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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the year ended December 31, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
__________ to ____________
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of Registrant as specified in its charter)
UNITED STATIONERS INC.: DELAWARE UNITED STATIONERS INC.: 36-3141189
UNITED STATIONERS SUPPLY CO.: ILLINOIS UNITED STATIONERS SUPPLY CO.: 36-2431718
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(847) 699-5000
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrants' Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
United Stationers Inc.: Common Stock $0.10 par value
(Title of Class)
INDICATE BY CHECK MARK WHETHER EACH REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
UNITED STATIONERS INC.: YES ( X ) NO ( )
UNITED STATIONERS SUPPLY CO.: YES ( X ) NO ( )
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENT
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( X )
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES OF UNITED
STATIONERS INC. AS OF MARCH 15, 1999, WAS $475,899,354, BASED ON THE LAST SALE
PRICE OF THE COMMON STOCK AS QUOTED BY THE NASDAQ NATIONAL MARKET SYSTEM ON SUCH
DATE. UNITED STATIONERS SUPPLY CO. HAS NO SHARES OF COMMON STOCK OUTSTANDING
HELD BY NON-AFFILIATES.
ON MARCH 15, 1999, UNITED STATIONERS INC. HAD OUTSTANDING 37,200,832 SHARES
OF COMMON STOCK, PAR VALUE $0.10 PER SHARE. ON MARCH 15, 1999, UNITED
STATIONERS SUPPLY CO. HAD 880,000 SHARES OF COMMON STOCK, $1.00 PAR VALUE PER
SHARE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
PART OF FORM 10-K
Part III Portions of United Stationers Inc.'s definitive Proxy Statement
relating to the 1999 Annual Meeting of Stockholders of United
Stationers Inc., to be filed within 120 days of the year end of
United Stationers Inc.
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UNITED STATIONERS INC. AND SUBSIDIARIES
UNITED STATIONERS SUPPLY CO.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
CONTENTS AND CROSS REFERENCE SHEET
FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K
<TABLE>
<CAPTION>
FORM 10-K FORM 10-K FORM 10-K
PART NO. ITEM NO. DESCRIPTION PAGE NO.
- ---------- --------- ----------- --------
<S> <C> <C> <C>
I Explanatory Note 1
1 Business 1
General 1
Products 2
Customers 2
Marketing and Customer Support 2-3
Distribution 3-4
Purchasing and Merchandising 4
Competition 4
Employees 4
2 Properties 4-5
3 Legal Proceedings 6
4 Submission of Matters to a Vote of Security Holders 6
II 5 Market for Registrant's Common Equity
and Related Stockholder Matters 6-7
Quarterly Stock Price Data 7
6 Selected Consolidated Financial Data 7-11
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
7A Quantitative and Qualitative Disclosure About Market Risk 21
8 Financial Statements and Supplementary Data 21-45
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 46
III 10 Directors and Executive Officers of the Registrant 46-48
11 Executive Compensation 48
12 Security Ownership of Certain Beneficial
Owners and Management 48
13 Certain Relationships and Related Transactions 48
IV 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 49-52
Signatures 53
</TABLE>
<PAGE>
PART I
EXPLANATORY NOTE
THIS INTEGRATED FORM 10-K IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC., A DELAWARE CORPORATION,
AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO., AN ILLINOIS
CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED STATIONERS INC. IS A HOLDING
COMPANY WITH NO OPERATIONS SEPARATE FROM ITS OPERATING SUBSIDIARY, UNITED
STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL INFORMATION
FOR UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES HAS BEEN PROVIDED HEREIN
BECAUSE MANAGEMENT FOR THE COMPANY BELIEVES SUCH INFORMATION WOULD NOT BE
MEANINGFUL BECAUSE (i) UNITED STATIONERS SUPPLY CO. IS THE ONLY DIRECT
SUBSIDIARY OF UNITED STATIONERS INC., WHICH HAS NO OPERATIONS OTHER THAN THOSE
OF UNITED STATIONERS SUPPLY CO. AND (ii) ALL ASSETS AND LIABILITIES OF UNITED
STATIONERS INC. ARE RECORDED ON THE BOOKS OF UNITED STATIONERS SUPPLY CO. THERE
IS NO MATERIAL DIFFERENCE BETWEEN UNITED STATIONERS INC. AND UNITED STATIONERS
SUPPLY CO. FOR THE DISCLOSURES REQUIRED BY THE INSTRUCTIONS TO FORM 10-K AND
THEREFORE, UNLESS OTHERWISE INDICATED, THE RESPONSES SET FORTH HEREIN APPLY TO
EACH OF UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO.
ITEM 1. BUSINESS
GENERAL
On March 30, 1995, Associated Holdings, Inc., ("Associated"), was merged with
and into United Stationers Inc., ("United"), with United surviving (the
"Merger"). Immediately thereafter, Associated Stationers, Inc. ("ASI"), the
wholly owned subsidiary of Associated, was merged with and into United
Stationers Supply Co. ("USSC"), the wholly owned subsidiary of United, with USSC
surviving. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
United is the parent company of its direct wholly owned subsidiary, USSC. Except
where the context clearly indicates otherwise, including references to the
capital structure of United Stationers Inc., the term "Company" hereinafter used
includes United Stationers Inc. together with its subsidiary.
On October 31, 1996, USSC acquired all of the capital stock of Lagasse Bros.,
Inc. ("Lagasse"), a wholesaler of janitorial and sanitary supplies. Lagasse
operates as a subsidiary of USSC.
On April 3, 1998, USSC acquired 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 (the "Azerty Acquisition"), which together conducted
substantially all of United States and Mexican operations of the Office Products
Division of Abitibi-Consolidated Inc. (collectively, the "Azerty Business"). The
Azerty Business is primarily a specialty wholesaler of computer consumables,
peripherals and accessories in the United States and Mexico.
The Company is the largest general line business products wholesaler in the
United States with 1998 net sales of $3.1 billion. The Company sells its
products through national distribution networks to more than 20,000 resellers,
who in turn sell directly to end users. These products are distributed through a
computer-based network of warehouse facilities and truck fleets radiating from
40 distribution centers, 19 Lagasse distribution centers and six Azerty
distribution centers.
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PRODUCTS
The Company's product offerings, comprised of more than 35,000 stockkeeping
units (SKUs), may be divided into five primary categories:
TRADITIONAL OFFICE PRODUCTS. The Company's core business continues to be
traditional office products, which include both brand-name products and the
Company's private brand products. Traditional office products include writing
instruments, paper products, organizers, calendars and general office
accessories.
COMPUTER CONSUMABLES. The Company offers computer supplies, and peripherals to
value-added computer resellers and office products dealers. In April 1998, the
Company acquired the Azerty Business a wholesaler of computer consumables within
the United States and Mexico.
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. The Company currently offers
nearly 4,000 furniture items from 50 different manufacturers.
FACILITIES SUPPLIES. The major products in this category are janitorial and
sanitation supplies, safety and security items, and shipping and mailing
supplies. 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 to sanitary supply dealers through 19
Lagasse distribution centers.
BUSINESS MACHINES AND AUDIO-VISUAL PRODUCTS. This product category includes
business machines - from calculators to telephones - as well as audio-visual
equipment and supplies.
CUSTOMERS
The Company sells to more than 20,000 resellers of office products, including
office product dealers, office furniture dealers, office products superstores,
mass merchandisers, computer products resellers, mail order companies and
sanitary supply distributors. Of its 20,000 customers, no single reseller
accounted for more than 6% of the Company's net sales in 1998.
Commercial dealers and contract stationers are the most significant reseller
channel for office products distribution and typically serve medium to 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. Many dealers, have joined
marketing or buying groups in order to increase their purchasing leverage. The
Company believes it is the leading wholesale source for most of these groups,
providing not only merchandise but also special programs that enable these
dealers to benefit from their combined purchasing power and marketing efforts.
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 overnight distribution capabilities. In addition to emphasizing its
broad product line, extensive inventory, integrated systems 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
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provides its resellers with a variety of dealer support and marketing services,
including electronic commerce options, promotional programs and pricing
services. These services are designed to aid the reseller in differentiating
itself from its competitors by addressing the needs of the end-user's
procurement process.
Substantially all of the Company's 35,000 SKUs are sold through its
comprehensive general line catalog, promotional pieces and specialty catalogs
for the office products, computer supplies, office furniture, facilities
management supplies and other specialty markets. The Company produces the
following annual catalogs: General Line Catalog; Office Furniture Catalog
featuring furniture and accessories; Universal Catalog promoting the Company's
private-brand merchandise; Computer Supplies and Accessories Catalog offering
information technology supplies, accessories and furniture; Computer Products
Catalog promoting specialized information technology products; Facility Supplies
Catalog featuring 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-TM- products. The majority of the expenses related to the production
of such catalogs is borne by the Company's suppliers. Because commercial
dealers, contract stationers and retail dealers typically distribute only one
wholesaler's catalogs in order to streamline and concentrate order entry, the
Company attempts to maximize the distribution of its catalogs by offering
advertising credits to resellers, which can be used to offset the cost of
catalogs. Also, the Company offers an electronic catalog available through an
Internet-based ordering systems which are linked to its web-based catalog
(www.unitedstationers.com).
The Company also offers to its resellers a variety of electronic order entry
systems and business management and marketing programs. 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 the reseller's customer. The Company
estimates that in 1998, 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 140 field
salespersons and a telemarketing staff of 180 people. 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.
DISTRIBUTION
The Company has a network of 40 business products regional distribution centers
located in 36 metropolitan areas in 25 states in the United States, most of
which carry the Company's full line of inventory. The Company also maintains 19
Lagasse distribution centers that carry a full line of janitorial and sanitation
supplies and six Azerty distribution centers that carry information technology
supplies. The Company supplements its regional distribution centers with 25
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.
Another service offered by the Company to resellers is its "wrap and label"
program, that offers resellers the option to receive individually packaged
orders customized to meet the needs of specific end users. For example, when a
reseller receives orders from several individual end users, the Company can
group and wrap the items separately identifying the specific end user so that
the reseller need only deliver the package. The "wrap and label" program is
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attractive to resellers because it eliminates the need to break down case
shipments and to repackage the orders before delivering them to the end user.
The Company also can ship orders directly to end users on behalf of resellers.
PURCHASING AND MERCHANDISING
As the largest business products wholesaler in North America, the Company
qualifies for substantial volume allowances and can realize significant
economies of scale. The Company obtains products from over 500 manufacturers,
for many of whom the Company believes it is a significant customer. In 1998, no
supplier accounted for more than 17% of the Company's aggregate purchases. As a
centralized function, the Company's merchandising departments interview and
select suppliers and products for inclusion in the catalogs. Selection is based
upon end-user acceptance and demand for the product and the manufacturer's total
service, price and product quality offering.
COMPETITION
The Company competes with office products manufacturers and with other national,
regional and specialty wholesalers of office products, office furniture,
computer supplies and related items, and facility management supplies.
Competition between the Company and manufacturers is based primarily upon net
pricing, minimum order quantity and product availability. Although manufacturers
may provide lower prices to resellers than the Company does, the Company's
marketing and catalog programs, combined with speed of delivery and its ability
to offer resellers a broad line of business products from multiple manufacturers
on a "one-stop shop" basis and with lower minimum order quantities, are
important factors in enabling the Company to compete effectively. Manufacturers
typically sell their products through a variety of distribution channels,
including wholesalers and resellers.
