ 0.26 $ 2.48 $ 0.06
Before charges.......................................................... 0.94(1) 2.48 3.47(2)
Pro forma............................................................... 0.26 2.48 1.41
Weighted average shares outstanding..................................... 10,747 12,205 13,064
Net income per common share--diluted
As reported............................................................. $ 0.22 $ 2.03 $ 0.05
Before charges.......................................................... 0.79(1) 2.03 2.95(2)
Pro forma............................................................... 0.22 2.03 1.20
Weighted average shares outstanding and assumed conversions............. 12,809 14,923 15,380
</TABLE>
- ------------------------
(1) 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.
(2) 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.
F-23
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
The Company uses a binomial option pricing model to estimate the fair value
of options at the date of grant. The weighted average assumptions used to value
options and the weighted average fair value of options granted during 1995, 1996
and 1997 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Fair value of options granted.................................. $ 9.33 $ 17.67 $ 13.69
Exercise price................................................. $ 11.65 $ 8.59 $ 22.87
Expected stock price volatility................................ 102.2% 80.7% 64.7%
Expected dividend yield........................................ 0.0% 0.0% 0.0%
Risk-free interest rate........................................ 5.9% 5.2% 6.4%
Expected life of options....................................... 3 years 2 years 5 years
</TABLE>
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,
F-24
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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 $603,000, $725,000 and $513,540 with respect to each of the years
ended 1995, 1996 and 1997, 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 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 $129,000, $137,000
and $97,400 with respect to the years ended 1995, 1996 and 1997, 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 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 $129,000,
$137,500 and $97,400 with respect to the years ended 1995, 1996 and 1997,
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.
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.
F-25
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES
The provision for (benefit from) income taxes consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Currently payable--
Federal......................................... $ 4,172 $ 14,724 $ 19,812
State........................................... 1,119 3,532 4,811
--------- --------- ---------
Total currently payable......................... 5,291 18,256 24,623
Deferred, net--
Federal......................................... (142) 4,614 (12,889)
State........................................... (21) 685 (3,202)
--------- --------- ---------
Total deferred, net........................... (163) 5,299 (16,091)
--------- --------- ---------
Provision for income taxes........................ $ 5,128 $ 23,555 $ 8,532
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's effective income tax rates for the years ended December 31,
1995, 1996 and 1997 varied from the statutory Federal income tax rate as set
forth in the following table (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1996 1997
---------------------- ---------------------- ----------------------
% 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....................................... $ 3,980 35.0% $ 19,442 35.0% $ 5,852 35.0%
State and local income taxes--net of federal
income tax benefit......................... 705 6.2 3,000 5.4 1,053 6.3
Non-deductible and other..................... 443 3.9 1,113 2.0 1,627 9.7
--------- --- --------- --- --------- ---
Provision for income taxes................... $ 5,128 45.1% $ 23,555 42.4% $ 8,532 51.0%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</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,
----------------------------------------------
1996 1997
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Accrued expenses....................... $ 17,882 $ -- $ 18,280 $ --
Allowance for doubtful accounts........ 11,036 -- 8,632 --
Inventory reserves and adjustments..... -- 13,795 -- 16,852
Depreciation and amortization.......... -- 43,798 -- 41,588
Reserve for stock option
compensation......................... -- -- 16,792 --
Other.................................. 6,915 -- 5,720 --
--------- ----------- --------- -----------
Total.................................. $ 35,833 $ 57,593 $ 49,424 $ 58,440
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
F-26
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
In the Consolidated Balance Sheets, these deferred assets and liabilities
are classified on a net basis as current and non-current based on the
classification of the related asset or liability or the expected reversal date
of the temporary difference.
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, 1995, 1996 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................... $ 36,120 $ 52,871 $ 49,279
Income taxes............................................... 8,171 17,482 13,663
</TABLE>
The following are supplemental disclosures of noncash investing and
financing activities for the years ended December 31, 1995, 1996 and 1997
(dollars in thousands):
- On March 30, 1995, the Company issued stock valued at $2,162 in exchange
for services related to financing the Acquisition.
- On May 3, 1995, the Company issued stock valued at $2,406 in exchange for
services related to the issuance of the Notes.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 10,619 $ 10,619 $ 12,367 $ 12,367
Current maturities of long-term obligations and
capital lease..................................... 46,923 46,923 44,267 44,267
Long-term debt and capital lease:
Notes............................................. 150,000 168,000 100,000 114,750
All other......................................... 403,079 403,079 392,868 392,868
Interest rate collar................................ -- 1,200 -- 387
</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.
F-27
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENT (CONTINUED)
The purchase price is anticipated to be approximately $110.0 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 April 1998
subject to obtaining the necessary approvals and the completion of due
diligence.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 13
Recent Transactions....................................................... 19
Use of Proceeds........................................................... 22
Price Range of Common Stock and Dividend Policy........................... 22
Capitalization............................................................ 23
Selected Consolidated Financial Data...................................... 24
Unaudited Consolidated Pro Forma Financial Statements..................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 39
Business.................................................................. 49
Management................................................................ 60
Principal and Selling Stockholders........................................ 64
Shares Eligible for Future Sale........................................... 69
Description of Capital Stock.............................................. 70
Description of Certain Indebtedness....................................... 73
Underwriting.............................................................. 77
Legal Matters............................................................. 79
Experts................................................................... 79
Index to Financial Statements............................................. F-1
</TABLE>
2,319,418 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY DEAN WITTER
CLEARY GULL
REILAND & MCDEVITT INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the registrant in
connection with this registration statement. All such expenses are estimates,
other than the filing and listing fees payable to the Commission and the
National Association of Securities Dealers, Inc.
<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission..................... $ 49,081
Filing and Listing Fee--National Association of Securities Dealers,
Inc............................................................... 34,637
Fees and Expenses of Accountants................................... *
Fees and Expenses of Legal Counsel................................. *
Printing and Engraving Expenses.................................... *
Blue Sky Fees and Expenses......................................... *
Fees of Transfer Agent and Registrar............................... *
Miscellaneous Expenses............................................. *
---------
Total.......................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Charter and Restated Bylaws of the Company provide for the
indemnification of directors and officers to the fullest extent permitted by the
General Corporation Law of the State of Delaware ("DGCL"). Pursuant to the
provisions of Section 145 of the DGCL, the Company has the power to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company against any and all
expenses, judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification is not available if such person has been adjudged to have
been liable to the Company, unless and only to the extent the court in which
such action was brought determines that, despite the adjudication of liability,
but in view of all the circumstances, the person is reasonably and fairly
entitled to indemnification for such expenses as the court shall deem proper.
The Company has the power to purchase and maintain insurance for such persons.
The statutes also expressly provide that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise.
The above discussion of the Charter and Restated Bylaws of the Company and
of Section 145 of the DGCL is not intended to be exhaustive and is qualified in
its entirety by such Charter and Restated Bylaws of the Company and the DGCL.
The Company also carries director and officer liability insurance policies.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
II-1
<PAGE>
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer, or
controlling person thereof in the successful defense of any action, suit or
proceeding) is asserted by a director, officer, or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 16.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Stock Purchase Agreement dated as of February 10, 1998, among the Company,
USSC, Abitibi Consolidated Inc., Abitibi Consolidated Sales Corporation,
Azerty, Azerty Mexico, Positive ID. and AP Support Service (Exhibit 2.1 to
the Company's Current Report on Form 8-K filed April 20, 1998)(1).
3.1 -- Restated Certificate of Incorporation, as amended(2).
3.2 -- Restated Bylaws(3).
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity of the securities
registered hereby.**
15.1 -- Letter regarding unaudited interim financial information.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as
Exhibit 5.1 to the Registration Statement).**
23.2 -- Consent of Ernst & Young LLP, independent auditors.*
24.1 -- Powers of Attorney of directors and executive officers of the Registrant
(included on the signature pages II-4 and II-5).*
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to prior filings of the Company as indicated.
(2) Incorporated by reference to the Company's Form S-2 (No. 333-34937), as
amended, initially filed with the Commission on September 4, 1997.
(3) Incorporated by reference to the Company's Form S-1 (No. 33-59811), as
amended, initially filed with the Commission on June 12, 1995.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
and Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(h) See Item 15
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Des Plaines, State of Illinois, on May 8, 1998.
<TABLE>
<S> <C> <C>
UNITED STATIONERS INC.
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
AND ASSISTANT SECRETARY
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Frederick B. Hegi, Jr., Randall W. Larrimore and Daniel H.
Bushell, and each of them, any one of whom may act without the joinder of any of
the others, as his Attorney-In-Fact to sign on his behalf individually and in
the capacity stated below and to file all pre- and post-effective amendments to
this Registration Statement (and, in addition, any Registration Statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the
offering to which this Registration Statement relates), which may make such
changes in and additions to this Registration Statement as such Attorney-In-Fact
may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ FREDERICK B. HEGI, JR.
- ------------------------------ Chairman of the Board May 8, 1998
Frederick B. Hegi, Jr.
President and Chief
/s/ RANDALL W. LARRIMORE Executive Officer of the
- ------------------------------ Company (principal May 8, 1998
Randall W. Larrimore executive officer of the
Company)
Executive Vice President
/s/ DANIEL H. BUSHELL Chief Financial Officer
- ------------------------------ and Assistant Secretary May 8, 1998
Daniel H. Bushell (principal financial and
accounting officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DANIEL J. GOOD
- ------------------------------ Director May 8, 1998
Daniel J. Good
/s/ ROY W. HALEY
- ------------------------------ Director May 8, 1998
Roy W. Haley
/s/ JAMES A. JOHNSON
- ------------------------------ Director May 8, 1998
James A. Johnson
/s/ GARY G. MILLER
- ------------------------------ Director May 8, 1998
Gary G. Miller
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director May 8, 1998
Michael D. Rowsey
/s/ BENSON P. SHAPIRO
- ------------------------------ Director May 8, 1998
Benson P. Shapiro
/s/ JOEL D. SPUNGIN
- ------------------------------ Director May 8, 1998
Joel D. Spungin
</TABLE>
II-5
<PAGE>
______________ Shares of Common Stock
UNITED STATIONERS INC.