Competition between the Company and other wholesalers is based primarily on
breadth of product lines, availability of products, speed of delivery to
resellers, order fill rates, net pricing to resellers and the quality of its
marketing and other services. The Company believes it is competitive in each of
these areas. Most wholesale distributors of office products conduct operations
regionally and locally, sometimes with limited product lines such as writing
instruments or computer products. Only one other national wholesaler carries a
general line of office products.
Increased competition in the office products industry, together with increased
advertising, has heightened price awareness among end users. As a result,
purchasers of commodity-type office products have become extremely price
sensitive, and therefore, the Company has increased its efforts to market to
resellers the continuing advantages of its competitive strengths (as compared to
those of manufacturers and other wholesalers).
EMPLOYEES
As of December 31, 1998, the Company employed approximately 6,100 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.
ITEM 2. PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. The Company continually evaluates its properties to ensure that
they provide for peak efficiency to maximize customer satisfaction and economies
of scale. These properties consist of the following:
EXECUTIVE OFFICES. The Company's office facility in Des Plaines, Illinois has
approximately 135,800 square feet of office and storage space. In addition,
the Company leases approximately 50,000 square feet of office space located
in Mt. Prospect, Illinois, approximately 28,000 square feet of office space
in Orchard Park, New York (not including approximately 20,000 square feet of
warehouse space), and approximately 22,000 square feet of office space in
Harahan, Louisiana (not including approximately 61,000 square feet of
warehouse space).
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DISTRIBUTION CENTERS. The Company presently has more than 9.0 million square
feet of warehouse space in 40 business products distribution centers, 19
janitorial and sanitary supply distribution centers and 6 information technology
distribution centers. The Company also operates 25 local distribution points.
The following table sets forth information regarding the Company's principal
leased and owned distribution centers:
<TABLE>
<CAPTION>
Approx. Square Feet
-------------------------
State/Country City Metropolitan Area Served Owned Leased
- ------------------ -------------------------- --------------------------- --------- -----------
<S> <C> <C> <C> <C>
Arizona Tempe Phoenix ----- 153,800
California City of Industry (1) /
Santa Fe Los Angeles 344,500 205,400
Springs
Sacramento / Union City / Sacramento / San
Visalia Francisco / Oakland ----- 475,600
Colorado Denver / Aurora Denver 104,200 180,900
Florida Miami / Dania /
Ft. Lauderdale Miami ----- 202,100
Jacksonville Jacksonville 150,000 -----
Tampa Tampa 128,000 30,000
Georgia Atlanta / Norcross Atlanta 372,000 54,400
Illinois Carol Stream / Forest
Park / Glendale Heights Chicago 222,300 305,500
Greenville St. Louis 210,000 -----
Indiana Fort Wayne Fort Wayne ----- 75,000
Indianapolis Indianapolis 128,000 41,600
Louisiana Harahan (1) New Orleans ----- 165,900
Maryland Harmans Baltimore / Wash., D.C. 324,000 123,100
Massachusetts Woburn / Sharon Boston 309,000 115,700
Mexico Mexico City Mexico City ----- 4,000
Monterrey Monterrey ----- 1,300
Michigan Livonia / Van Buren Detroit 229,700 86,500
Minnesota Eagan / Brooklyn Park Minneapolis / St. Paul 338,000 -----
Missouri Kansas City Kansas City ----- 95,200
New Jersey Edison New York 257,600 289,700
Pennsauken Philadelphia 231,000 25,300
New York Coxsackie Albany 257,600 -----
Orchard Park New York ----- 48,000
North Carolina Charlotte Charlotte 104,000 92,000
Ohio Cincinnati Cincinnati 108,800 -----
Columbus Columbus ----- 171,700
Twinsburg / Valley View Cleveland 206,100 165,000
Oklahoma Tulsa Tulsa 52,600 22,500
Oregon Portland Portland ----- 106,500
Pennsylvania Pittsburgh / Chambersburg Pittsburgh / Baltimore ----- 197,200
Tennessee Memphis Memphis ----- 78,300
Nashville Nashville ----- 191,300
Texas Dallas (1) Dallas / Fort Worth 223,200 231,900
Houston Houston ----- 269,000
Lubbock Lubbock ----- 58,800
San Antonio San Antonio ----- 94,900
Utah Salt Lake City Salt Lake City ----- 167,600
Washington Tukwila / Kent Seattle ----- 181,500
Wisconsin Milwaukee Milwaukee 67,300 -----
</TABLE>
(1) A portion of such property is subleased to a third party.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course of
its business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's stockholders was held on November 5, 1998 for
the purpose of considering approval of an amendment to the Company's Certificate
of Incorporation to increase the number of shares of Common Stock, par value
$0.10 per share, from 40,000,000 shares to 100,000,000 shares and the number of
shares of undesignated Preferred Stock, par value $0.01 per share, from
1,500,000 shares to 15,000,000 shares.
The tabulation of the votes was as follows:
<TABLE>
<CAPTION>
For Against Abstain Not Voted
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<S> <C> <C> <C>
20,995,840 8,550,958 16,676 7,245,024
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
Income (Loss)
Income (Loss) Per Share
Before Net Before Net Income
Net Gross Extraordinary Income Extraordinary (Loss)
Sales Profit Item (Loss) Item (1) (2) Per Share (1) (2)
---------- ---------- ------------ ---------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
First Quarter $ 712,517 $ 123,062 $ 15,091 $ 15,091 $ 0.44 $ 0.44
Second Quarter (3) 751,966 125,890 7,229 1,322 0.21 0.04
Third Quarter 795,407 136,275 19,879 19,879 0.52 0.52
Fourth Quarter 799,276 144,011 21,726 21,726 0.58 0.58
---------- ---------- ---------- ----------
Totals (3) $3,059,166 $ 529,238 $ 63,925 $ 58,018 1.76 1.60
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
YEAR ENDED DECEMBER 31, 1997
First Quarter $ 635,021 $ 108,742 $ 10,009 $ 10,009 $ 0.33 $ 0.33
Second Quarter 610,041 104,734 9,870 9,870 0.32 0.32
Third Quarter 650,912 114,442 11,867 11,867 0.37 0.37
Fourth Quarter (4) 662,161 118,013 (23,558) (29,442) (0.76)(5) (0.95)(5)
---------- ---------- ---------- ----------
Totals (4) $2,558,135 $ 445,931 $ 8,188 $ 2,304 0.22 0.03
---------- ---------- ---------- ----------
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</TABLE>
(1) As a result of changes in the number of common and common equivalent shares
during the year, the sum of quarterly earnings per share will not equal
earnings per share for the total year.
(2) Earnings per share reflect a two-for-one stock split in the form of a 100%
Common Stock dividend paid September 28, 1998.
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(3) The second quarter and the year ended December 31, 1998, reflect a
non-recurring charge of $13.9 million ($8.3 million net of tax benefit of
$5.6 million) related to the write off of a contract for computer services
from a vendor (see Note 1 to the Consolidated Financial Statements included
elsewhere herein) and an extraordinary loss of $9.9 million ($5.9 million
net of tax benefit of $4.0 million) related to the early retirement of debt
(see Notes 1 and 7 to the Consolidated Financial Statements included
elsewhere herein).
(4) The fourth quarter and year ended December 31, 1997, reflect a
non-recurring non-cash charge of $59.4 million ($35.5 million net of tax
benefit of $23.9 million), (see Notes 1 and 11 to the Consolidated
Financial Statements included elsewhere herein) and a cash charge of
$5.3 million ($3.2 million net of tax benefit of $2.1 million) related
to the vesting of stock options and the termination of certain
management advisory service agreements (see Notes 1 and 13 to the
Consolidated Financial Statements included elsewhere herein). In
addition, during the fourth quarter of 1997, the Company recorded an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of
$3.9 million) related to the early retirement of debt (see Note 1 to the
Consolidated Financial Statements included elsewhere herein).
(5) Net loss per common share during the fourth quarter of 1997 is calculated
using only the weighted average number of common shares outstanding.
QUARTERLY STOCK PRICE DATA
The Company's Common Stock is quoted through the Nasdaq National Market
System under the symbol "USTR." The following table sets forth on a per share
basis, for the periods indicated, the high and low closing sale prices per
share for the Common Stock as reported by the Nasdaq National Market System.
All stock price information reflects a two-for-one stock split in the form of
a 100% Common Stock dividend paid September 28, 1998.
<TABLE>
<CAPTION>
High Low
------ ------
1997
--------------
<S> <C> <C>
First Quarter $10.88 $ 9.38
Second Quarter 13.75 9.50
Third Quarter 19.13 11.94
Fourth Quarter 24.32 18.63
High Low
------ ------
1998
--------------
First Quarter $32.66 $21.94
Second Quarter 32.38 26.56
Third Quarter 36.00 23.88
Fourth Quarter 30.19 22.50
</TABLE>
On March 15, 1999, there were approximately 970 holders of record of Common
Stock.
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has not paid cash dividends and does not anticipate
declaring cash dividends on its Common Stock in the foreseeable future.
Furthermore, as a holding company, the ability of United to pay cash
dividends in the future depends upon the receipt of dividends or other
payments from its operating subsidiary, USSC. The payment of dividends by
USSC is subject to certain restrictions imposed by the Company's debt
agreements. See Note 7 to the Consolidated Financial Statements of the
Company included elsewhere herein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is the selected historical consolidated financial data for the
Company. Although United was the surviving corporation in the Merger, the
Acquisition was treated as a reverse acquisition for accounting purposes, with
Associated as the acquiring corporation. Therefore, the income statement,
operating, and other
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data for the year ended December 31, 1995, reflect the financial information
of Associated only for the three months ended March 30, 1995, and the results
of the Company for the nine months ended December 31, 1995.
THE COMPANY/ASSOCIATED
The selected consolidated financial data for the year ended December 31, 1994
was derived from the Consolidated Financial Statements of Associated. The
selected consolidated financial data of the Company for the years ended December
31, 1998, 1997, 1996 and 1995 (which for Income Statement, Operating, and Other
Data includes Associated only for the three months ended March 30, 1995, and the
results of the Company for the nine months ended December 31, 1995) have been
derived from the Consolidated Financial Statements of the Company, which have
been audited by Ernst & Young LLP, independent auditors. All selected
consolidated financial data set forth below should be read in conjunction with,
and is qualified in its entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
The Company
----------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 3,059,166 $2,558,135 $2,298,170 $1,751,462 $470,185
Cost of goods sold 2,529,928 2,112,204 1,907,209 1,446,949 382,299
----------- ---------- ---------- ---------- --------
Gross profit 529,238 445,931 390,961 304,513 87,886
Operating expenses:
Warehousing, marketing and
administrative expenses 359,875 311,002 277,957 246,956(1) 69,765
Non-recurring charges 13,852(2) 64,698(3) - - - - - -
----------- ---------- ---------- ---------- --------
Total operating expenses 373,727 375,700 277,957 246,956(1) 69,765
----------- ---------- ---------- ---------- --------
Income from operations 155,511 70,231 113,004 57,557 18,121
Interest expense, net 36,301 53,511 57,456 46,186 7,725
Other expense 8,221(4) - - - - - - - -
----------- ---------- ---------- ---------- --------
Income before income taxes
and extraordinary item 110,989 16,720 55,548 11,371 10,396
Income taxes 47,064 8,532 23,555 5,128 3,993
----------- ---------- ---------- ---------- --------
Income before extraordinary
item 63,925 8,188 31,993 6,243 6,403
Extraordinary item - loss on
early retirement of debt, net of
tax benefit of $3,970 in 1998,
$3,956 in 1997, and $967 in 1995 (5,907) (5,884) - - (1,449) - -
----------- ---------- ---------- ---------- --------
Net income $ 58,018 $ 2,304 $ 31,993 $ 4,794 $ 6,403
----------- ---------- ---------- ---------- --------
----------- ---------- ---------- ---------- --------
Net income attributable to
common stockholders $ 58,018 $ 776 $ 30,249 $ 2,796 $ 4,210
----------- ---------- ---------- ---------- --------
----------- ---------- ---------- ---------- --------
Net income per common
share - assuming dilution (5)
Income before extraordinary item $ 1.76 $ 0.22 $ 1.01 $ 0.17 $ 0.26
Extraordinary item (0.16) (0.19) - - (0.06) - -
----------- ---------- ---------- ---------- --------
Net income $ 1.60 $ 0.03 $ 1.01 $ 0.11 $ 0.26
----------- ---------- ---------- ---------- --------
----------- ---------- ---------- ---------- --------
Cash dividends declared per
common share $ - - $ - - $ - - $ - - $ - -
OPERATING AND OTHER DATA:
EBITDA (6) 182,449 96,272 139,046 81,241 23,505
EBITDA margin (7) 6.0%(8) 3.8%(9) 6.1% 4.6%(10) 5.0%
Depreciation and
amortization (11) $ 26,938 $ 26,041 $ 26,042 $ 23,684 $ 5,384
Capital expenditures 24,616 12,991 (2,886)(12) 8,017 554
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
The Company
----------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------
1998(13) 1997 (14) 1996 1995 (15) 1994
----------- ------------ ---------- ------------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS BEFORE CHARGES:
Income from operations $ 169,363 $ 134,929 $ 113,004 $ 67,316 $ 18,121
Net income attributable to
common stockholders 72,212 45,364 30,249 10,081 4,210
Net income per common
share - assuming dilution (5) 2.00 1.47 1.01 0.40 0.26
EBITDA 196,301 160,970 139,046 91,000 23,505
EBITDA margin 6.4% 6.3% 6.1% 5.2% 5.0%
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 357,024(16) $ 451,449 $ 404,973 $ 355,465 $ 56,454
Total assets 1,166,991(16) 1,148,021 1,109,867 1,001,383 192,479
Total debt and capital lease (17) 315,384 537,135 600,002 551,990 64,623
Redeemable preferred stock - - - - 19,785 18,041 23,189
Redeemable warrants - - - - 23,812 39,692 1,650
Total stockholders' equity 370,563 223,308 75,820 30,024 24,775
</TABLE>
(1) Includes a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) for the year ended December 31, 1995.
(2) In the second quarter of 1998, the Company recognized a non-recurring
charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million)
related to the write off of the remaining payments and prepaid expense
under a contract for computer services from a vendor. See Note 1 to the
Consolidated Financial Statements included elsewhere herein.
(3) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9
million), (see Notes 1 and 11 to the Consolidated Financial Statements
included elsewhere herein) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting of
stock options and the termination of certain management advisory service
agreements (see Notes 1 and 13 to the Consolidated Financial Statements
included elsewhere herein).
(4) Represents the loss on the sale of certain trade accounts receivable
through an asset-backed securitization program and the loss on the sale of
certain capital assets. See Note 5 to the Consolidation Financial
Statements included elsewhere herein.
(5) Earnings per share reflect a two-for-one stock split in the form of a 100%
Common Stock paid September 28, 1998.
(6) EBITDA excluding non-recurring charges would have been $196.3 million and
$161.0 million for 1998 and 1997, respectively. EBITDA is defined as
earnings before interest, taxes, depreciation and amortization and
extraordinary item and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from, or as a
substitute for, net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(7) EBITDA margin represents EBITDA as a percent of net sales.
9
<PAGE>
(8) EBITDA margin would have been 6.4% excluding the non-recurring charge.
(9) EBITDA margin would have been 6.3% excluding the non-recurring charges.
(10) EBITDA margin would have been 5.2% excluding the restructuring charge.
(11) Excludes amortization related to deferred financing costs, which is a
component of interest expense.
(12) Includes $11.1 million of proceeds from the sale of property, plant and
equipment.
(13) In the second quarter of 1998, the Company recognized a non-recurring
charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million)
related to the write off of the remaining payments and prepaid expense
under a contract for computer services from a vendor (see Note 1 to the
Consolidated Financial Statements included elsewhere herein). In addition,
during the second quarter of 1998 the Company recorded an extraordinary
loss of $9.9 million ($5.9 million net of tax benefit of $4.0 million)
related to the early retirement of debt (see Notes 1 and 7 to the
Consolidated Financial Statements included elsewhere herein).
(14) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9
million), (see Notes 1 and 11 to the Consolidated Financial Statements
included elsewhere herein) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting of
stock options and the termination of certain management advisory service
agreements (see Notes 1 and 13 to the Consolidated Financial Statements
included elsewhere herein). 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
(see Note 1 to the Consolidated Financial Statements included elsewhere
herein).
(15) During 1995, the Company recorded a restructuring charge of $9.8 million
($5.9 million net of tax benefit of $3.9 million) and an extraordinary loss
of $2.4 million ($1.4 million net of tax benefit of $1.0 million) related
to early retirement of debt.
(16) Excludes $160.0 million of certain trade accounts receivable sold through
an asset-backed securitization program. See Note 5 to the Consolidated
Financial Statements included elsewhere herein.
(17) Total debt and capital lease include current maturities.
UNITED
The selected consolidated financial data of United (a predecessor of the
Company) set forth below for the seven months ended March 30, 1995 (at which
time United and Associated merged to create the Company) have been derived from
the Consolidated Financial Statements of United which have been audited by Ernst
& Young LLP, independent auditors. The selected financial data at and for the
seven-month period ended March 31, 1994 are unaudited and in the opinion of
management reflect all adjustments considered necessary for a fair presentation
of such data. The selected consolidated financial data of United for the fiscal
year ended August 31, 1994 have been derived from the audited Consolidated
Financial Statements of United.
10
<PAGE>
<TABLE>
<CAPTION>
UNITED
-------------------------------------------------------------
SEVEN MONTHS ENDED TWELVE MONTHS ENDED
------------------------------------ ----------------------
MARCH 30, MARCH 31, AUGUST 31,
1995 1994 1994
------------- --------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Income Statement Data:
Net sales $ 980,575 $ 871,585 $1,473,024
Cost of sales 814,780 717,546 1,220,245
---------- ---------- ----------
Gross profit on sales 165,795 154,039 252,779
Operating expenses 133,098 128,594 216,485
Merger-related costs 27,780(1) - - - -
---------- ---------- ----------
Income from operations 4,917 25,445 36,294
Interest expense, net 7,500 5,837 10,461
Other income, net 41 117 225
---------- ---------- ----------
Income (loss) before income taxes (2,542) 19,725 26,058
Income taxes 4,692 8,185 10,309
---------- ---------- ----------
Net income (loss) $ (7,234) $ 11,540 $ 15,749
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per common
share - assuming dilution $ (0.39) $ 0.62 $ 0.85
Cash dividends declared per share 0.30 0.30 0.40
Operating and Other Data:
EBITDA(2) 17,553 37,665 57,755
EBITDA margin(3) 1.8% 4.3% 3.9%
Depreciation and amortization $ 12,595 $ 12,103 $ 21,236
Net capital expenditures 7,764 4,287 10,499
Balance Sheet Data (at period end):
Working capital 257,600 297,099 239,827
Total assets 711,839 608,728 618,550
Total debt and capital leases(4) 233,406 227,626 155,803
Stockholders' investment 233,125 243,636 246,010
</TABLE>
(1) In connection with the Merger, United incurred approximately $27.8 million
of Merger-related costs, consisting of severance payments under employment
contracts ($9.6 million); insurance benefits under employment contracts
($7.4 million); legal, accounting and other professional services fees
($5.2 million); retirement of stock options ($3.0 million); and fees for
letters of credit related to employment contracts and other costs ($2.6
million).
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from, or as a
substitute for, net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Total debt and capital leases include current maturities.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere in this Form 10-K.
Information contained or incorporated by reference in this Form 10-K 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 fact included in this Form 10-K are
forward-looking statements. The following matters and certain other factors
noted throughout this Form 10-K 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. Such risks
and uncertainties include, but are not limited to, the highly-competitive
environment in which the Company operates, the integration of acquisitions,
changes in end-users' traditional demands for business products, reliance by
the Company on certain key suppliers, the effects on the Company of
fluctuations in manufacturers' pricing, potential service interruptions,
dependence on key personnel and general economic conditions. A description of
these factors, as well as other factors which could affect the Company's
business, is set forth in filings by the Company with the Securities and
Exchange Commission, including the Company's Registration Statement filed on
June 9, 1998. All forward-looking statements contained in this Form 10-K
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.
OVERVIEW
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. 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.
COMMON STOCK DIVIDEND. All share and per share data reflect a two-for-one stock
split in the form of a 100% Common Stock dividend paid September 28, 1998.
JUNE 1998 EQUITY OFFERING. In June 1998, United completed an offering of 4.0
million shares of Common Stock (the "June 1998 Equity Offering"), consisting of
3.0 million primary shares sold by United, and 1.0 million secondary shares sold
by certain selling stockholders. The shares were priced at $27.00 per share,
before underwriting discounts and commissions of $1.15 per share. The aggregate
proceeds to United of approximately $77.6 million (before deducting expenses)
were delivered to USSC and used to repay a portion of indebtedness under the
Tranche A Term Loan Facility, which caused a permanent reduction of the amount
borrowable thereunder.
United did not receive any of the proceeds from the sale of the 1.0 million
shares of Common Stock offered by the selling stockholders, other than an
aggregate of approximately $6.4 million paid by the selling stockholders upon
exercise of employee stock options in connection with the June 1998 Equity
Offering, which were delivered to USSC and applied to the repayment of
indebtedness under the New Credit Facilities.
12
<PAGE>
Subsequent to the closing of the June 1998 Equity Offering, the underwriters for
the offering exercised an overallotment option to purchase an additional 0.4
million shares from United. The net proceeds to United of approximately $10.3
million from the sale were delivered to USSC and used to repay an additional
portion of the indebtedness outstanding under the Tranche A Term Loan Facility.
In the second quarter of 1998, the Company recognized the following charges:
a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of
$5.6 million) to write off the remaining payments and related prepaid expense
under a contract for computer services from a vendor (see Note 1 to the
Consolidated Financial Statements included elsewhere herein) and an
extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0
million) related to the early retirement of debt (see Notes 1 and 7 to the
Consolidated Financial Statements included elsewhere herein), (collectively
"1998 Charges").
Net income attributable to common stockholders for the year ended December 31,
1998, before the 1998 Charges, was $72.2 million, up 59.0%, compared with $45.4
million, before the 1997 Charges (as defined). In 1998 diluted earnings per
share, before the 1998 Charges, were $2.00 on 36.2 million weighted average
shares outstanding, up 36.1%, compared with $1.47, before the 1997 Charges (as
defined), on 30.8 million weighted average shares outstanding for the prior
year.