UNDERWRITING AGREEMENT
__________________, 1998
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
As Representatives (the "Representatives")
of the several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
Subject to the terms and conditions stated herein, (i) United Stationers
Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell to
the several underwriters named on Schedule I attached hereto (the
"UNDERWRITERS"), an aggregate of 1,750,000 authorized but unissued shares
(the "COMPANY SHARES") of common stock, par value $.10 per share, of the
Company (the "COMMON STOCK") and (ii) the persons named on Schedule II
attached hereto (the "SELLING STOCKHOLDERS") propose to sell, severally and
not jointly, to the Underwriters an aggregate of _____________ shares of
issued and outstanding Common Stock (the "STOCKHOLDER SHARES"). The Company
Shares and the Stockholder Shares, representing an aggregate of
______________ shares of Common Stock, are herein referred to collectively as
the "FIRM SHARES." In addition, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, the Company
proposes to sell to the Underwriters, at the option of the Underwriters, up
to an additional ___________ shares of Common Stock (the "ADDITIONAL
SHARES"). The Firm Shares and any Additional Shares purchased by the
Underwriters are herein referred to collectively as the "SHARES." The Shares
are more fully described in the Registration Statement referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
<PAGE>
(a) The Company has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement, and may have filed an amendment
or amendments thereto, on Form S-3 (No. 333-____________), for the
registration of the Shares under the Securities Act of 1933, as amended (the
"ACT"). The Company will not, without the prior consent of the
Representatives (which consent will not be unreasonably withheld), file any
amendment thereto or make any change in the form of final prospectus included
therein. Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof, at the time of effectiveness of the registration statement,
including any information to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the rules
and regulations of the Commission under the Act (the "REGULATIONS"), is
herein called the "REGISTRATION STATEMENT" and the prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations or
filed as part of the Registration Statement at the time of effectiveness if
no Rule 424(b) or Rule 434 filing is required, is herein called the
"PROSPECTUS." The term "PRELIMINARY PROSPECTUS" as used herein means a
preliminary prospectus as described in Rule 430 of the Regulations. If the
Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) of the Regulations
(the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement. Any reference herein to the Registration Statement,
any preliminary prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 which were filed under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), on or before the effective date of the
Registration Statement, the date of such preliminary prospectus or the date
of the Prospectus, as the case may be, and any reference herein to the terms
"AMEND," "AMENDMENT" or "SUPPLEMENT" with respect to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to
refer to and include (i) the filing of any document under the Exchange Act
after the effective date of the Registration Statement, the date of such
preliminary prospectus or the date of the Prospectus, as the case may be, and
prior to the termination of the Offering to which the Registration Statement
relates, which is incorporated therein by reference and (ii) any such
document so filed.
(b) At the time of the effectiveness of the Registration Statement or
the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission pursuant to
Rule 424(b) or Rule 434 of the Regulations, when any supplement to or
amendment of the Prospectus is filed with the Commission and at the Closing
Date and the Additional Closing Date, if any (as hereinafter respectively
defined), the Registration Statement and the Prospectus and any amendments
thereof and supplements thereto (including any documents or portions of
documents incorporated or deemed incorporated by reference therein) complied
or will comply in all material respects with the applicable provisions of the
Act and the Exchange Act and the respective rules and regulations thereunder
and do not or will not contain an untrue statement of a material fact and do
not or will not omit to state any material fact required
2
<PAGE>
to be stated therein or necessary in order to make the statements therein (i)
in the case of the Registration Statement, not misleading and (ii) in the
case of the Prospectus, in light of the circumstances under which they were
made, not misleading. When any related preliminary prospectus was first
filed with the Commission (whether filed as part of the Registration
Statement for the registration of the Shares or any amendment thereto or
pursuant to Rule 424(a) of the Regulations) and when any amendment thereof or
supplement thereto was first filed with the Commission, such preliminary
prospectus and any amendments thereof and supplements thereto complied in all
material respects with the applicable provisions of the Act and the Exchange
Act and the respective rules and regulations thereunder and did not contain
an untrue statement of a material fact and did not omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstance under which they were made,
not misleading. No representation and warranty is made in this subsection
(b), however, with respect to any information contained in or omitted from
the Registration Statement or the Prospectus or any related preliminary
prospectus or any amendment thereof or supplement thereto in reliance upon
and in conformity with information furnished in writing to the Company by or
on behalf of any Underwriter through the Representatives expressly for use in
connection with the preparation thereof.
(c) Neither the Commission nor the "Blue Sky" or securities authority
of any jurisdiction has issued an order (a "STOP ORDER") suspending the
effectiveness of the Registration Statement, preventing or suspending the use
of any preliminary prospectus, the Prospectus, the Registration Statement or
any amendment or supplement thereto, refusing to permit the effectiveness of
the Registration Statement, or suspending the registration or qualification
of the Firm Shares or the Additional Shares, nor, to the best knowledge of
the Company (based solely upon telephonic inquiry to the Commission), has any
of such authorities instituted or overtly threatened to institute any
proceedings with respect to a Stop Order.
(d) Ernst & Young LLP, whose report is filed with the Commission as a
part of the Registration Statement, serves as independent public accountants
with regard to the Company and each of its subsidiaries as required by the
Act and the Regulations.
(e) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as set forth in the
Registration Statement and the Prospectus, there has been no material adverse
change, nor any development involving a prospective material adverse change,
in the business, prospects, properties, operations, condition (financial or
other) or results of operations of the Company and its subsidiaries taken as
a whole, whether or not arising from transactions in the ordinary course of
business, and since the date of the latest balance sheet presented in the
Registration Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred or undertaken any liabilities or obligations,
direct or contingent, which are material to the Company and its subsidiaries
taken as a whole, except for liabilities or obligations which are reflected
in the Registration Statement and the Prospectus.
3
<PAGE>
(f) The Company and United Stationers Supply Co., an Illinois
corporation and the principal operating subsidiary of the Company ("USSC"),
have the corporate power and the authority to enter into this Agreement,
perform each of their respective obligations hereunder and, with respect to
the Company, to issue, sell and deliver the Shares to be sold by it
hereunder. This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company and USSC and this Agreement has
been duly and validly executed and delivered by the Company and USSC and,
assuming the due execution and delivery if this Agreement by the
Representatives, is a valid and binding obligation of the Company and USSC,
enforceable against each of them in accordance with its terms, except to the
extent that rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or the public policy underlying such laws.
(g) The execution, delivery and performance of this Agreement by the
Company and USSC and the consummation of the transactions contemplated hereby
do not and will not (i) conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) or require
consent under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries, pursuant to the terms of any agreement, instrument, franchise,
license or permit to which the Company or any of its subsidiaries is a party
or by which any of such corporations or their respective properties or assets
may be bound or (ii) violate or conflict with any provision of the
certificate of incorporation or bylaws of the Company or any of its
subsidiaries or any judgment, decree, order, statute, rule or regulation of
any court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any court
or any public, governmental or regulatory agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties or assets is required for the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated
hereby, including the issuance, sale and delivery of the Shares to be issued,
sold and delivered by the Company hereunder, except the registration under
the Act of the Shares and such consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses and permits as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters, all of which
have been obtained as of the date hereof, or by the National Association of
Securities Dealers, Inc. (the "NASD").
(h) All of the outstanding shares of Common Stock have been duly and
validly authorized and issued, are fully paid and nonassessable and were not
issued and are not now in violation of or subject to any preemptive,
maintenance or similar rights. The Company has, at the date hereof, an
authorized and outstanding capitalization as set forth in the Registration
Statement and the Prospectus. The Shares, when issued, delivered and sold in
accordance with this Agreement, will be duly and validly issued and
outstanding, fully
4
<PAGE>
paid and nonassessable, and will not have been issued in violation of or be
subject to any preemptive, maintenance or similar rights. The Common Stock
conforms in all material respects to the description thereof contained in the
Registration Statement and the Prospectus.
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. Each of the Company and its subsidiaries
is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or in
good standing which would not in the aggregate have a material adverse effect
on the condition (financial or other), results of operation, cash flows,
assets or prospects of the Company and its subsidiaries taken as a whole (a
"MATERIAL ADVERSE EFFECT"). Each of the Company and its subsidiaries has all
requisite corporate power and authority, and all necessary consents,
approvals, authorizations, orders, registrations, qualifications, licenses
and permits of and from all public, regulatory or governmental agencies and
bodies, to own, lease and operate its properties and conduct its business as
now being conducted and as described in the Registration Statement and the
Prospectus, except for those for which the failure to so obtain would not in
the aggregate have a Material Adverse Effect.
(j) As of the date hereof, USSC was the Company's only significant
subsidiary (as defined in the Regulations). All of the outstanding shares of
capital stock of USSC have been duly and validly issued, are fully paid and
non-assessable and were not issued in violation of preemptive rights or
rights of first refusal and are owned directly by the Company free and clear
of any lien, pledge, encumbrance, claim, security interest, restriction on
transfer, stockholders' agreement, voting trust or other defect of title
whatsoever other than the pledge of such shares to The Chase Manhattan Bank,
as collateral agent under the Company's senior secured credit agreement.
(k) Except as described in the Registration Statement and as shall be
described in the Prospectus, there is no litigation, action, suit,
investigation or proceeding, governmental or otherwise, to which the Company
or any of its subsidiaries is a party or which is pending or, to the best
knowledge of the Company, overtly threatened against the Company or any of
its subsidiaries which (i) could reasonably be expected to have a Material
Adverse Effect, (ii) is required to be disclosed in the Registration
Statement and the Prospectus, or (iii) seeks to restrain, enjoin, prevent the
consummation of, or otherwise challenge the issuance of, the Shares or the
execution and delivery of this Agreement or any of the other transactions
contemplated hereby, or questions the legality or validity of any such
transactions or that seeks to recover damages or obtain other relief in
connection with any of such transactions.
(l) Since its determination to undertake the Offering, the Company has
not taken and prior to the termination or completion of the Offering the
Company will not take,
5
<PAGE>
directly or indirectly, any action designed to cause or result in, or which
constitutes or which could reasonably be expected to constitute, the
stabilization or manipulation of the market price of the shares of Common
Stock to facilitate the sale or resale of the Shares.