AZERTY BUSINESS ACQUISITION. On April 3, 1998, the Company acquired 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 Business"), 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 $115.7 million (including fees and
expenses). The acquisition was financed primarily through senior debt. The
Azerty Business 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 $73.7 million allocated to goodwill. The financial information
for the year ended December 31, 1998, includes nine months of the Azerty
Business. The pro forma effects of this acquisition are not material.
OCTOBER 1997 EQUITY OFFERING. On October 9, 1997, the Company completed a 4.0
million share primary offering of Common Stock and a 6.8 million share secondary
offering of Common Stock (the "October 1997 Equity Offering"). The shares were
priced at $19.00 per share, before underwriting discounts and commissions of
$0.95 per share. The aggregate net proceeds to the Company from this equity
offering of $72.2 million (before deducting expenses) and proceeds of $0.1
million resulting from the conversion of approximately 2.2 million warrants into
Common Stock were used to (i) redeem $50.0 million of the Company's 12.75%
Senior Subordinated Notes and pay the redemption premium thereon of $6.4
million, (ii) pay fees related to the October 1997 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 1997 Equity Offering, the Company recognized the
following charges in the fourth quarter of 1997: (i) a pre-tax non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9
million), (see Notes 1 and 11 to the Consolidated Financial Statements included
elsewhere herein) and a non-recurring cash charge of $5.3 million ($3.2 million
net of tax benefit of $2.1 million) related to the vesting of stock options and
the termination of certain management advisory service agreements (see Notes 1
and 13 to the Consolidated Financial Statements included elsewhere herein), and
(ii) an extraordinary loss of $9.8 million ($5.9 million net of tax benefit of
$3.9 million) related to the early retirement of debt (see Note 1 to the
Consolidated Financial Statements included elsewhere herein), (collectively
"1997 Charges").
Net income attributable to common stockholders for the year ended December 31,
1997, before the 1997 Charges, was $45.4 million, up 50.3%, compared with $30.2
million in 1996. Diluted earnings per share, before the 1997 Charges, for 1997
were $1.47 on 30.8 million weighted average shares outstanding, up 45.3%,
compared with $1.01 on 29.8 million weighted average shares outstanding for the
prior year.
13
<PAGE>
LAGASSE BROS., INC. ACQUISITION. 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 November and December
only. The pro forma effects of this acquisition are not material.
GENERAL INFORMATION
EMPLOYEE STOCK OPTIONS. The Management Equity Plan (the "Plan") 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
that provided for the issuance of approximately 3.0 million additional options
to key management employees and directors of the Company. During 1998 and 1997,
options of approximately 1.0 million and 0.5 million, respectively, were granted
to management employees and directors with option exercise prices equal to 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 4.4 million additional shares of its Common Stock.
Subsequently, approximately 4.4 million options were granted during 1995 and
1996 to management employees. Some of the options were granted at an option
exercise price below market value and the option exercise price of certain
options increased by $0.31 on a quarterly basis effective April 1, 1996.
These Merger Incentive Options, which were performance-based, were granted 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
1997 Equity Offering. All Common Stock issued from the exercise of Merger
Incentive Options was subject to a six-month holding period that 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. Based on the
closing stock price on October 10, 1997 of $19.56, 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).
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES. Net sales increased 19.6%, on equivalent workdays, to $3.1 billion
for 1998, compared with $2.6 billion for 1997. The Company experienced sales
strength in all geographic regions and across all product categories.
Specifically, the janitorial and sanitation products and computer consumables
product categories experienced sales growth rates of 26% and 7%, respectively,
during 1998.
Net sales for 1998 include nine months of incremental sales resulting from the
April 1998 Azerty Acquisition. After adjusting for the acquisition, the Company
achieved an organic net sales growth rate of 8.4%, on equivalent workdays.
The Company's organic net sales growth rate through February 1999 was up
slightly over 1%. Strategic planning initiatives, which capitalize on the
Company's core competencies, position the Company to achieve its long-term
goal of top-line organic growth of 6% to 9%.
14
<PAGE>
GROSS MARGIN. Gross margin declined to 17.3% in 1998, compared with 17.4% in
1997. This decrease is primarily the result of the blending in of the
lower-margin computer consumables Azerty Business, which was substantially
offset by the continuing shift away from lower-margin hardware items and a
higher level of vendor allowances.
OPERATING EXPENSES. Operating expenses as a percent of net sales, before a
non-recurring charge, declined to 11.8% in 1998, compared with 12.2%, before
non-recurring charges, in 1997. This reduction represents the impact of
combining the lower operating expense ratio from the Azerty Business with the
Company's traditional operating expense ratio. The non-recurring charge,
recorded in the second quarter of 1998, of $13.9 million ($8.3 million net of
tax benefit of $5.6 million) was related to the write off of a contract for
computer services from a vendor (see Note 1 to the Consolidated Financial
Statements included elsewhere herein). Non-recurring charges recorded in the
fourth quarter of 1997 were $59.4 million (non-cash), (see Notes 1 and 11 to the
Consolidated Financial Statements included elsewhere herein) and $5.3 million
(cash) related to the vesting of stock options and the termination of certain
management advisory service agreements (see Notes 1 and 13 to the Consolidated
Financial Statements included elsewhere herein). Operating expenses, as a
percent of net sales, including the aforementioned charges, were 12.2% in
1998, compared with 14.7% in 1997.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales, before
non-recurring charges in 1998 and 1997, increased to 5.5% in 1998 from 5.2% in
1997. Including the non-recurring charge, income from operations as a percent of
net sales was 5.1% in 1998, compared with 2.7% in 1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 1.2% in 1998,
compared with 2.1% in 1997. This reduction reflects the continued leveraging of
fixed interest costs against higher sales and the repayment of indebtedness with
the proceeds received from the June 1998 Equity Offering, the Receivables
Securitization Program (as defined), and the October 1997 Equity Offering. These
transactions were partially offset by the acquisition of the Azerty Business in
April of 1998 for a purchase price of approximately $115.7 million and the
timely placement of $100.0 million of Senior Subordinated Notes at 8.375%
in April of 1998.
OTHER EXPENSE. Other expense as a percent of net sales was 0.3% in 1998. This
expense primarily represents the costs associated with the sale of certain trade
accounts receivable through the Receivables
Securitization Program (as defined). These costs vary on a monthly basis and are
generally related to certain interest rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item as a percent of net sales, excluding the impact of the
non-recurring charges in 1998 and 1997, increased to 4.0% in 1998 from 3.1%
in 1997. Including the non-recurring charge, income before income taxes and
extraordinary item as a percent of net sales was 3.6% in 1998, compared with
0.6% in 1997.
NET INCOME. Net income in 1998 and 1997 include an extraordinary item, loss on
the early retirement of debt of $9.9 million ($5.9 million net of tax benefit of
$4.0 million) and $9.8 million ($5.9 million net of tax benefit of $3.9
million), respectively (see Note 1 to the Consolidated Financial Statements
included elsewhere herein). Net income as a percent of net sales, excluding the
impact of the non-recurring charge and the extraordinary item, increased to 2.4%
compared with 1.8% in 1997. Including the impact of the non-recurring charge and
the extraordinary item, net income as a percent of net sales was 1.9% in 1998,
compared with 0.1% in 1997.
In the second quarter of 1998, the Company recognized the following charges:
a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6
million) related to the write-off of a contract for computer services from a
vendor (see Note 1 to the Consolidated Financial Statements included elsewhere
herein) and an extraordinary loss of $9.9 million ($5.9 million net of tax
benefit of $4.0 million) related to the early retirement of debt (see Notes 1
and 7 to the Consolidated Financial Statements included elsewhere
herein), (collectively "1998 Charges").
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are recorded
throughout the year, including inventory shrinkage and obsolescence, required
LIFO reserve, manufacturers' allowances, advertising costs and various expense
items. During the fourth quarter of 1998, the Company recorded a favorable net
income adjustment of approximately $2.3 million related to the refinement of
estimates recorded in the prior three quarters.
15
<PAGE>
COMPARISON OF 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 10 months of incremental sales related to the
October 1996 acquisition of Lagasse Bros., Inc. Excluding the Lagasse
acquisition, sales growth for 1997 was 8.8%.
GROSS MARGIN. Gross margin increased to 17.4% in 1997 from 17.0% in 1996. This
increase reflects higher vendor rebates obtained by meeting higher purchase
volume hurdles. In addition, the Company continued to see a shift in product mix
toward higher margin items. Lower margin computer hardware declined as a percent
of total sales.
OPERATING EXPENSES. Operating expenses as a percent of net sales, before
non-recurring charges, remained nearly flat at 12.2% in 1997, compared with
12.1% in 1996. Non-recurring charges recorded in the fourth quarter of 1997
were $59.4 million (non-cash), (see Notes 1 and 11 to the Consolidated
Financial Statements included elsewhere herein) and $5.3 million (cash)
related to the vesting of stock options and the termination of certain
management advisory service agreements (see Notes 1 and 13 to the
Consolidated Financial Statements included elsewhere herein). 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 0.2% of net sales (see Note 1 to the Consolidated Financial
Statements included elsewhere herein). 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.
In the fourth quarter of 1997, the Company recognized the following charges: (i)
pre-tax non-recurring charges of $59.4 million (non-cash), (see Note 11 to the
Consolidated Financial Statements included elsewhere herein) and $5.3 million
(cash) related to the vesting of stock options and the termination of certain
management advisory service agreements (see Note 13 to the Consolidated
Financial Statements included elsewhere herein), and (ii) an extraordinary loss
of $9.8 million ($5.9 million net of tax benefit of $3.9 million) related to the
early retirement of debt (see Note 1 to the Consolidated Financial Statements
included elsewhere herein).
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 related to the refinement of estimates
recorded in the prior three quarters.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CREDIT AGREEMENT
At December 31, 1998, the available credit under the Second Amended and Restated
Credit Agreement (the "Credit Agreement") included $59.4 million of term loan
borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving
loan borrowings (the "Revolving Credit Facility").
The Term Loan Facilities consisted initially of a $150.0 million Tranche A
term loan facility ("Tranche A Facility") and a $100.0 million Tranche B term
loan facility ("Tranche B Facility"). The Company repaid a substantial
portion of the Tranche A Facility with proceeds from the June 1998 Equity
Offering. Amounts outstanding under the Tranche A Facility are to be repaid
in 21 quarterly installments ranging from $1.0 million at March 31, 1999 to
$3.7 million at March 31, 2004. All amounts outstanding under the Tranche B
Facility have been repaid as of April 15, 1998, with net proceeds from the
sale of $100.0 million of 8.375% Senior Subordinated Notes (as defined) and
from a portion of the proceeds generated from the sale of certain receivables
under the Receivables Securitization Program (as defined).
The Revolving Credit Facility is limited to $250.0 million, less the
aggregate amount of letter of credit liabilities, and contains a provision
for swingline loans in an aggregate amount up to $25.0 million. The Revolving
Credit Facility matures on March 31, 2004 and $24.0 million was outstanding
at December 31, 1998.
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 domestic
direct and indirect subsidiaries of USSC, certain of the stock of Lagasse and
Azerty, and certain of the foreign and direct and indirect subsidiaries of
USSC (excluding USS Receivables Company, Ltd.) and security interests and
liens upon all accounts receivable, inventory, contract rights and certain
real property of USSC and its domestic subsidiaries other than accounts
receivables sold in connection with the Receivables Securitization Program.
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 Revolving Credit Facility
bear interest at prime to prime plus 0.75%, or, at the Company's option, the
London Interbank Offering Rate ("LIBOR") plus 1.00% to 2.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this type.
At December 31, 1998, 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. These 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, 1998, the Company had interest rate collar
agreements expiring October 1999 on $200.0 million of borrowings at LIBOR rates
between 5.2% and 8.0%. For the years ended December 31, 1998, 1997, and 1996,
the Company recorded $0.2 million, $0.6 million, and $0.9 million, respectively,
to interest expense resulting from LIBOR rate fluctuations below the floor rate
specified in the collar agreements.
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 cash dividends and make other
distributions to United.
17
<PAGE>
Management believes that the Company's cash on hand, anticipated funds generated
from operations and available borrowings under the Credit Agreement, will be
sufficient to meet the short-term (less than 12 months) and long-term
operating and capital needs of the Company as well as to service its debt in
accordance with its terms. There is, however, no assurance that this will be
accomplished.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC, and
bank borrowings by USSC. The Credit Agreement and the indentures governing the
Notes contain restrictions on the ability of USSC to transfer cash to United.
12.75% SENIOR SUBORDINATED NOTES
The 12.75% Senior Subordinated Notes ("12.75% Notes") originally were issued
on May 3, 1995, pursuant to the 12.75% Notes Indenture. As of December 31,
1998, the aggregate outstanding principal amount of the 12.75% Notes was
$100.0 million. The 12.75% Notes are unsecured senior subordinated
obligations of USSC, and payment of the 12.75% Notes is fully and
unconditionally guaranteed by the Company and USSC's domestic "restricted"
subsidiaries on a senior subordinated basis. The 12.75% Notes mature on May
1, 2005, and bear interest at the rate of 12.75% per annum, payable
semi-annually on May 1 and November 1 of each year.
8.375% SENIOR SUBORDINATED NOTES
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April
15, 1998, pursuant to the 8.375% Notes Indenture. As of December 31, 1998,
the aggregate outstanding principal amount of the 8.375% Notes was $100.0
million. The 8.375% Notes are unsecured senior subordinated obligations of
USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed
by the Company and USSC's domestic "restricted" subsidiaries that incur
indebtedness (as defined in the 8.375% Notes Indenture) on a senior
subordinated basis. The 8.375% Notes mature on April 15, 2008, and bear
interest at the rate of 8.375% per annum, payable semi-annually on April 15
and October 15 of each year.
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its credit facilities,
the Company entered into a $163.0 million 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, which in turn
ultimately 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 existed 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 certain eligible receivables on April 3, 1998. These
proceeds were used to repay a portion of the Tranche B Facility and certain
other indebtedness under the Credit Agreement. Costs related to this facility
vary on a monthly basis and generally are related to certain interest rates.
These costs are included in the Consolidated Statements of Income, included
elsewhere herein, under the caption Other Expense.
The Chase Manhattan Bank acts as funding agent and, 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 under a 364-day
liquidity facility. 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. As a result of the Receivables Securitization
Program, the balance sheet assets of the Company as of December 31, 1998,
exclude approximately $160.0 million of accounts receivable sold to the
Receivables Company.
18
<PAGE>
CASH FLOW INFORMATION
The statements of cash flows for the Company for the periods indicated is
summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Net cash provided by operating activities $ 290,866 $ 41,768 $ 1,609
Net cash used in investing activities (140,356) (12,991) (49,871)
Net cash (used in) provided by financing activities (143,839) (27,029) 47,221
</TABLE>
Net cash provided by operating activities for 1998 increased to $290.9
million from $41.8 million in 1997. This increase was due to the sale of
certain accounts receivable totaling $160.0 million, higher net income
(before non-recurring charges), an increase in accounts payable of $22.7
million, an increase in deferred taxes of $20.5 million, and a $35.5 million
decrease in inventory partially offset by a $18.2 million increase in other
assets. 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 charges),
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 used in investing activities during 1998 was $140.4 million compared
with $13.0 million in 1997. The increase was due to the acquisition of Azerty,
Inc. on April 3, 1998, and an increase in capital expenditures of $11.7 million.
Net cash used in investing activities during 1997 was $13.0 million compared
with $49.9 million in 1996. The decrease was due to the acquisition of Lagasse
Bros., Inc. on October 31, 1996, offset by the collection of $11.1 million in
1996 from the successful sale of closed facilities and related equipment.
Net cash used in financing activities during 1998 was $143.8 million compared
with $27.0 million in 1997. This increase was the result of the financing
required to purchase the Azerty Business, the additional payment of $8.4 million
for employee withholding tax related to stock option exercises, and changes to
working capital requirements partially offset by the net proceeds from the
timely placement of $100.0 million 8.375% Notes, and the incremental proceeds of
$27.8 million from the issuance of Common Stock. Net cash used in financing
activities in 1997 was $27.0 million compared with net cash provided of $47.2
million in 1996. The decrease was due to a $50.0 million partial redemption of
the Company's 12.75% Notes, a reduction of indebtedness under the Term Loan
Facilities of $15.5 million, redemption of Series A and C Preferred Stock of
$21.2 million and a $8.5 million payment related to employee income tax
withholding for stock option exercises offset by proceeds of $72.2 million
(before deducting expenses) related to the issuance of 4.0 million shares of
Common Stock, and additional borrowings under the revolver of $49.0 million
during 1997, compared with additional borrowings of $22.0 million in 1996.
SEASONALITY
Although the Company's sales are generally relatively level throughout the year,
the Company's sales vary to the extent of seasonal differences in the buying
patterns of end-users who purchase office products. In particular, the Company's
sales are generally higher than average during January when many businesses
begin operating under new annual budgets.
The Company experiences seasonality in terms of its working capital needs, with
highest requirements in December through February reflecting a build up in
inventory prior to and during the peak sales period. The Company believes that
its current availability under the Revolving Credit Facility is sufficient to
satisfy such seasonal capital needs for the foreseeable future.
19
<PAGE>
INFLATION/DEFLATION AND CHANGING 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 historically has 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.
YEAR 2000 MODIFICATIONS
The Company relies on both information technology ("IT") and non-IT computer
systems in its operations. The mission-critical IT systems include the Company's
operating and accounting systems, such as IT software applications that allow
the Company to maintain inventory and customer information and to communicate
with its suppliers and customers. The non-IT systems are primarily
telecommunications systems and the embedded microprocessors that control
warehouse and other building systems, such as inventory control devices,
security systems, lighting, fire and safety systems, and heating, ventilating
and air conditioning systems.
In 1996, the Company began to address the year 2000 problem (that is, the fact
that some systems may fail or produce inaccurate results using dates in or
around the year 2000). The Company formed a year 2000 task force under its Chief
Information Officer to coordinate and implement measures designed to prevent
disruption in its business operations related to the year 2000 problem. The
Company believes that it completed the remediation of its mission-critical IT
applications software in December 1998 and is scheduled to complete an
end-to-end test of its IT systems by September 1999. The Company is assessing
the effect of the year 2000 problem on its non-IT systems and intends to replace
non-IT systems as necessary to become year 2000 ready by December 1999.
The Company also is working with its customers and suppliers to determine
whether the year 2000 problem will have an adverse effect on the Company's
relationships with them. Beginning with the Company`s catalog for
<PAGE>
1999, the Company's product suppliers have assured the Company that their
products will be year 2000 ready. However, the Company does not control its
suppliers and relies on a variety of utilities, telecommunications companies and
other suppliers in order to continue its business.
The Company is analyzing its business to identify its most reasonably likely
worst case scenario and is developing contingency plans to address the risks
created by the year 2000 problem. These plans include procuring alternative
suppliers, when available, when the Company is able to conclude that an existing
supplier will not be year 2000 ready. The Company is scheduled to complete these
contingency plans by July 1999.
The Company's year 2000 remediation utilizes both internal and external
resources. During 1998 and 1997 the Company incurred approximately $1.5 million
and $1.4 million, respectively, related to this issue and expects to incur an
additional $1.0 million to $1.5 million of such expenses over the next year.
Funding for year 2000 expenses will be generated from on-going operations and
available borrowings under the Credit Agreement.
There can be no assurance that year 2000 remediation by the Company or third
parties will be properly and timely completed and failure to do so could have a
material adverse effect on the Company's financial condition. The Company cannot
predict the actual effects to it of the year 2000 issue, which depends on
numerous uncertainties such as: (i) whether major third parties address this
issue properly and timely and (ii) whether broad-based or systemic economic
failures may occur. The Company currently is unaware of any events, trends, or
condition regarding this issue that may have a material effect on the Company's
results of operations, liquidity, and financial position. If the year 2000 issue
is not resolved by January 1, 2000, the Company's results of operations or
financial condition could be materially adversely affected.
20
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to market risk associated principally with changes in
interest rates and foreign currency exchange rates. Interest rate exposure is
principally limited to the Company's outstanding long-term debt at December 31,
1998, of $315.4 million and $160.0 million of receivables sold under the
Receivables Securitization Program, whose discount rate varies with market
interest rates ("Receivables Exposure"). Approximately 43% of the outstanding
debt and Receivables Exposure is priced at interest rates that are fixed. The
remaining debt and Receivables Exposure is priced at interest rates that float
with the market. A 50 basis point movement in interest rates would result in
an approximate $1.4 million annualized increase or decrease in interest expense,
loss on the sale of certain accounts receivable and cash flows. The Company has
entered into interest rate collar agreements, under which the interest rates on
$200.0 million of floating rate debt can vary between LIBOR rates of 5.2% and
8.0% (see Note 7 to the Consolidated Financial Statements included elsewhere
herein.) The Company will from time to time enter into interest rate swaps or
collars on its debt. The Company does not use derivative financial or commodity
instruments for trading purposes. Typically, the use of such derivative
instruments is limited to interest rate swaps or collars on the Company's
outstanding long-term debt. The Company's exposure related to such derivative
instruments is, in the aggregate, not material to the Company's financial
position, results of operations and cash flows.
The Company's foreign currency exchange rate risk is limited principally to the
Mexican Peso, Canadian Dollar, Italian Lira, as well as product purchases from
Asian countries currently paid in U.S. dollars. Many of the products which the
Company sells in Mexico and Canada are purchased in U.S. dollars while the sale
is invoiced in the local currency. The Company's foreign currency exchange rate
risk is not material to the Company's financial position, results of operations
and cash flows. The Company has not previously hedged these transactions, but is
considering such a program, and may enter into such transactions when it
believes there is a clear financial advantage to do so.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Set forth on the following pages are the Consolidated Statements of Income,
Changes in Stockholders' Equity and Cash Flows of the Company for the years
ended December 31, 1998, 1997 and 1996, and the Consolidated Balance Sheets of
the Company as of December 31, 1998 and 1997.
21
<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, 1998 and 1997 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, 1998.