(m) The consolidated financial statements, including the notes thereto,
and supporting schedules included in the Registration Statement and as will
be set forth in the Prospectus present fairly the financial condition,
results of operations, stockholders' equity and cash flows and other
information purported to be shown therein of the Company and its subsidiaries
at the dates and for the periods indicated. Such consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as otherwise disclosed therein. No other financial statements are
required by Form S-3 or otherwise to be included in the Registration
Statement or the Prospectus. The historical financial data set forth in the
Registration Statement and as will be set forth in the Prospectus under the
captions "Summary Consolidated Financial and Operating Data,"
"Capitalization," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
fairly present, on the basis stated in the Registration Statement and as will
be stated in the Prospectus, the information set forth therein and have been
compiled on a basis consistent with that of the audited financial statements
included in the Registration Statement and as will be set forth in the
Prospectus. All other financial information and statistical data set forth
in the Registration Statement and as will be set forth in the Prospectus have
been prepared on an accounting basis consistent with the financial statements
included in the Registration Statement and as will be included in the
Prospectus. The pro forma and "as adjusted" financial information included
in the Registration Statement and as will be included in the Prospectus that
gives effect to the issuance of the Shares, the application of the net
proceeds therefrom and the other transactions and events specified therein
has been properly compiled on the basis of the assumptions set forth with
respect thereto. The pro forma adjustments to the historical figures have
been properly applied to such figures and such pro forma financial
information complies in all material respects with the applicable accounting
requirements of the Commission.
(n) Each of the Company and each of its subsidiaries has good and
marketable title to all the properties and assets reflected as owned in the
financial statements (or elsewhere) in the Registration Statement and as will
be set forth in the Prospectus, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except (i) those, if any, reflected in the
financial statements or otherwise described in the Registration Statement and
as will be described in the Prospectus, or (ii) those which are not material
in amount and do not adversely affect the use made and proposed to be made of
such property by the Company and its subsidiaries. Each of the Company and
its subsidiaries holds its leased properties under valid, subsisting and
enforceable leases, with such exceptions as are not, individually or in the
aggregate, material and do not individually or in the aggregate, interfere
with the use made or proposed to be made of such properties by the Company or
any of its subsidiaries. Except as disclosed in the Registration Statement
6
<PAGE>
and as will be disclosed in the Prospectus, the Company and each of its
subsidiaries own or lease all such properties as are necessary to its
operations as now conducted or as proposed to be conducted in the foreseeable
future.
(o) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" or an entity "controlled by" an "investment company" within the
meaning of Investment Company Act of 1940, as amended, and the rules and
regulations promulgated thereunder.
(p) The Company and each of its subsidiaries have (i) filed all
federal, state and local and foreign tax returns which are required to be
filed through the date hereof, and all such tax returns are true, complete
and accurate in all material respects, or (ii) properly filed for extensions
thereof and have paid all taxes shown on such returns and all assessments
received by them except where, in the case of state and local and foreign tax
returns, the failure to file, extend the due date of or pay the same, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect; the Company has no knowledge of any tax deficiency which has been or
might be asserted against the Company or any of its subsidiaries which could
reasonably be expected to have a Material Adverse Effect. All tax
liabilities are adequately provided for on the consolidated books of the
Company.
(q) The Company and each of its subsidiaries own, or possess adequate
licenses or other rights to use, all material patents, trademarks, service
marks, trade names, copyrights, technology and know-how reasonably necessary
to conduct the business now or proposed to be conducted by the Company and
each of its subsidiaries as described in the Registration Statement and as
will be described in the Prospectus, and, except as disclosed in the
Registration Statement and as will be disclosed in the Prospectus, neither
the Company nor any of its subsidiaries has received any written notice of
infringement of or conflict with (or knows of such infringement or conflict
with) rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how. The Company and each of its
subsidiaries do not in the conduct of their business as now conducted
infringe or conflict with any such rights of any third party, which
infringement or conflict could reasonably be expected to have a Material
Adverse Effect.
(r) There are no contracts, indentures, mortgages, loan agreements,
notes, leases or other agreements or instruments or other documents
(collectively, "DOCUMENTS") required to be described or referred to in, or
filed with, the Registration Statement and, in respect of the representation
made at the Closing Date and the Additional Closing Date, the Prospectus,
other than those described or referred to therein or filed as exhibits
thereto. All such descriptions are accurate in all material respect and
present fairly the information described therein.
(s) There are no rights of return or other agreements between the
Company and any customer of the Company, not adequately reserved for, which
would cause any sales
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reflected in the Company's consolidated financial statements for the year
ended December 31, 1997 or the three months ended March 31, 1998 included in
the Registration Statement and to be included in the Prospectus to fail to
qualify as sales in accordance with generally accepted accounting principles
or the Company's revenue recognition policy as reflected in the audited
financial statements included in the Registration Statement and to be
included in the Prospectus, except for those for which the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.
(t) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(u) Neither the Company nor any of its subsidiaries is in violation or
breach of, or in default (nor has any event occurred which with notice, or
lapse of time, or both, would constitute a default) of any contract,
agreement, indenture, loan or other agreement, instrument, mortgage, note,
permit, lease, license, arrangement or understanding to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries may be bound where such default, either individually or together
with all such other defaults, could reasonably be expected to have a Material
Adverse Effect or on the ability of the Company to perform its obligations
hereunder. Each such contract, agreement, indenture, loan or other
agreement, instrument, mortgage, note, permit, lease, license, arrangement
and understanding has been duly authorized, executed and delivered by the
Company or any of its subsidiaries, as the case may be, is in full force and
effect and is the legal, valid and binding obligation of the Company or its
subsidiaries, as the case may be, and, to the Company's knowledge, the other
parties thereto, and is enforceable against the Company or its subsidiaries,
as the case may be, and, to the Company's knowledge, against the other
parties thereto in accordance with its terms. Neither the Company nor any of
its subsidiaries is in violation or breach of, or in default with respect to,
any term of its respective certificate of incorporation or bylaws. Neither
the Company nor any of its subsidiaries is in violation of, or in default
with respect to, any law, rule, regulation, order, judgment or decree, except
such as are described in the Registration Statement and as will be described
in the Prospectus or such as, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(v) The Company has obtained from each of the Company's senior officers
and directors and those holders of capital stock of the Company named on
Schedule II attached hereto a written agreement (a "LOCK-UP AGREEMENT"), in a
form or forms approved by the Representatives and their counsel, that for a
period of 60 days from the date of the Prospectus such person will not (i)
directly or indirectly, offer to sell, contract to sell or
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otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "DISPOSITION"), any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "SECURITIES"),
now owned or hereafter acquired by such person or with respect to which such
person has or hereafter acquires the power of disposition, otherwise than (A)
as a bona fide gift or gifts, provided the donee or donees thereof agree to
be bound in writing by the terms of the Lock-Up Agreement, (B) as a
distribution or dividend to limited partners or stockholders of such person
provided that the distributees thereof agree in writing to be bound by the
terms of the Lock-Up Agreement, or (C) with the prior written consent of the
Representatives, or (ii) make any demand for or exercise any right with
respect to the registration of any Common Stock or other securities of the
Company.
(w) Except as described in the Registration Statement and as will be
described in the Prospectus, no labor dispute with the employees of the
Company and any of its subsidiaries exists or, to the knowledge of the
Company, is threatened that could reasonably be expected to have a Material
Adverse Effect.
(x) Except as described in the Registration Statement and as will be
described in the Prospectus, (i) the Company is not a party to or bound by
any stockholders' agreements or voting trusts with respect to any securities
of the Company and (ii) there are no contracts, agreements or understandings
between the Company or any of its subsidiaries and any person or entity
granting such person or entity the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or entity or to require the
Company to include such securities in the securities registered pursuant to
the Registration Statement other than such contracts, agreements or
understandings for which appropriate waivers have been obtained.
(y) To the knowledge of the Company, except as disclosed in the
Registration Statement and as will be described in the Prospectus, neither it
nor any of its subsidiaries is in violation of any federal or state law or
regulation relating to occupational safety and health or to the storage,
handling or transportation of hazardous or toxic materials, and the Company
and each of its subsidiaries have received all material permits, licenses or
other approvals required under applicable federal and state occupational
safety and health and environmental laws and regulations to conduct their
respective businesses. The Company and each of its subsidiaries are in
compliance with all terms and conditions of any such permits, licenses or
approvals, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which could not,
individually or together with all such other violations or failures,
reasonably be expected to have a Material Adverse Effect.
(z) The Company has not incurred any liability for any finder's fees or
similar payments in connection with the transactions herein contemplated.
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(aa) The Company, either directly or through one or more of its
subsidiaries, has in effect, with insurers the Company reasonably believes to
be financially sound, insurance with respect to its business and properties
and the business and properties of its subsidiaries against loss or damage of
the kind customarily insured against by corporations engaged in the same or
similar businesses and similarly situated, of such type and in such amounts
as are customarily carried under similar circumstances by such other
corporations.
(bb) The Company has complied and will comply with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, Laws of Florida). Neither
the Company, nor any affiliate thereof, does business with the government of
Cuba or with any person or affiliate located in Cuba.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder, severally and not jointly, represents and warrants to,
and agrees with, the several Underwriters that:
(a) Such Selling Stockholder (i) has caused a certificate(s) for the
number of Shares to be sold by such Selling Stockholder hereunder to be
delivered to BankBoston, N.A., as custodian (the "CUSTODIAN"), endorsed in
blank or with blank stock powers or assignments duly executed, with
signatures appropriately guaranteed, if applicable; such certificate(s) to be
held in custody by the Custodian for delivery pursuant to the provisions
hereof on the Closing Date or the Additional Closing Date, as the case may
be, and (ii) has granted an irrevocable power of attorney to Frederick B.
Hegi, Jr., Randall W. Larrimore and Daniel H. Bushell, or any of them, as
such Selling Stockholder's attorney-in-fact (each, an "ATTORNEY-IN-FACT"),
all in accordance with the terms of a Power of Attorney and Custody Agreement
(the "Selling Agreements"), in the form heretofore delivered to the
Representatives, with authority to execute and deliver this Agreement on
behalf of such Selling Stockholder, to determine the purchase price to be
paid by the Underwriters to such Selling Stockholder as provided in Section
3(a) hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder hereunder and to otherwise act on behalf of such Selling
Stockholder in connection with the transactions contemplated by this
Agreement.
(b) The execution, delivery and performance of this Agreement and the
Selling Agreements by or on behalf of such Selling Stockholder and the
consummation of the transactions contemplated hereby and thereby will not (i)
conflict with or result in the breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) or require consent under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of such Selling Stockholder pursuant to the terms of any agreement,
instrument, franchise, license or permit to which such Selling Stockholder is
a party or by which such Selling Stockholder or any of such Selling
Stockholder's property or assets may be bound, or (ii) violate or conflict
with any judgment, decree, order, statute, rule or regulation of any court or
any public, governmental or regulatory agency or body having jurisdiction
over such Selling Stockholder or such Selling Stockholder's properties or
assets.
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<PAGE>
(c) Such Selling Stockholder has, and at the time of delivery of
the Shares to be sold by such Selling Stockholder, such Selling Stockholder
will have, full legal right, power, authority and capacity, and, except as
required under the Act and, with respect to sale of the Firm Shares and the
Additional Shares, state securities and Blue Sky laws, all necessary
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, as are required for the execution, delivery
and performance of this Agreement and the Selling Agreements and the
consummation of the transactions contemplated hereby and thereby, including
the sale, assignment, transfer and delivery of the Shares to be sold,
assigned, transferred and delivered by such Selling Stockholder hereunder.
(d) Each of this Agreement and the Selling Agreements has been duly
and validly authorized, executed and delivered by or on behalf of such
Selling Stockholder and is a valid and binding obligation of such Selling
Stockholder, enforceable against such Selling Stockholder in accordance with
its terms except to the extent that rights to indemnity hereunder may be
limited by applicable federal or state securities laws or the public policy
underlying such laws.
(e) Such Selling Stockholder has good, valid and marketable title
to the Shares to be sold by such Selling Stockholder pursuant to this
Agreement, free and clear of all liens, encumbrances, claims, security
interests, restrictions on transfer, stockholders' agreements, warrant
agreements, voting trusts and other defects in title whatsoever, with full
power to deliver such Shares hereunder, and, upon the delivery of and payment
for such Shares as herein contemplated, each of the Underwriters (assuming
that each such Underwriter acquires such Shares in good faith and without
notice of an adverse claim) will receive good, valid and marketable title to
the Shares purchased by it from such Selling Stockholder, free and clear of
all liens, encumbrances, claims, security interests, restrictions on
transfer, stockholders' agreements, warrant agreements, voting trusts and
other defects in title whatsoever other than those as may result from any
action taken by such Underwriter.
(f) Since the date of the Company's determination to undertake the
Offering, such Selling Stockholder has not taken and prior to termination or
completion of the Offering such Selling Stockholder will not take, directly
or indirectly, any action which has constituted or which was designed to
constitute or which might reasonably be expected to cause or result in
stabilization or manipulation of the market price of the shares of Common
Stock in violation of the Act or the Exchange Act.
(g) When the Registration Statement became effective, when any
post-effective amendment to the Registration Statement becomes effective,
when the Prospectus is first filed with the Commission pursuant to Rule
424(b), when any amendment of or supplement to the Prospectus is filed with
the Commission, at the Closing Date and, if applicable, the Additional
Closing Date, such parts of the Registration Statement and the
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<PAGE>
Prospectus and any amendments thereof and supplements thereto as relate to
such Selling Stockholder and are based upon information furnished in writing
to the Company by or on behalf of such Selling Stockholder expressly for use
therein will not contain an untrue statement of a material fact and will not
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein (i) in the case of the Registration not
misleading and (ii) in the case of the Prospectus, in light of the
circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the registration statement for the registration of the Shares or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such parts of such preliminary prospectus and any amendments thereof and
supplements thereto as relate to such Selling Stockholder and are based upon
information furnished in writing to the Company by or on behalf of such
Selling Stockholder expressly for use therein did not contain an untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(h) Such Selling Stockholder confirms that the sale of such Selling
Stockholder's Shares pursuant to this Agreement is not prompted by any
information concerning the Company which is not set forth in the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the several Underwriters the Company
Shares and each of the Selling Stockholders selling Stockholder Shares
agrees, severally and not jointly, to sell to the several Underwriters the
number of Stockholder Shares set forth opposite the name of such Selling
Stockholder on Schedule III attached hereto, and each Underwriter, severally
and not jointly, agrees to purchase from the Company and each of the Selling
Stockholders, at the price per share of $_______, the aggregate number of
Company Shares or Stockholder Shares, as the case may be (to be adjusted by
the Representatives to avoid fractional shares), determined by multiplying
the aggregate number of Firm Shares to be sold by the Company and each of
such Selling Stockholders, as set forth opposite their respective names in
Schedule III hereto, by a fraction, the numerator of which is the aggregate
number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased
by all the Underwriters hereunder, plus any additional number of Shares which
such Underwriter may become obligated to purchase pursuant to the provisions
of Section 10 hereof.
In the event and to the extent that the Underwriters shall exercise the
election to purchase Additional Shares as provided in paragraph 3(c) below,
the Company agrees to sell
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<PAGE>
to each of the Underwriters, and each of the Underwriters agrees, severally
and not jointly, to purchase from the Company, at the purchase price per
share set forth above in this Section 3(a), that number of Additional Shares
as determined in accordance with paragraph 3(c) below, plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(b) Consummation of the purchase of the Firm Shares by the
Underwriters shall be made at the offices of Haynes and Boone, LLP, 901 Main
Street, Suite 3100, Dallas, Texas, or such other location as may be mutually
acceptable to the Representatives, the Attorneys-in-Fact and the Company;
provided, however, that delivery of the certificate, evidencing the Firm
Shares shall be made through The Depository Trust Company ("DTC") at its
offices in New York, New York. Such delivery and payment shall be made at
10:00 a.m., New York time, on the third or fourth business day (as permitted
under Rule 15c6-1 under the Exchange Act) (unless postponed in accordance
with the provisions of Section 10 hereof) following the date of the
effectiveness of the Registration Statement (or, if the Company has elected
to rely upon Rule 430A of the Regulations, the third or fourth business day
(as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such
other time not later than 15 business days after such date as shall be agreed
upon by the Representatives and the Company (such time and date of payment
and delivery being herein called the "CLOSING DATE"). Payment shall be made
to the Company and the custodian for the Selling Stockholders by certified or
official bank checks or wire transfers of federal funds or similar same day
funds payable to the order of the Company and the custodian for the Selling
Stockholders, against delivery to the Representatives for the respective
accounts of the Underwriters of certificates for the Shares to be purchased
by them. Certificates for the Shares shall be registered in such name or
names and in such authorized denominations as the Representatives may request
in writing at least two full business days prior to the Closing Date. The
Company and the Selling Stockholders will permit the Representatives to
examine and package such certificates for delivery at DTC at least one full
business day prior to the Closing Date.
(c) In addition, the Company, as and to the extent indicated on
Schedule III attached hereto, hereby grants to the several Underwriters an
option to purchase up to _________ Additional Shares at the same purchase
price to be paid by the several Underwriters to the Company and the Selling
Stockholders for the Company Shares and the Stockholder Shares as set forth
in Section 3(a), for the sole purpose of covering over-allotments in the sale
of Firm Shares by the several Underwriters. This option may be exercised on
one occasion only, in whole or in part, at any time on or before the
thirtieth (30th) calendar day following the date of the Prospectus, by
written notice by the Representatives to the Company. Such notice shall set
forth the aggregate number of Additional Shares as to which the option is
being exercised and the date and time, as reasonably determined by the
Representatives, when the certificates relating to the Additional Shares are
to be delivered (such date and time being herein sometimes referred to as the
"ADDITIONAL CLOSING DATE"); provided, however, that the Additional Closing
Date shall not be earlier than the Closing Date or earlier than the second
(2nd) full business day
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<PAGE>
after the date on which the option shall have been exercised nor later than
the eighth (8th) full business day after the date on which the option shall
have been exercised, unless such time and date are postponed in accordance
with the provisions of Section 10 hereof. Certificates for the Additional
Shares shall be registered in such name or names and in such authorized
denominations as the Representatives may request in writing at least two full
business days prior to the Additional Closing Date. The Company will permit
the Representatives to examine and package such certificates for delivery at
DTC at least one full business day prior to the Additional Closing Date.
If the option is exercised in full, the number of Additional Shares to
be sold by the Company shall be as is set forth opposite its names on
Schedule III attached hereto. In the event that the option is exercised in
part, the number of Additional Shares to be sold by the Company shall be
adjusted downward accordingly. The number of Additional Shares to be
purchased from the Company by each Underwriter (as adjusted by the
Representatives to eliminate fractional shares) shall be determined by
multiplying the aggregate number of Additional Shares to be sold by the
Company by a fraction, the numerator of which is the number of Firm Shares to
be purchased by such Underwriter pursuant to Schedule I and the denominator
of which is the maximum number of Firm Shares which all of the Underwriters
are entitled to purchase pursuant to Schedule I. The number of Additional
Shares to be purchased by each Underwriter if the option is exercised in full
is set forth opposite the name of such Underwriter on Schedule I attached
hereto.
Payment for the Additional Shares shall be made by certified or official
bank check, or wiring of federal funds or similar same day funds, payable to
the order of the Company at the offices of Haynes and Boone, LLP, 901 Main
Street, Suite 3100, Dallas, Texas, or such other location as may be mutually
acceptable, upon delivery of the certificates for the Additional Shares to
the Representatives for the respective accounts of the Underwriters.
4. OFFERING.
(a) It is understood that after the Registration Statement becomes
effective under the Act the several Underwriters propose to offer the Shares
for sale to the public upon the terms set forth in the Prospectus.
(b) You represent and warrant that you are authorized to execute
and deliver this Agreement on behalf of the several Underwriters named in
Schedule I hereto and to exercise all authority and discretion vested in the
Underwriters or you by the provisions of this Agreement, and that the Company
and the Selling Stockholders shall be entitled to act and rely on any
statement, request, notice, consent, waiver or agreement purportedly given on
behalf of any or all of the Underwriters when the same shall have been given
by the Representatives (jointly or by Bear, Stearns & Co. Inc. on behalf of
the Representatives) on such behalf.
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5. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as possible, and if Rule 430A is used or the filing of the
Prospectus is otherwise required under Rule 424(b) or Rule 434, the
Company will file the Prospectus (properly completed if Rule 430A has
been used) pursuant to Rule 424(b) or Rule 434 within the prescribed
time period and will provide evi-dence satisfactory to the
Representatives of such timely filing. If the Company elects to rely on
Rule 434, the Company will prepare and file a term sheet that complies
with the requirements of Rule 434.