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, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ERNST & YOUNG LLP
Ernst & Young LLP
Chicago, Illinois
January 26, 1999,
except for Note 18, as to which the date is
March 17, 1999
22
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 3,059,166 $ 2,558,135 $ 2,298,170
COST OF GOODS SOLD 2,529,928 2,112,204 1,907,209
----------- ----------- -----------
Gross profit 529,238 445,931 390,961
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 359,875 311,002 277,957
Non-recurring charges 13,852 64,698 - -
----------- ----------- -----------
Total operating expenses 373,727 375,700 277,957
----------- ----------- -----------
Income from operations 155,511 70,231 113,004
INTEREST EXPENSE 36,301 53,511 57,456
OTHER EXPENSE 8,221 - - - -
----------- ----------- -----------
Income before income taxes and extraordinary item 110,989 16,720 55,548
INCOME TAXES 47,064 8,532 23,555
----------- ----------- -----------
Income before extraordinary item 63,925 8,188 31,993
EXTRAORDINARY ITEM - LOSS ON EARLY RETIREMENT
OF DEBT (net of tax benefit of $3,970 in 1998 and
$3,956 in 1997) (5,907) (5,884) - -
----------- ----------- -----------
NET INCOME 58,018 2,304 31,993
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED - - 1,528 1,744
----------- ----------- -----------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 58,018 $ 776 $ 30,249
----------- ----------- -----------
----------- ----------- -----------
NET INCOME PER COMMON SHARE:
Income before extraordinary item $ 1.84 $ 0.26 $ 1.24
Extraordinary item (0.17) (0.23) - -
----------- ----------- -----------
Net income per common share $ 1.67 $ 0.03 $ 1.24
----------- ----------- -----------
----------- ----------- -----------
Average number of common shares (in thousands) 34,680 26,128 24,410
----------- ----------- -----------
----------- ----------- -----------
NET INCOME PER COMMON SHARE - ASSUMING DILUTION:
Income before extraordinary item $ 1.76 $ 0.22 $ 1.01
Extraordinary item (0.16) (0.19) - -
----------- ----------- -----------
Net income per common share $ 1.60 $ 0.03 $ 1.01
----------- ----------- -----------
----------- ----------- -----------
Average number of common shares (in thousands) 36,171 30,760 29,846
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,038 $ 12,367
Accounts receivable, less allowance for doubtful
accounts of $9,775 in 1998 and $7,071 in 1997 203,467 311,920
Inventories 554,940 511,555
Other 21,293 14,845
----------- -----------
TOTAL CURRENT ASSETS 798,738 850,687
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 21,857 21,857
Buildings 95,944 101,322
Fixtures and equipment 148,658 113,037
Leasehold improvements 1,508 1,026
----------- -----------
Total property, plant and equipment 267,967 237,242
Less - accumulated depreciation and amortization 98,907 72,699
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 169,060 164,543
GOODWILL 181,009 111,852
OTHER 18,184 20,939
----------- -----------
TOTAL ASSETS $ 1,166,991 $ 1,148,021
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 301,952 $ 236,475
Accrued expenses 111,741 107,935
Accrued income taxes 20,312 10,561
Current maturities of long-term debt 7,709 44,267
----------- -----------
TOTAL CURRENT LIABILITIES 441,714 399,238
DEFERRED INCOME TAXES 26,223 19,383
LONG-TERM DEBT 307,675 492,868
OTHER LONG-TERM LIABILITIES 20,816 13,224
STOCKHOLDERS' EQUITY
Common Stock (voting), $0.10 par value; 100,000,000 and 40,000,000,
respectively, authorized; 36,912,173 and 31,810,546, respectively,
issued and outstanding 3,691 3,181
Capital in excess of par value 303,330 213,260
Retained earnings 64,853 7,085
Accumulated translation adjustment (1,311) (218)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 370,563 223,308
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,166,991 $ 1,148,021
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Redeemable Preferred Stock
--------------------------------------------
Redeemable
A C Total Warrants
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995 $7,437 $10,604 $18,041 $39,692
Net Income - - - - - - - -
Unrealized translation adjustment - - - - - - - -
Comprehensive 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 - - - - - - - -
------ ------- ------- -------
DECEMBER 31, 1996 8,086 11,699 19,785 23,812
Net income - - - - - - - -
Unrealized translation adjustment - - - - - - - -
Comprehensive 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)
Issuance of common stock,
net of offering expenses - - - - - - - -
Stock options exercised - - - - - - - -
Conversion of nonvoting common
stock into common stock - - - - - - - -
Cancellation of common stock - - - - - - - -
Other - - - - - - - -
------ ------- ------- -------
DECEMBER 31, 1997 $ - - $ - - $ - - $ - -
------ ------- ------- -------
------ ------- ------- -------
<CAPTION>
Number of Number of
Common Common Common Common
Shares Stock Shares Stock
(Voting) (Voting) (Nonvoting) (Nonvoting)
------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995 11,446,306 $1,145 758,994 $ 8
Net Income - - - - - - - -
Unrealized translation adjustment - - - - - - - -
Comprehensive income - - - - - - - -
Preferred stock dividends - - - - - - - -
Reduction of warrants to fair market value - - - - - - - -
Decrease in value of stock option grants - - - - - - - -
DECEMBER 31, 1996 11,446,306 1,145 758,994 8
---------- ------ -------- ------
Net income - - - - - - - -
Unrealized translation adjustment - - - - - - - -
Comprehensive income - - - - - - - -
Stock dividends issued - - - - - - - -
Redemption of Series A and
Series C preferred stock - - - - - - - -
Accretion of lender warrants
to fair market value - - - - - - - -
Increase in value of stock option grants - - - - - - - -
Compensation associated with stock options - - - - - - 59,398
Conversions of redeemable
warrants into common stock 1,408,398 141 - - - -
Issuance of common stock,
net of offering expenses 2,000,000 200 - - - -
Stock options exercised 299,889 30 - - - -
Conversion of nonvoting common
stock into common stock 758,994 76 (758,994) (8)
Cancellation of common stock (8,314) (1) - - - -
Other - - - - - - - -
---------- ------ -------- ------
DECEMBER 31, 1997 15,905,273 $1,591 - - $ - -
---------- ------ -------- ------
---------- ------ -------- ------
<CAPTION>
Total
Capital in Other Stock-
Excess Comprehen- Retained holders'
of Par sive Income Earnings Equity
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995 $ 28,857 $ 14 $ - - $ 30,024
Net Income - - - - 31,993 31,993
Unrealized translation adjustment - - 6 - - 6
------ ------- --------
Comprehensive income - - 6 31,993 31,999
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)
-------- ------ ------- --------
DECEMBER 31, 1996 44,398 20 30,249 75,820
Net income - - - - 2,304 2,304
Unrealized translation adjustment - - (238) - - (238)
------ ------- --------
Comprehensive income - - (238) 2,304 2,066
Stock dividends issued - - - - (1,528) (1,528)
Redemption of Series A and
Series C preferred stock - - - - - - - -
Accretion of lender warrants
to fair market value (915) - - (22,339) (23,254)
Increase in value of stock option grants 380 - - - - 380
Compensation associated with stock options 59,398 - - - - 59,398
Conversions of redeemable
warrants into common stock 47,074 - - - - 47,215
Issuance of common stock,
net of offering expenses 71,254 - - - - 71,454
Stock options exercised (8,270) - - - - (8,240)
Conversion of nonvoting common
stock into common stock (68) - - - - - -
Cancellation of common stock 1 - - - - - -
Other 8 - - (11) (3)
-------- ------ ------- --------
DECEMBER 31, 1997 $213,260 $ (218) $ 8,675 $223,308
-------- ------ ------- --------
-------- ------ ------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
Number of
Redeemable Preferred Stock Common Common
-------------------------- Redeemable Shares Stock
A C Total Warrants (Voting) (Voting)
------- ------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997 $ - - $ - - $ - - $ - - 15,905,273 $1,591
Net income - - - - - - - - - - - -
Unrealized translation adjustment - - - - - - - - - - - -
Comprehensive income - - - - - - - - - - - -
Stock options exercised - - - - - - - - 904,409 90
Issuance of common stock,
net of offering expenses - - - - - - - - 1,700,000 170
100% stock dividend - - - - - - - - 18,402,491 1,840
Other - - - - - - - - - - - -
------- ------- ------- ---------- ---------- --------
DECEMBER 31, 1998 $ - - $ - - $ - - $ - - 36,912,173 $3,691
------- ------- ------- ---------- ---------- --------
------- ------- ------- ---------- ---------- --------
<CAPTION>
Number of Total
Common Common Capital in Other Stock-
Shares Stock Excess Comprehen- Retained holders'
(Nonvoting) (Nonvoting) of Par sive Income Earnings Equity
------------- ------------- ------------ ------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997 - - $ - - $213,260 $ (218) $ 8,675 $223,308
Net income - - - - - - - - 58,018 58,018
Unrealized translation adjustment - - - - - - (1,093) - - (1,093)
-------- ------- --------
Comprehensive income - - - - - - (1,093) 58,018 56,925
Stock options exercised - - - - 3,095 - - - - 3,185
Issuance of common stock,
net of offering expenses - - - - 86,979 - - - - 87,149
100% stock dividend - - - - - - - - (1,840) - -
Other - - - - (4) - - - - (4)
-------- ------- ---------- -------- ------- --------
DECEMBER 31, 1998 - - $ - - $303,330 $ (1,311) $64,853 $370,563
-------- ------- ---------- -------- ------- --------
-------- ------- ---------- -------- ------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,018 $ 2,304 $ 31,993
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 22,406 21,963 22,766
Amortization 4,532 4,078 3,276
Amortization of capitalized financing costs 2,062 4,323 5,333
Extraordinary item - early retirement of debt 9,877 9,840 - -
Deferred income taxes 4,380 (16,091) 5,299
Compensation expense on stock option grants - - 60,041 (339)
Other 2,044 51 1,584
Changes in operating assets and liabilities, net of
acquisition in 1998 and 1996:
Decrease (increase) in accounts receivable 159,593 (20,519) (15,379)
Increase in inventory (12,777) (48,316) (71,282)
(Increase) decrease in other assets (8,246) 9,985 1,814
Increase (decrease) in accounts payable 21,090 (1,649) 36,352
Increase (decrease) in accrued liabilities 20,543 18,036 (17,185)
Increase (decrease) in other liabilities 7,344 (2,278) (2,623)
--------- --------- ---------
Net cash provided by operating activities 290,866 41,768 1,609
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions:
Azerty, Inc. (115,740) - - - -
Lagasse Bros., Inc. - - - - (51,896)
Capital expenditures (24,709) (13,036) (8,190)
Proceeds from disposition of property, plant & equipment 93 45 11,076
Other - - - - (861)
--------- --------- ---------
Net cash used in investing activities (140,356) (12,991) (49,871)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolver (22,000) 49,000 22,000
Retirements and principal payments of debt (549,852) (117,776) (30,861)
Borrowings under financing agreements 350,000 - - 57,933
Financing costs (4,526) - - (1,851)
Issuance of common stock 99,442 71,606 - -
Payment of employee withholding tax related to stock
option exercises (16,903) (8,546) - -
Redemption of Series A and Series C Preferred Stock - - (21,172) - -
Cash dividend - - (141) - -
--------- --------- ---------
Net cash (used in) provided by financing activities (143,839) (27,029) 47,221
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,671 1,748 (1,041)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,367 10,619 11,660
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 19,038 $ 12,367 $ 10,619
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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." 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.
COMMON STOCK DIVIDEND
All share and per share data reflect a two-for-one stock split in the form of a
100% Common Stock dividend paid September 28, 1998.