The Company will notify the Representatives immediately (and, if
requested by the Representatives, will confirm such notice in writing)
(A) when the Registration Statement and any amendments thereto become
effective, (B) of any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for any
additional information, (C) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus, (D) of the issuance by the
Commission of any Stop Order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of the
initiation, or the threatening, of any proceedings therefor, (E) of the
receipt of any comments from the Commission, and (F) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for that purpose. If the
Commission shall propose or enter a Stop Order at any time, the Company
will make every reasonable effort to prevent the issuance of any such
Stop Order and, if issued, to obtain the lifting of such Stop Order as
soon as possible. The Company will not file any amendment to the
Registration Statement or any amendment of or supplement to the
Prospectus (including the prospectus required to be filed pursuant to
Rule 424(b)or Rule 434) that differs from the prospectus on file at the
time of the effectiveness of the Registration Statement before or after
the effective date of the Registration Statement or file any document
under the Exchange Act if such document would be deemed to be
incorporated by reference into the Prospectus to which the
Representatives shall reasonably object in writing after being timely
furnished in advance a copy thereof.
(ii) If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it shall be necessary at any time
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to amend or supplement the Prospectus or Registration Statement to
comply with the Act or the Regulations, the Company will notify the
Representatives promptly and prepare and file with the Commission an
appropriate post-effective amendment or supplement (in form and
substance satisfactory to the Representatives) which will correct such
statement or omission and will use its best efforts to have any such
post-effective amendment to the Registration Statement declared
effective as soon as possible.
(iii) The Company will promptly deliver to the Representatives
three signed copies of the Registration Statement, including exhibits
and all documents incorporated by reference therein and all amendments
thereto, and the Company will promptly deliver to each of the several
Underwriters such number of copies of any preliminary prospectus, the
Prospectus, the Registration Statement, and all amendments of and
supplements to such documents, if any, and all documents incorporated by
reference in the Registration Statement and Prospectus or any amendment
thereof or supplement thereto, without exhibits, as the Representatives
may reasonably request.
(iv) The Company will endeavor in good faith, in cooperation
with the Representatives, at or prior to the time of effectiveness of
the Registration Statement, to qualify the Shares for offering and sale
under the securities laws relating to the offering or sale of the Shares
of such jurisdictions as the Representatives may designate and to
maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be
obligated in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any action other
than one arising out of the offering or sale of Shares in such
jurisdiction.
(v) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its securityholders and to the
Representatives as soon as practicable, but not later than 45 days after
the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earnings
statement (in form complying with the provisions of Rule 158 of the
Regulations) covering a period of at least twelve consecutive months
beginning on the first day of the first full month after the effective
date of the Registration Statement.
(vi) During the period of 60 days from the date of the
Prospectus, the Company will not, without the Representatives' prior
written consent, either directly or indirectly, offer to sell, contract
to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of Common Stock (or any securities
convertible into, exercisable for or exchangeable for Common Stock),
other than (A) the Company's sale of Shares hereunder, (B) the Company's
issuance of Common Stock upon the exercise of presently outstanding
stock options or warrants, and (C) the grant of options pursuant to any
existing option plan of the Company to purchase
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up to [200,000] shares of Common Stock to certain directors, officers or
other employees of the Company; PROVIDED, HOWEVER, that such options are
not exercisable during the 60-day lock-up period.
(vii) The Company has obtained and delivered to the
Representatives, no later than the close of business on the date hereof,
a Lock-Up Agreement from each of its directors and senior officers and
each holder of capital stock of the Company listed on Schedule II
attached hereto.
(viii) During a period of three years from the effective date
of the Registration Statement, the Company will furnish to the
Representatives copies of (A) all reports to its stockholders; and (B)
all reports, financial statements and proxy or information statements
filed by the Company with the Commission or any exchange upon which the
Common Stock is listed or approved for quotation.
(ix) The Company will apply the proceeds from the sale of the
Shares by the Company as will be set forth under "Use of Proceeds" in
the Prospectus.
(b) The Selling Stockholders covenant and agree with the several
Underwriters that:
(i) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, each of the Selling Stockholders agrees to deliver to the
Representatives prior to or at the Closing Date and, if applicable, the
Additional Closing Date, a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
(ii) Each of the Selling Stockholders specifically agrees that
the Shares represented by the certificates held in custody for such
Selling Stockholder under the Selling Agreements are subject to the
interests of the Underwriters hereunder and that the arrangements made
by such Selling Stockholder for such custody and the appointment by such
Selling Stockholder of the Attorney-in-Fact by the Power of Attorney are
to that extent irrevocable. Each of the Selling Stockholders
specifically agrees that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the
death or incapacity of any executor or trustee or the termination of
such estate or trust, or in the case of a partnership or corporation, by
the dissolution of such partnership or corporation, or by the occurrence
of any other event, except as may be contemplated by the Selling
Agreements. If any individual Selling Stockholder or any such executor
or trustee should die or become incapacitated, or if any such estate or
trust should be terminated, or if any such partnership or corporation
should be dissolved, or if any other such event should occur before the
delivery of the Shares hereunder, certificates
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representing the Shares shall be delivered by or on behalf of such
Selling Stockholder in accordance with the terms and conditions of this
Agreement and the Selling Agreements, and actions taken by the
Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid
as if such death, incapacity, termination, dissolution or other event
had not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
6. PAYMENT OF EXPENSES. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
agrees to pay all costs and expenses incident to the performance of the
obligations of the Company and the Selling Stockholders hereunder, including
those in connection with (i) preparing, printing, duplicating, filing and
distributing the Registration Statement, as originally filed and all
amendments thereof (including all exhibits thereto), any preliminary
prospectus, the Prospectus and any amendments thereof or supplements thereto
(including, without limitation, fees and expenses of the Company's
accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreements) and
all other documents related to the public offering of the Shares (including
those supplied to the Underwriters in quantities as hereinabove stated), (ii)
the issuance, transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the
qualification of the Shares under state or foreign securities or Blue Sky
laws, including the costs of printing and mailing a preliminary and final
"Blue Sky Survey" and the fees of counsel for the Underwriters and such
counsel's disbursements in relation thereto, (iv) the inclusion of the Shares
to be sold by the Company on the Nasdaq National Market, (v) the filing fees
of the NASD; and (vi) the reasonable fees and expenses of one counsel acting
on behalf of the Selling Stockholders; provided, however, that the
Underwriters shall reimburse the Company for any and all of such expenses up
to an aggregate amount not to exceed $________. Notwithstanding the
foregoing, each Selling Stockholder will pay or cause to be paid all costs
and expenses incident to the performance of such Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in
this Section 6, including the Underwriters' discount and commissions
applicable to such Selling Stockholder's Shares.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Company Shares and
Stockholder Shares and, if applicable, the Additional Shares shall be subject
to the accuracy of the representations and warranties of the Company and the
Selling Stockholders herein contained, as of the date hereof and as of the
Closing Date (or in the case of the Additional Shares as of the Additional
Closing Date), to the absence from any certificates, opinions, written
statements or letters furnished to the Representatives or to Haynes and
Boone, LLP ("UNDERWRITERS' COUNSEL") pursuant to this Section 7 of any
qualification or limitation not previously approved in writing by the
Representatives, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, and to the following
additional conditions:
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(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York time, on the date of this Agreement, or at
such later time and date as shall have been consented to in writing by the
Representatives; if the Company shall have elected to rely upon Rule 430A or
Rule 434 of the Regulations, the Prospectus shall have been filed with the
Commission in a timely fashion in accordance with Section 5(a) hereof; and,
at or prior to the Closing Date no Stop Order suspending the effectiveness of
the Registration Statement or any post-effective amendment thereof shall have
been issued and no proceedings therefor shall have been initiated or
threatened by the Commission.
(b) At the Closing Date and, if applicable, the Additional Closing
Date, the Representatives shall have received the opinion of Weil, Gotshal &
Manges LLP, counsel for the Company, dated the Closing Date or the Additional
Closing Date, as the case may be, addressed to the Underwriters and in form
and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company is a corporation duly incorporated and is
validly existing and in good standing under the laws of its jurisdiction
of incorporation. The Company has all requisite corporate power and
authority to own, lease and operate its properties and carry on its
business as now being conducted and as described in the Prospectus.
(ii) The Company has authorized capital stock as set forth in
the Registration Statement and the Prospectus. All of the outstanding
shares of Common Stock are duly authorized, validly issued, fully paid
and nonassessable and were not issued in violation of any preemptive
rights pursuant to law or the Company's certificate of incorporation or,
to the knowledge of such counsel, in violation of or subject to any
other preemptive rights. The Company Shares have been duly authorized
and, when issued in accordance with this Agreement, will be validly
issued, fully paid and nonassessable and will not have been issued in
violation of any preemptive rights pursuant to law or the Company's
certificate of incorporation or, to the knowledge of such counsel, in
violation of or subject to any other preemptive rights. The Common
Stock, the Firm Shares and the Additional Shares conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(iii) Based solely upon telephonic confirmation by
representatives of the Nasdaq National Market, the Shares are duly
authorized for listing on the Nasdaq National Market.
(iv) This Agreement has been duly and validly authorized,
executed and delivered by the Company and (assuming the due
authorization, execution and delivery of this Agreement by the
Representatives) constitutes the legal, valid and binding obligation of
the Company enforceable against it in accordance with its terms
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(i) subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights and remedies generally and subject, as
to enforceability, to general equitable principles including principles
of commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in equity), and
(ii) to the extent that rights to indemnity and contribution hereunder
may be limited by federal or state securities laws or the public policy
underlying such laws.
(v) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby by the
Company do not and will not (A) conflict with or constitute a default
(or an event which with notice or lapse of time, or both, would
constitute a default) under, violate or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to the terms
of any agreement, instrument, franchise, license or permit listed as an
exhibit to the Registration Statement or (B) violate or conflict with
any provision of the certificate of incorporation or bylaws of the
Company or any of its subsidiaries, or, to the knowledge of such
counsel, any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets. No consent, approval, authorization,
waiver, license or other action by or filing with any agency or body
having jurisdiction over the Company pursuant to any New York or
Delaware corporate or federal law or regulation is required for the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, except for (1)
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion) and (2)
such as have been made or obtained under the Act.
(vi) The Registration Statement and the Prospectus (except for
the financial statements and the notes thereto, financial statement
schedules and other financial and statistical data included or
incorporated by reference therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the Regulations. The documents filed under
the Exchange Act and incorporated by reference in the Registration
Statement and the Prospectus and in any amendment thereof or supplement
thereto (other than the financial statements and schedules and other
financial and statistical data included or incorporated by reference
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the Exchange Act and the rules and
regulations of the Commission thereunder.
(vii) Based solely upon telephonic confirmation from the
Commission, the Registration Statement has become effective under the
Act, and, to the knowledge of such counsel, no Stop Order suspending the
effectiveness of the Registration
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Statement has been issued and no proceedings for that purpose are
pending before or overtly threatened by the Commission.