JUNE 1998 EQUITY OFFERING
In June 1998, United completed an offering of 4.0 million shares of Common
Stock (the "June 1998 Equity Offering"), consisting of 3.0 million primary
shares sold by United, and 1.0 million secondary shares sold by certain
selling stockholders. The shares were priced at $27.00 per share, before
underwriting discounts and commissions of $1.15 per share. The aggregate
proceeds to United of approximately $77.6 million (before deducting expenses)
were delivered to USSC and used to repay a portion of indebtedness under the
Tranche A Term Loan Facility which caused a permanent reduction of the amount
borrowable thereunder.
United did not receive any of the proceeds from the sale of the 1.0 million
shares of Common Stock offered by the selling stockholders, other than an
aggregate of approximately $6.4 million paid by the selling stockholders upon
exercise of employee stock options in connection with the June 1998 Equity
Offering, which were delivered to USSC and applied to the repayment of
indebtedness under the New Credit Facilities.
Subsequent to the closing of the June 1998 Equity Offering, the underwriters for
the offering exercised an overallotment option to purchase an additional 0.4
million shares from United. The net proceeds to United of approximately $10.3
million from the sale were delivered to USSC and used to repay an additional
portion of the indebtedness outstanding under the Tranche A Term Loan Facility.
In the second quarter of 1998, the Company recognized the following charges in
the second quarter of 1998: (i) a non-recurring charge of $13.9 million ($8.3
million net of tax benefit of $5.6 million) to write-off the remaining payments
and related prepaid expense under a contract for computer services from a vendor
and an extraordinary loss of $9.9 million ($5.9 million net of tax benefit of
$4.0 million) related to the early retirement of debt (collectively "1998
Charges").
Net income attributable to common stockholders for the year ended December 31,
1998, before the 1998 Charges, was $72.2 million, up 59.0%, compared with $45.4
million, before the 1997 Charges (as defined). In 1998, diluted earnings per
share, before the 1998 Charges, were $2.00 on 36.2 million weighted average
shares outstanding, up 36.1%, compared with $1.47, before the 1997 Charges (as
defined), on 30.8 million weighted average shares outstanding for the prior
year.
AZERTY BUSINESS ACQUISITION
On April 3, 1998, the Company acquired 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 Business"), 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
$115.7 million (including fees and expenses). The acquisition was financed
primarily through senior debt. The Azerty Business acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to
29
<PAGE>
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 $73.7 million allocated to goodwill. The financial
information for the year ended December 31, 1998, includes nine months of the
Azerty Business. The pro forma effects of this acquisition are not material.
OCTOBER 1997 EQUITY OFFERING
On October 9, 1997, the Company completed a 4.0 million share primary
offering of Common Stock and a 6.8 million share secondary offering of Common
Stock (the "October 1997 Equity Offering"). The shares were priced at $19.00
per share, before underwriting discounts and commissions of $0.95 per share.
The aggregate net proceeds to the Company from this equity offering of $72.2
million (before deducting expenses) and proceeds of $0.1 million resulting
from the conversion of approximately 2.2 million warrants into Common Stock
were used to (i) redeem $50.0 million of the Company's 12.75% Senior
Subordinated Notes and pay the redemption premium thereon of $6.4 million,
(ii) pay fees related to the October 1997 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 1997 Equity Offering, the Company recognized the
following charges in the fourth quarter of 1997: (i) 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 stock options and the
termination of certain management advisory service agreements (see Note 13),
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
1), (collectively "1997 Charges").
Net income attributable to common stockholders for the year ended December 31,
1997, before the 1997 Charges, was $45.4 million, up 50.3%, compared with $30.2
million in 1996. Diluted earnings per share, before the 1997 Charges, for 1997
was $1.47 on 30.8 million weighted average shares outstanding, up 45.3%,
compared with $1.01 on 29.8 million weighted average shares outstanding for the
prior year.
LAGASSE BROS., INC. ACQUISITION
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 November and December only. The pro forma
effects of this acquisition are not material.
2. OPERATIONS
The Company operates in a single reportable segment as a national wholesale
distributor of business products. The Company offers approximately 35,000
items from more than 500 manufacturers. This includes a broad spectrum of
office products, computer supplies, office furniture and facilities
management supplies. The Company primarily serves commercial and contract
office products dealers. Its customers include more than 20,000 resellers --
such as office products dealers, buying groups, office furniture dealers,
superstores and mass merchandisers, mail order houses, computer products
resellers, sanitary supply distributors and warehouse clubs. The Company has
a distribution network of 40 business products regional distribution centers.
In addition, the Company has 19 Lagasse Distribution Centers, specifically
serving janitorial and sanitary supply distributors and six Azerty distribution
centers that carry information technology supplies. Through its integrated
computer system, the Company provides a high level of customer service and
overnight delivery.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
30
<PAGE>
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 may be liquidated within three months
from the purchase date are considered cash equivalents. Cash equivalents are
stated at cost which approximates market value.
INVENTORIES
Inventories constituting approximately 80% and 91% of total inventories at
December 31, 1998 and 1997, respectively, have been valued under the last-in,
first-out ("LIFO") method. The decline in the percentage of inventory on LIFO
resulted from the acquisition of the Azerty Business, whose inventory is valued
under the first-in, first-out ("FIFO") method. Inventory valued under the FIFO
and LIFO accounting methods are recorded at the lower of cost or market. If the
lower of FIFO cost or market method of inventory accounting had been used by the
Company for all inventories, merchandise inventories would have been
approximately $4.2 million and $4.3 million higher than reported at December 31,
1998 and 1997, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are determined by using the straight-line method over the estimated
useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to 10
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, 1998 and
1997 is $11.8 million and $7.6 million, respectively.
SOFTWARE CAPITALIZATION
The Company capitalizes internal and external software development costs
determined to have benefits in 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.
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.
31
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and for Hedging Activities". SFAS No. 133 requires all derivatives
to be recorded on the balance sheet at fair value and establishes "special
accounting" for the following three different types of hedges: hedges of changes
in the fair value of assets, liabilities or firm commitments; hedges of the
variable cash flows of forecasted transactions; and hedges of foreign currency
exposures of net investments in foreign operations. Though the accounting
treatment and criteria for each of the three types of hedges are unique, they
all result in recognizing offsetting changes in value or cash flows of both the
hedge and the hedged item in earnings in the same period. Changes in the fair
value of derivatives that do not meet the criteria of one of these three
categories of hedges are included in earnings in the period of the change. SFAS
No. 133 will be effective for and adopted by the Company in the third quarter of
the year ending December 31, 1999. The Company anticipates that SFAS No. 133
will not have a material impact on its consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," which was adopted by the Company at
December 31, 1998. SFAS No. 132 revises and improves disclosure requirements of
FASB Statements No. 87, Employers' Accounting for Pensions, No. 88 Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits, and No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. SFAS No. 132 does not change the recognition or
measurement of pension and other postretirement benefit plans, but standardizes
disclosure requirements for pensions and other postretirement benefits,
eliminates unnecessary disclosures and requires certain additional information.
In accordance with SFAS No. 132, the Company adjusted the reporting and display
of its pension plans and postretirement benefits.
In June of 1997, the FASB issued SFAS No. 130, "Comprehensive Income," which was
adopted by the Company in the first quarter of 1998. SFAS No. 130 requires
companies to report a new, additional measure of income on the income statement,
statement of stockholders' equity, or create a new financial statement that
shows the new measure of income. Comprehensive income will include foreign
currency translation gains and losses that have been previously excluded from
net income and recorded instead to stockholders' equity. In accordance with SFAS
No. 130, the Company expanded its reporting and display of comprehensive income
and its components in the Consolidated Statements of Changes in Stockholders'
Equity.
In 1998, the Company adopted SFAS No. 129 "Disclosure of Information about
Capital Structure." SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 did not have a material
impact on the Company's consolidated financial statement disclosures.
During 1996, the Company adopted the supplemental disclosure requirement of SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages but
does not require adoption of a fair value method of accounting for stock
options. For those entities that do not elect to adopt the fair value method,
the new standard requires supplemental disclosure regarding the pro forma
effects of that method. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," and related Interpretations.
Adoption of SFAS No. 123 will have no impact on the financial position or
results of operations of the Company.
4. SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which was adopted by the Company in 1998.
SFAS No. 131 requires companies to report financial and descriptive information
about its reportable operating segments, including segment profit or loss,
certain specific revenue and expense items, and segment assets, as well as
information about the revenues derived from the Company's products and services,
the countries in which the Company earns revenues and holds assets, and major
customers. This statement also requires companies that have a single reportable
segment to disclose information about products and services, information about
geographic areas, and information about major customers. This statement requires
the use of the management approach to determine the information to be reported.
The management approach is based on the way management organizes the enterprise
to assess performance and make operating decisions regarding the allocation of
resources. It is management's opinion that, at this time, the Company has
several operating segments, however only one reportable segment.
32
<PAGE>
The following discussion sets forth the required disclosure regarding single
segment information:
The Company operates as a single reportable segment as the largest general
line business products wholesaler in the United States, operations outside
the United States were immaterial, with 1998 net sales of $3.1 billion. The
Company sells its products through national distribution networks to more
than 20,000 resellers, who in turn sell directly to end-users. These products
are distributed through a computer-based network of warehouse facilities and
truck fleets radiating from 40 regional business products distribution
centers, 19 Lagasse distribution centers and six Azerty distribution centers.
The Company's product offerings, comprised of more than 35,000 stockkeeping
units (SKUs), may be divided into five primary categories: (i) The Company's
core business continues to be traditional office products, which include 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; (ii) The Company offers computer supplies, and
peripherals to computer resellers and office products dealers; (iii) 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. The Company currently offers nearly 4,000 furniture
items from 50 different manufacturers; (iv) A fourth category of products is
facility supplies, including janitorial and sanitation supplies, safety and
security items, and shipping and mailing supplies. In October 1996, the Company
acquired Lagasse, the largest pure wholesaler of janitorial and sanitation
supplies in North America. The Company distributes these products through 19
Lagasse distribution centers to sanitary supply dealers; and (v) The Company
also distributes business machines and audio-visual equipment and supplies.
The Company sells to more than 20,000 resellers of office products, including
office product dealers, office furniture dealers, office products superstores,
mass merchandisers, computer products resellers, mail order companies and
sanitary supply distributors. Of its 20,000 customers, no single reseller
accounted for more than 6% of the Company's net sales in 1998.
The following table sets forth net sales by product category for the years ended
December 31, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Traditional office products $1,183 $1,248
Computer supplies and peripherals 878 504
Office furniture 425 379
Facility supplies 202 74
Business machines and audio-visual
equipment and supplies 334 315
Other 37 38
-------- --------
Total net sales $3,059 $2,558
-------- --------
-------- --------
</TABLE>
Comparable information for the year ended December 31, 1996 is not available.
5. OTHER EXPENSE
The following table sets forth the components of other expense (dollars in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Loss on the sale of accounts receivable, net of
servicing revenue $ 7,477 $ - - $ - -
Other 744 - - - -
------- -------- --------
Total $ 8,221 $ - - $ - -
------- -------- --------
------- -------- --------
</TABLE>
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its credit facilities,
the Company entered into a $163.0 million 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
33
<PAGE>
Company, a wholly owned offshore, bankruptcy-remote special purpose limited
liability company, which in turn ultimately 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
existed 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 certain eligible receivables
on April 3, 1998. These proceeds were used to repay a portion of the Tranche B
Facility (as defined) and certain other indebtedness under the Credit Agreement
(as defined). Costs related to this facility vary on a monthly basis and
generally are related to certain interest rates. These costs are included in the
Consolidated Statements of Income under the caption Other Expense.