(vii) To the extent that the Prospectus purports to summarize
provisions of the Credit Agreement, the 12 3/4% Notes and the 8 3/8%
Notes, such summaries accurately reflect in all material respects the
provisions thereof purported to be summarized.
(ix) To the extent that the Prospectus purports to summarize
the terms of the Common Stock, Nonvoting Common Stock, $0.01 par value,
and Preferred Stock, $0.01 par value, of the Company, such summary
accurately reflects in all material respects the provisions relating to
such securities in Article Fourth of the Company's Charter.
(x) In addition, such opinion shall contain a statement that
such counsel has participated in conferences with directors, officers
and other representatives of the Company, representatives of the
independent public accountants for the Company, representatives of the
Underwriters and the representatives of counsel for the Underwriters, at
which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed, and, although such
counsel need not pass on nor assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus (except to the extent specified in such
opinion), no facts have come to the attention of such counsel which lead
such counsel to believe that the Registration Statement, on the
effective date thereof, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading or
that the Prospectus, on the date thereof or on the Closing Date,
contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such firm need express no belief or opinion with respect
to the financial statements and schedules and other financial and
statistical data included or incorporated by reference therein).
In rendering such opinions, such counsel may rely, as to matters of
fact, to the extent they deem proper, on certificates of responsible officers
of the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting
the corporate existence or good standing of the Company and its subsidiaries,
provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel.
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(c) At the Closing Date and, if applicable, the Additional Closing
Date, the Representatives shall have received the opinion of Otis H. Halleen,
General Counsel for the Company, dated the Closing Date or the Additional
Closing Date, as the case may be, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) USSC is a corporation duly incorporated and is validly
existing and in good standing under the laws of its jurisdiction of
incorporation. USSC has all requisite corporate power and authority to
own, lease and operate its properties and carry on its business as now
being conducted and as described in the Registration Statement and the
Prospectus. All shares of the issued and outstanding capital stock of USSC
are duly authorized, validly issued, fully paid and non-assessable and have
not been issued in violation of any preemptive rights and, except as
disclosed in the Registration Statement and the Prospectus, are owned
directly by the Company, free and clear of any lien, claim, limitation or
voting rights, option, security interest or other encumbrance.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by USSC and (assuming the due authorization,
execution and delivery of this Agreement by the Representative) constitutes
the legal, valid and binding obligation of USSC, enforceable against it in
accordance with its terms (i) subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights and remedies generally and
subject, as to enforceability, to general equitable principles including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity), and (ii) to the extent that rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or the public
policy underlying such laws.
(iii) To the best of such counsel's knowledge after due inquiry,
there is no litigation or governmental or other action, suit, proceeding or
investigation before any court or before or by any public, regulatory or
governmental agency or body pending or threatened against, or involving the
properties or business of, the Company or any of its subsidiaries, which,
if resolved against the Company or such subsidiary, individually or, to the
extent involving related claims or issues, in the aggregate, is of a
character required to be disclosed in the Registration Statement and the
Prospectus which has not been properly disclosed therein.
(iv) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby by the Company
and USSC do not and will not (A) conflict with or result in a breach of any
of the terms and provisions of, or constitute a default (or an event which
with notice or lapse of time, or both, would constitute a default) or
require consent under, or result in the
22
<PAGE>
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to the terms
of any agreement, instrument, franchise, license or permit listed as an
exhibit to the Registration Statement or (B) violate or conflict with any
provision of the certificate of incorporation or bylaws of the Company or
any of its subsidiaries, or, to the best knowledge of such counsel, any
judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties or assets. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets is required for the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby, except for (1) such as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters (as to which such counsel
need express no opinion) and (2) such as have been made or obtained
under the Act.
(d) At the Closing Date the Representatives shall have received the
favorable opinion of Weil, Gotshal & Manges LLP, as counsel to certain of the
Selling Stockholders, and such other counsel as is reasonably acceptable to the
Underwriters with respect to each of the other Selling Stockholders, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, substantially to the effect that:
(i) Each of this Agreement and the Selling Agreements has been
duly and validly authorized, executed and delivered by or on behalf of each
Selling Stockholder and (assuming the due authorization, execution and
delivery of this Agreement by the Representatives) constitutes the legal,
valid and binding obligation of each Selling Stockholder, enforceable
against such Selling Stockholder in accordance with its terms, (i) subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights and remedies generally and subject, as to
enforceability, to general equitable principles including principles of
commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in equity), and
(ii) to the extent that rights to indemnity and contribution hereunder may
be limited by federal or state securities laws or the public policy
underlying such laws.
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder, and the compliance by such Selling Stockholder with
all of the provisions of this Agreement and the Selling Agreements and the
consummation of the transactions herein and therein contemplated will not
conflict with, or constitute a default under, any statute, indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
specified by such Selling Stockholder to such counsel
23
<PAGE>
as a material statute, indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which such Selling Stockholder is a
party to or by which such Selling Stockholder is bound or to which any of
the properties or assets of such Selling Stockholder is subject nor will
such action result in any violation of the provisions of the certificate of
incorporation or bylaws of such Selling Stockholder if such Selling
Stockholder is a corporation, the partnership agreement of such Selling
Stockholder if such Selling Stockholder is a partnership, the terms of any
trust agreement if such Selling Stockholder is a trust or any order, rule
or regulation known to such counsel of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or other property of
such Selling Stockholder.
(iii) To the knowledge of such counsel, each Selling Stockholder
has all requisite power and authority to execute, deliver and perform this
Agreement and the Selling Agreements, and no consent, approval,
authorization, waiver, license or other action by or filing with any agency
or body having jurisdiction over such Selling Stockholder pursuant to any
New York or Delaware corporate law (or other state law as to which such
counsel may express such opinion, as is reasonably satisfactory to counsel
for the Underwriters) or federal law or regulation is required for the
execution, delivery and performance by such Selling Stockholder of this
Agreement and the Selling Agreements and the consummation by such Selling
Stockholder of the transactions contemplated hereby and thereby except for
(1) such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion) and (2)
such as have been made or obtained under the Act.
(iv) Upon delivery of the Shares to be sold by the Selling
Stockholders pursuant to this Agreement and upon payment therefor, good,
valid and marketable title to such Shares will pass to the Underwriters or
their nominees, severally, free and clear, to the knowledge of such
counsel, of all liens, encumbrances, equities or adverse claims other than
those arising as a result of any action taken by the Underwriters, assuming
that the Underwriters purchase such Shares in good faith and without notice
of any adverse claims within the meaning of the Uniform Commercial Code.
In rendering such opinions, such counsel may rely, as to matters of
fact, to the extent they deem proper, on certificates of responsible officers
of the Selling Stockholders, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel.
(e) At the Closing Date and, if applicable, the Additional Closing
Date, the Representatives shall have received a certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company, dated the
Closing Date or Additional Closing Date, as the case may be, to the effect that
the condition set forth in subsection (a) of this Section 7 has been satisfied,
that as of the date hereof and as of the Closing Date or Additional Closing
24
<PAGE>
Date, as the case may be, the representations and warranties of the Company set
forth in Section 1 hereof are accurate, and that as of the Closing Date or the
Additional Closing Date, as the case may be, the obligations of the Company to
be performed hereunder on or prior thereto have been duly performed.
(f) At the Closing Date, the Representatives shall have received a
certificate executed by the Attorney-in-Fact on behalf of each Selling
Stockholder, dated the Closing Date, to the effect that the representations and
warranties of such Selling Stockholder set forth in Section 2 hereof are
accurate, and that as of the Closing Date, as the case may be, the obligations
of such Selling Stockholder to be performed hereunder on or prior thereto have
been duly performed.
(g) At the time this Agreement is executed and at the Closing Date
and Additional Closing Date, the Representatives shall have received a letter
from Ernst & Young LLP, independent public accountants for the Company,
dated, respectively, as of the date of this Agreement and as of the Closing
Date or Additional Closing Date, as the case may be, addressed to the
Underwriters and in form and substance satisfactory to the Representatives,
to the effect that: (i) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the applicable
published rules and regulations of the Commission thereunder and stating that
the answer to Item 10 of the Registration Statement is correct insofar as it
relates to them; (ii) stating that, in their opinion, the audited financial
statements and schedules of the Company included in the Registration
Statement and the Prospectus and covered by their opinion therein comply as
to form in all material respects with the applicable accounting requirements
of the Act and the applicable published rules and regulations of the
Commission thereunder; (iii) stating that, on the basis of procedures (but
not an examination made in accordance with generally accepted auditing
standards) consisting of a reading of the latest available unaudited interim
consolidated financial statements of the Company and its subsidiaries, a
reading of the minutes of meetings and consents of the stockholders and
boards of directors of the Company and its subsidiaries and the committees of
such boards subsequent to December 31, 1997, inquiries of officers and other
employees of the Company and its subsidiaries who have responsibility for
financial and accounting matters of the Company and its subsidiaries with
respect to transactions and events subsequent to December 31, 1997, and other
specified procedures and inquiries to a date not more than five days prior to
the date of such letter, nothing has come to their attention that would cause
them to believe that: (A) the unaudited consolidated financial statements and
schedules of the Company included in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable published
rules and regulations of the Commission thereunder or that such unaudited
consolidated financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements
incorporated by reference in the Registration Statement and the Prospectus
except to the extent certain footnote disclosures have been omitted in
accordance with applicable rules of the Commission under the Exchange Act;
(B) with respect to the period subsequent to
25
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December 31, 1997, there were, as of the date of the most recent available
monthly consolidated financial statements of the Company and its
subsidiaries, if any, and as of a specified date not more than five days
prior to the date of such letter, any changes in the capital stock or
long-term indebtedness of the Company or any decrease in the net current
assets or stockholders' equity of the Company, in each case as compared with
the amounts shown in the most recent balance sheet incorporated by reference
in the Registration Statement and the Prospectus, except for changes or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter; or (C) that
during the period from December 31, 1997, to the date of the most recent
available monthly consolidated financial statements of the Company and its
subsidiaries, if any, and to a specified date not more than five days prior
to the date of such letter, there was any decrease, as compared with the
corresponding period in the prior fiscal year, in total revenues, or total or
per share net income, except for decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur or which are set forth
in such letter; and (iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings and other
financial information pertaining to the Company and its subsidiaries set
forth in the Registration Statement and the Prospectus, which have been
specified by the Representatives prior to the date of this Agreement, to the
extent that such amounts, numbers, percentages and information may be derived
from the general accounting and financial records of the Company and its
subsidiaries or from schedules furnished by the Company, and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries, and other
appropriate procedures specified by the Representatives (which procedures do
not constitute an examination in accordance with generally accepted auditing
standards) set forth in such letter, and found them to be in agreement.
(h) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be satisfactory
in form and substance to the Representatives and to Underwriters' Counsel,
and the Underwriters shall have received from said Underwriters' Counsel a
favorable opinion, dated as of the Closing Date and the Additional Closing
Date, as the case may be, with respect to the sale of the Shares, the
Registration Statement and the Prospectus and such other related matters, as
the Representatives may reasonably require, and the Company and the Selling
Stockholders shall have furnished to Underwriters' Counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(i) Prior to the Closing Date or the Additional Closing Date, as
the case may be, the Company and the Selling Stockholders shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
(j) The Representatives shall have received from each person who
is a director or senior officer of the Company and each holder of capital
stock of the Company
26
<PAGE>
listed on Schedule II attached hereto, a Lock-Up Agreement to the effect that
such person will not (i) make a Disposition of any Securities now owned or
hereinafter acquired by such person or with respect to which such person has
or hereinafter acquires the power of disposition, for a period of 90 days
after the date of the Prospectus otherwise than (A) as a bona fide gift or
gifts, provided that the donee or donees thereof agree to be bound in writing
by the terms of the Lock-Up Agreement, (B) as a distribution to limited
partners or stockholders of such person provided that the distributees
thereof agree in writing to be bound by the terms of the Lock-Up Agreement,
or (C) without the prior written consent of the Representatives, or (ii) make
any demand for or exercise any right with respect to the registration of any
Common Stock or other Securities of the Company.
(k) The NASD, upon review of the terms of the public offering of
the Firm Shares and the Additional Shares, shall not have objected to the
Underwriters' participation in such offering.
(l) The Company shall not have sustained, (i) since the date of
this Agreement, any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree
required to be described in the Prospectus otherwise than as set forth or
expressly contemplated in the Prospectus, and (ii) since the respective dates
as of which information is given in the Prospectus, there shall not have been
any change in the capital stock (other than as disclosed in the Prospectus)
or increase in principal amounts of long-term or short-term indebtedness of
the Company or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, otherwise than
as set forth or expressly contemplated in the Prospectus, the effect of
which, in any such case described in clause (i) or (ii) of this Section 7(k),
in the Representatives' judgment, makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered on the Closing Date or the Additional Closing Date, as the case may
be, on the terms and in the manner contemplated in the Prospectus.
(m) The Firm Shares, and the Additional Shares upon any purchase
pursuant to Section 3(c) hereof, have been listed on the Nasdaq National Market.
If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Representatives or to Underwriters' Counsel pursuant to this Section 7 shall
not be in all material respects reasonably satisfactory in form and substance
to the Representatives and to Underwriters' Counsel, all obligations of the
Underwriters hereunder may be canceled by the Representatives at, or at any
time prior to, the Closing Date and the obligations of the Underwriters to
purchase the Additional Shares may be canceled by the Representatives at, or
at any time prior to, the Additional Closing Date. Notice of such
cancellation shall be given to the Company and the Selling Stockholders in
writing, or by telephone, telex or telegraph, confirmed in writing.
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8. INDEMNIFICATION.
(a) The Company and USSC, jointly and severally, agree to
indemnify and hold harmless each Underwriter, its officers, directors,
partners, employees, agents and counsel and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against any and all losses, liabilities, claims, damages
and expenses whatsoever (including, but not limited to, reasonable attorneys'
fees and any and all expense whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any claim
or litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for the
registration of the Shares, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any supplement
thereto or amendment thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that (i) the Company and USSC will not be liable in any such case to
the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter through the Representatives
expressly for use therein and (ii) the indemnity agreement contained in this
Section 8(a) with respect to any preliminary prospectus (or the Prospectus)
shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, liabilities, claims, damages or expenses purchased
the Shares which is the subject thereof (or to the benefit of any person
controlling such Underwriter) if at or prior to the written confirmation of
the sale of such Shares a copy of the Prospectus (or the Prospectus as
amended or supplemented) was not sent or delivered to such person and the
untrue statement or omission of a material fact contained in such preliminary
prospectus (or the Prospectus) was corrected in the Prospectus (or the
Prospectus as amended or supplemented) and delivery of such Prospectus (or
the Prospectus as amended or supplemented) would have eliminated any such
loss, liability, claim, damage or expense unless the failure is the result of
non-compliance by the Company with Section 5(a)(iii) hereof. This indemnity
will be in addition to any liability which the Company or USSC may otherwise
have, including under this Agreement.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter, its officers, directors,
partners, employees, agents and counsel, and each other person, if any, who
controls any Underwriter, within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to reasonable
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any
28
<PAGE>
and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for the registration of the Shares,
as originally filed or any amendment thereof, or any related preliminary
prospectus or the Prospectus, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information relating to such Selling
Stockholder furnished to the Company by such Selling Stockholder expressly
for use therein (including, without limitation, any and all information
contained in the Prospectus under the caption "Principal and Selling
Stockholders"); PROVIDED, HOWEVER, that the indemnity agreement contained in
this Section 8(b) with respect to any preliminary prospectus (or the
Prospectus) shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, liabilities, claims, damages or expenses
purchased the Shares which is the subject thereof (or to the benefit of any
person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such
person and the untrue statement or omission of a material fact contained in
such preliminary prospectus (or the Prospectus) was corrected in the
Prospectus (or the Prospectus as amended or supplemented) and delivery of
such Prospectus (or the Prospectus as amended or supplemented) would have
eliminated any such loss, liability, claim, damage or expense unless the
failure is the result of non-compliance by the Company with Section 5(a)(iii)
hereof; and PROVIDED, FURTHER, that in no case shall any Selling Stockholder
be liable or responsible for any amount in excess of the net proceeds
received by such Selling Stockholder in connection with its sale of shares of
Common Stock hereunder. This indemnity will be in addition to any liability
which any Selling Stockholder may otherwise have, including under this
Agreement.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each Selling Stockholder, each of
the directors of the Company, each of the officers of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any losses, liabilities, claims, damages
and expenses whatsoever (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the
29
<PAGE>
Registration Statement for the registration of the Shares, as originally
filed or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of such Underwriter through the Representatives expressly for use therein;
PROVIDED, HOWEVER, that in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by such Underwriter hereunder. This indemnity will
be in addition to any liability which any Underwriter may otherwise have,
including under this Agreement. The Company and each Selling Stockholder
acknowledge that the statements set forth in the last paragraph of the cover
page, in the two paragraphs on the inside front cover page of the Prospectus
and in the table listing the Underwriters under the caption "Underwriting" in
the Prospectus constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for use in the Registration Statement
relating to the Shares as originally filed or in any amendment thereof, any
related preliminary prospectus or the Prospectus or in any amendment thereof
or supplement thereto, as the case may be.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it (i) from any liability which it may have under this Section 8 except to
the extent that it has been prejudiced in any material respect by such
failure or (ii) from any liability which it may have otherwise). In case any
such action is brought against any indemnified party, and the indemnified
party notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent
it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by one of the indemnifying parties in connection with
the defense of such action, (ii) the indemnifying parties shall not have
employed counsel satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement
of the action, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of
30
<PAGE>
which events such fees and expenses shall be borne by the indemnifying
parties. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided, however, that such
consent was not unreasonably withheld.
9. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 8(a), (b)
and (c) hereof is for any reason held to be unavailable from any indemnifying
party or is insufficient to hold harmless a party indemnified thereunder, the
Company, USSC and the Selling Stockholders on the one hand and the
Underwriters, severally, on the other hand, shall contribute to the aggregate
losses, claims, damages, liabilities and expenses of the nature contemplated
by such indemnification provisions (including any investigation, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but
after deducting in the case of losses, claims, damages, liabilities and
expenses suffered by the Company, USSC or any Selling Stockholder any
contribution received by the Company, USSC or such Selling Stockholder from
persons, other than the Underwriters, who may also be liable for
contribution, including persons who control the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company),
to which the Company, USSC, one or more of the Selling Stockholders and one
or more of the Underwriters may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company, USSC
and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares or, if such allocation is not
permitted by applicable law or if indemnification is not available as a
result of the indemnifying party not having received notice as provided in
Section 8 hereof, in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the relative fault of the
Company, USSC and the Selling Stockholders on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative benefits
received by the Company, USSC and the Selling Stockholders on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company, USSC and the Selling Stockholders on the one hand and the
underwriting discounts and commissions received by the Underwriters, on the
other hand, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company, USSC and the Selling
Stockholders on the one hand and of the Underwriters on the other hand shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, USSC, the Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company, USSC, the Selling
Stockholders and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the
31
<PAGE>
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above. The Company and USSC shall be jointly and
severally liable for the amounts to be contributed by any of them pursuant to
the provisions of this Section 9. The Selling Stockholders shall be
severally, and not jointly, liable for the amounts to be contributed by any
of them pursuant to the provisions of this Section 9. The obligations of the
Underwriters to contribute are several in proportion to their respective
underwriting commitments and not joint.
Notwithstanding the provisions of this Section 9, (i) in no case shall
any Underwriter be liable or responsible (except as may otherwise be set
forth in an agreement among the Underwriters) for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, (ii) in no event shall any Selling Stockholder be liable for
contribution under this Section 9 in any amount in excess of the total
proceeds (net of underwriting discounts and commissions but before deducting
expenses) received by such Selling Stockholder in connection with the sale of
such Selling Stockholder shares of Common Stock hereunder less all amounts
paid or payable by such Selling Stockholder pursuant to Section 8, and (iii)
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(a) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding the
provisions of this Section 9 and the preceding sentence, no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 9, (A) each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act shall have the same rights to contribution as such
Underwriter, (B) each person, if any, who controls a Selling Stockholder
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as such Selling Stockholder,
and (C) each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 9. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect
of which a claim for contribution may be made against another party or
parties under this Section 9, notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have under this Section 9 or
otherwise. No party shall be liable for contribution with respect to any
action or claim settled without its consent; provided, however, that such
consent was not unreasonably withheld.
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<PAGE>
10. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and
if the Firm Shares or Additional Shares with respect to which such default
relates do not (after giving effect to arrangements, if any, made by the
Representatives pursuant to subsection (c) below) exceed in the aggregate 10%
of the number of shares of Firm Shares or Additional Shares, as the case may
be, which all Underwriters have agreed to purchase hereunder, then such Firm
Shares or Additional Shares to which the default relates shall be purchased
by the non-defaulting Underwriters in proportion to the respective
proportions which the numbers of Firm Shares set forth opposite their
respective names on Schedule I attached hereto bear to the aggregate number
of Firm Shares set forth opposite the names of the non-defaulting
Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, the Representatives
may, in their sole discretion, arrange for themselves or for another party or
parties (including any non-defaulting Underwriter or Underwriters who so
agree) to purchase such Firm Shares or Additional Shares, as the case may be,
to which such default relates on the terms contained herein. In the event
that within five calendar days after such a default the Representatives do
not arrange for the purchase of the Firm Shares or Additional Shares, as the
case may be, to which such default relates as provided in this Section 10,
this Agreement or, in the case of a default with respect to the Additional
Shares, the obligations of the Underwriters to purchase and of the Selling
Stockholders to sell the Additional Shares, shall thereupon terminate,
without liability on the part of the Company or the Selling Stockholders with
respect thereto (except in each case as provided in Sections 6, 8(a) and (b)
and 9 hereof) or the several Underwriters (except in each case as provided in
Sections 6, 8(a) and 9 hereof), but nothing in this Agreement shall relieve a
defaulting Underwriter or Underwriters of its or their liability, if any, to
the other several Underwriters, the Company and the Selling Stockholders for
damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters or are to be purchased by another party or parties as aforesaid,
the Representatives or the Company shall have the right to postpone the
Closing Date or Additional Closing Date, as the case may be, for a period,
not exceeding five business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or
in any other documents and arrangements and the Company agrees to file
promptly any amendment or supplement to the Registration Statement or the
Prospectus which, in the opinion of Underwriters' Counsel, may thereby be
made necessary or advisable. The term "UNDERWRITER" as used in this
Agreement shall include any party substituted under this Section 10 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares.
33
<PAGE>
11. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations
and warranties, covenants and agreements of the Underwriters, the Selling
Stockholders and the Company contained in this Agreement, including the
agreements contained in Section 6, the indemnity agreements contained in
Section 8 and the contribution agreements contained in Section 9, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of (i) any Underwriter or any controlling person
thereof, (ii) the Company, any of its officers and directors or any
controlling person thereof or (iii) any Selling Stockholder or any
controlling person thereof, and shall survive delivery of and payment for the
Shares to and by the several Underwriters. The representations contained in
Sections 1 and 2 and the agreements contained in Sections 6, 8, 9 and 12(d)
hereof shall survive the termination of this Agreement, including pursuant to
Sections 10 or 12 hereof.
12. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective (i) if Rule 430A under
the Act is not used, when the Representatives and the Company shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have
executed and delivered this Agreement. If either the initial public offering
price or the purchase price per Share has not been agreed upon prior to 5:00
p.m., New York time, on the fifteenth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Company, USSC, the Selling
Stockholders or the Underwriters except as herein expressly provided. Until
this Agreement becomes effective as aforesaid, it may be terminated (A) by
the Company by notifying the Representatives and the Selling Stockholders,
(B) by joint action only of the Selling Stockholders directly or the
Attorney-in-Fact on behalf of all the Selling Stockholders by notifying the
Company and the Representatives or (C) by the Representatives notifying the
Company, USSC and the Selling Stockholders. Notwithstanding the foregoing,
provisions of this Section 12 and of Sections 1, 2, 6, 8 and 9 hereof shall
at all times be in full force and effect.
(b) The Representatives shall have the right to terminate this
Agreement and the obligations of the Underwriters hereunder at any time prior
to the Closing Date (and, with respect to the Additional Shares, the
Additional Closing Date) by notice to the Company from the Representatives,
without liability (other than with respect to Sections 8 and 9 hereof) on the
part of any Underwriter, to the Company and the Selling Stockholders if, on
or prior to such date, (i) trading in securities on the New York or American
Stock Exchanges or in the Nasdaq National Market shall have been suspended or
materially limited, or minimum or maximum prices shall have been established
or maximum price ranges for prices for securities shall have been required,
on the New York or American Stock Exchanges or in the Nasdaq National Market
by the Commission, or by such exchange or other regulatory body or
governmental authority having jurisdiction, (ii) a general banking moratorium
shall have been declared by a federal or state authority or any new
restriction materially and adversely affecting the Firm Shares or the
Additional Shares, as the case may be, shall have become effective, (iii)
there shall have occurred an outbreak or escalation of armed hostilities
34
<PAGE>
involving the United States on or after the date hereof, or if there has been
a declaration by the United States of a national emergency or war, the effect
of which shall be, in the Representatives' reasonable judgment, to make it
inadvisable or impracticable to proceed with the sale and delivery of the
Shares on the terms and in the manner contemplated in the Prospectus, (iv)
any material adverse change shall have occurred since the respective dates as
of which information is given in the Registration Statement or the Prospectus
in the condition (financial or otherwise) of the Company and its subsidiaries
taken as a whole, whether or not arising in the ordinary course of business
other than as set forth in the Prospectus, or (v) there shall have occurred
such a material adverse change in general economic, political or financial
conditions or if the effect of international conditions on the financial
markets in the United States shall be such as, in the Representatives'
reasonable judgment, makes it inadvisable or impracticable to proceed with
the sale and delivery of the Firm Share or the Additional Shares, as the case
may be, on the terms contemplated hereby and by the Prospectus. The rights
of the Representatives to terminate this Agreement will not be waived or
otherwise relinquished by their failure to give notice of termination prior
to the time that the event giving rise to the right to terminate shall have
ceased to exist, provided that notice is given prior to the Closing Date
(and, with respect to the Additional Shares, the Additional Closing Date).
(c) Any notice of termination pursuant to this Section 12 shall be
by telephone, telex, or telegraph, confirmed promptly in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by the
Representatives as provided in Section 12(a) hereof or (ii) Sections 10(b) or
12(b) hereof (except clause (iv)), or if the sale of the Shares provided for
herein is not consummated because any condition to the obligations of the
several Underwriters set forth herein is not satisfied or because of any
refusal, inability or failure on the part of the Company or any Selling
Stockholder to perform any agreement herein or comply with any provision
hereof, the Company agrees, upon demand by the Representatives, to reimburse
the Underwriters for all out-of-pocket expenses (including the fees and
expenses of their counsel), incurred by the several Underwriters in
connection herewith.
13. NOTICE. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, sent by overnight delivery (by Federal Express
or any other national overnight delivery service), hand delivered, or sent by
telecopy (fax) and confirmed promptly in writing, to such Underwriter c/o
Bear, Stearns & Co. Inc., 245 Park Avenue, New York, NY 10167, Attention:
Stephen M. Parish; if sent to the Company, USSC or any Selling Stockholder,
shall be mailed, delivered, or telegraphed and confirmed promptly in writing
to the Company, 2200 East Golf Road, Des Plaines, IL 60016, Attention:
Chairman of the Board.
14. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Selling Stockholders,
the Company and USSC
35
<PAGE>
and the controlling persons, directors, officers, employees and agents
referred to in Sections 8 and 9, and their respective successors and assigns,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement
or any provision herein contained. The term "successors and assigns" shall
not include a purchaser, in its capacity as such, of Shares from any of the
Underwriters.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
16. COUNTERPARTS. This Agreement may be executed by any one or more
parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one
and the same instrument.
17. PARTIAL INVALIDITY. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Representative (on behalf of the Underwriters), the Company, USSC and the
Selling Stockholders, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among
each of the Underwriters, the Company, USSC and each of the Selling
Stockholders.
Very truly yours,
UNITED STATIONERS INC.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
UNITED STATIONERS SUPPLY CO.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
Selling Stockholders named on
Schedule III attached hereto Agreement
*By:
---------------------------------
Name:
-----------------------------
Title:
----------------------------
Accepted as of the date first above written
on behalf of themselves and the other several
Underwriters named on Schedule I attached hereto.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
By: Bear, Stearns & Co. Inc.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
- -------------------
*As Attorney-in-Fact acting on behalf of each of the Selling Stockholders
named on Schedule III attached hereto.
37
<PAGE>
SCHEDULE I
NUMBER OF
ADDITIONAL FIRM
SHARES TO BE
TOTAL NUMBER PURCHASED IF OVER-
OF FIRM SHARES TO ALLOTMENT IS
NAME OF UNDERWRITER BE PURCHASED EXERCISED IN FULL
- ----------------------------------- ------------------ -----------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Morgan Stanley & Co. Incorporated
Cleary Gull Reiland & McDevitt Inc.
Total ----------- -----------
----------- -----------
38
<PAGE>
SCHEDULE II
Lock-Up Agreements
The following stockholders of the Company, including all affiliates of
such stockholders that beneficially own shares of Common Stock, will execute
Lock-Up Agreements:
39
<PAGE>
SCHEDULE III
NUMBER OF
ADDITIONAL SHARES TO
TOTAL NUMBER BE SOLD IF OVER-
OF FIRM SHARES ALLOTMENT IS
TO BE SOLD EXERCISED IN FULL
-------------- --------------------
The Company 1,750,000
SELLING STOCKHOLDERS:
40
<PAGE>
EXHIBIT 15.1
May 8, 1998
To the Stockholders and Board of
Directors of United Stationers Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-3) of United Stationers Inc. dated May 8, 1998 for the registration of
2,667,330 shares of its common stock of our report dated April 24, 1998 relating
to the unaudited condensed consolidated interim financial statements of United
Stationers Inc. that are included in its Form 10-Q for the quarter ended March
31, 1998.
<TABLE>
<S> <C>
/s/ ERNST & YOUNG LLP
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
January 27, 1998, in the Registration Statement (Form S-3) and related
Prospectus of United Stationers Inc. dated May 8, 1998 for the registration of
2,667,330 shares of its Common Stock.
We also consent to the incorporation by reference therein of our report
dated January 27, 1998 with respect to the consolidated financial statements of
United Stationers Inc. included in United Stationers Inc.'s Annual Report (Form
10-K) for the year ended December 31, 1997 filed with the Securities and
Exchange Commission.
<TABLE>
<S> <C>
/s/ ERNST & YOUNG LLP
</TABLE>
Chicago, Illinois
May 8, 1998