The Chase Manhattan Bank acts as funding agent and, 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 under a 364-day
liquidity facility. 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. As a result of the Receivables Securitization
Program, the balance sheet assets of the Company as of December 31, 1998
exclude approximately $160.0 million of accounts receivable sold to the
Receivables Company.
6. EARNINGS PER SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the weighted average number of common and common equivalent shares
outstanding during the period. Stock options and warrants are considered to be
common equivalent shares.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1998 1997
Before Before
1998 Charges(1) 1997 Charges(2) 1996
---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Numerator:
Income before extraordinary item $ 63,925 $ 72,212 $ 8,188 $ 46,892 $ 31,993
Preferred stock dividends - - - - 1,528 1,528 1,744
-------- -------- -------- -------- --------
Numerator for basic and diluted earnings
per share - income attributable to common
stockholders before extraordinary item $ 63,925 $ 72,212 $ 6,660 $ 45,364 $ 30,249
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Denominator:
Denominator for basic earnings per
share - weighted average shares 34,680 34,680 26,128 26,128 24,410
Effect of dilutive securities:
Employee stock options 1,491 1,491 2,516 2,516 2,630
Warrants - - - - 2,116 2,116 2,806
-------- -------- -------- -------- --------
Dilutive potential common shares 1,491 1,491 4,632 4,632 5,436
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 36,171 36,171 30,760 30,760 29,846
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Basic earnings per share $ 1.84 $ 2.08 $ 0.26 $ 1.74 $ 1.24
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted earnings per share $ 1.76 $ 2.00 $ 0.22 $ 1.47 $ 1.01
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
34
<PAGE>
(1) In the second quarter of 1998, the Company wrote off the remaining term
of a contract for computer services from a vendor. As a result the
Company recorded a non-recurring charge of $13.9 million ($8.3 million
net of tax benefit of $5.6 million) to write off the remaining payments
and related prepaid expense under this contract (see Note 1). In
addition, during the second quarter of 1998 the Company recorded an
extraordinary loss of $9.9 million ($5.9 million net of tax benefit of
$4.0 million) related to the early retirement of debt (see Notes 1 and
7).
(2) In the fourth quarter of 1997, the Company recognized the following
charges: (i) pre-tax non-recurring charges of $59.4 million ($35.5
million net of tax benefit of $23.9 million), (non-cash), (see Notes 1
and 11) and $5.3 million ($3.2 million net of tax benefit of $2.1
million), (cash) related to the vesting of stock options and the
termination of certain management advisory service agreements (see
Notes 1 and 13), 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 1).
7. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revolver $ 24,000 $ 256,000
Term Loans
Tranche A, due in installments until March 31, 2004 59,448 - -
Tranche A, due in installments until September 30, 2001 - - 97,524
Tranche B, due in installments until September 30, 2003 - - 51,275
8.375% Senior Subordinated Notes, due April 15, 2008 100,000 - -
12.75% Senior Subordinated Notes, due May 1, 2005 100,000 100,000
Mortgage at 9.4%, due September 1, 1999 1,832 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 304 579
--------- ---------
Subtotal 315,384 537,135
Less - current maturities (7,709) (44,267)
--------- ---------
Total $ 307,675 $ 492,868
--------- ---------
--------- ---------
</TABLE>
The prevailing prime interest rate at the end of 1998 and 1997 was 7.75% and
8.50%, respectively.
At December 31, 1998, the available credit under the Second Amended and Restated
Credit Agreement (the "Credit Agreement") included $59.4 million of term loan
borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving
loan borrowings (the "Revolving Credit Facility").
The Term Loan Facilities consisted initially of $150.0 million Tranche A term
loan facility ("Tranche A Facility") and a $100.0 million Tranche B term loan
facility ("Tranche B Facility"). The Company repaid a substantial portion of the
Tranche A Facility with proceeds from the June 1998 Equity Offering. As a
result, the Company recognized an extraordinary loss on the early retirement of
debt of $9.9 million ($5.9 million net of tax benefit of $4.0 million). Amounts
outstanding under the Tranche A Facility are to be repaid in 21 quarterly
installments ranging from $1.0 million at March 31, 1999 to $3.7 million at
March 31, 2004. All amounts outstanding under the Tranche B Facility have been
repaid as of April 15, 1998 with net proceeds from the sale of $100.0 million of
8.375% Senior Subordinated Notes and from a portion of the proceeds generated
from the sale of certain receivables under the Receivables Securitization
Program (see Note 5).
The Revolving Credit Facility is limited to $250.0 million, less the aggregate
amount of letter of credit liabilities, and contains a provision for swingline
loans in an aggregate amount up to $25.0 million. The Revolving Credit Facility
matures on March 31, 2004 and $24.0 million was outstanding at December 31,
1998.
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 domestic direct and
indirect subsidiaries of USSC, certain of the stock of Lagasse and Azerty and
certain of the foreign and direct and indirect subsidiaries of USSC (excluding
USS Receivables Company, Ltd.) and security interests and liens upon all
accounts receivable, inventory, contract rights and certain real property of
USSC and its domestic subsidiaries other than accounts receivables sold in
connection with the Receivables Securitization Program.
35
<PAGE>
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 Revolving Credit Facility
bear interest at prime to prime plus 0.75%, or, at the Company's option, the
London Interbank Offering Rate ("LIBOR") plus 1.00% to 2.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financing of this type.
At December 31, 1998, 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, 1998, the Company had interest rate collar
agreements expiring October 1999 on $200.0 million of borrowings at LIBOR rates
between 5.2% and 8.0%. For the years ended December 31, 1998, 1997, and 1996,
the Company recorded $0.2 million, $0.6 million, and $0.9 million, respectively,
to interest expense resulting from LIBOR rate fluctuations below the floor rate
specified in the collar agreements.
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 cash dividends and make other
distributions to United.
Debt maturities for the years subsequent to December 31, 1998 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Amount
- ---- ------
<S> <C>
1999 $ 7,709
2000 11,807
2001 14,337
2002 23,880
2003 18,401
Later years 239,250
---------
Total $ 315,384
---------
---------
</TABLE>
At December 31, 1998 and 1997, the Company had available letters of credit of
$53.4 million and $52.9 million, respectively, of which $49.4 million and $49.8
million, respectively, were outstanding.
12.75% SENIOR SUBORDINATED NOTES
The 12.75% Senior Subordinated Notes ("12.75% Notes") were originally issued
on May 3, 1995, pursuant to the 12.75% Notes Indenture. As of December 31,
1998, the aggregate outstanding principal amount of the 12.75% Notes was
$100.00 million. The 12.75% Notes are unsecured senior subordinated
obligations of USSC, and payment of the 12.75% Notes is fully and
unconditionally guaranteed by the Company and USSC's domestic "restricted"
subsidiaries on a senior subordinated basis. The 12.75% Notes mature on May
1, 2005, and bear interest at the rate of 12.75% per annum, payable
semi-annually on May 1 and November 1 of each year.
36
<PAGE>
In addition, the 12.75% 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 12.75% 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 12.75% Notes Indenture governing the 12.75% 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.
8.375% SENIOR SUBORDINATED NOTES
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April
15, 1998, pursuant to the 8.375% Notes Indenture. As of December 31, 1998,
the aggregate outstanding principal amount of 8.375% Notes was $100.0
million. The 8.375% Notes are unsecured senior subordinated obligations of
USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed
by the Company and USSC's domestic "restricted" subsidiaries that incur
indebtedness (as defined in the 8.375% Notes Indenture) on a senior
subordinated basis. The 8.375% Notes mature on April 15, 2008, and bear
interest at the rate of 8.375% per annum, payable semi-annually on April 15
and October 15 of each year.
The 8.375% 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 8.375%
Notes within 180 days following one or more Public Equity Offerings (as defined
in the 8.375% 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
8.375% 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 8.375% Notes remain outstanding after giving
effect to such redemption.
In addition, the 8.375% 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 May 1, Price
-------------------- ------------
<S> <C>
2003...................................................... 104.188%
2004...................................................... 102.792%
2005...................................................... 101.396%
</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 8.375% Notes
at 101% of the principal amount thereof, together with accrued
37
<PAGE>
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 8.375% Notes Indenture governing the 8.375% 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 8.375% Notes Indenture provides for the
issuance thereunder of up to $100.0 million aggregate principal amount of
additional 8.375% Notes having substantially identical terms and conditions to
the 8.375% Notes, subject to compliance with the covenants contained in the
8.375% Notes Indenture, including compliance with the restrictions contained in
the 8.375% Notes Indenture relating to incurrence of indebtedness.
8. 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, 1998 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>
1999 $ 25,982
2000 22,769
2001 18,963
2002 13,176
2003 8,448
Later years 27,129
--------
Total minimum lease payments $116,467
--------
--------
</TABLE>
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $22.8 million, $20.5
million, and $18.8 million in 1998, 1997, and 1996, respectively.
9. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
PENSION PLANS
As of December 31, 1998, 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' change in Projected Benefit Obligation
for the years ended December 31, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Benefit obligation at beginning of year $ 28,773 $ 23,556
Service cost 2,734 2,333
Interest cost 2,113 1,833
Amendments 346 245
Actuarial loss 4,043 1,527
Benefits paid (887) (721)
-------- --------
Benefit obligation at end of year $ 37,122 $ 28,773
-------- --------
-------- --------
</TABLE>
38
<PAGE>
The plans' assets consist of corporate and government debt securities and equity
securities. The following table sets forth the change in the plans' assets for
the years ended December 31, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Fair value of assets at beginning of year $ 33,562 $ 28,372
Actual return on plan assets 5,207 5,496
Company contributions 3,092 415
Benefits paid (887) (721)
-------- --------
Fair value of plan assets at end of year $ 40,974 $ 33,562
-------- --------
-------- --------
</TABLE>
The following table sets forth the plans' funded status at December 31, 1998 and
1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Funded status of the plan $ 3,852 $ 4,789
Unrecognized prior service cost 1,135 888
Unrecognized net actuarial gain (4,391) (6,020)
-------- --------
Prepaid pension asset (liability) recognized
in the Consolidated Balance Sheets $ 596 $ (343)
-------- --------
-------- --------
</TABLE>
Net periodic pension cost for 1998, 1997 and 1996 for pension and supplemental
benefit plans includes the following components (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost - benefit earned during the period $ 2,734 $ 2,333 $ 1,884
Interest cost on projected benefit obligation 2,113 1,833 1,652
Expected return on plan assets (2,648) (2,135) (2,006)
Amortization of prior service cost 99 77 33
Amortization of actuarial loss (243) (63) - -
------- ------- -------
Net periodic pension cost $ 2,055 $ 2,045 $ 1,563
------- ------- -------
------- ------- -------
</TABLE>
The assumptions used in accounting for the Company's defined benefit plans are
set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Assumed discount rate 6.75% 7.25% 7.50%
Rates of compensation increase 5.50% 5.50% 5.50%
Expected long-term rate of return on plan assets 7.50% 7.50% 7.50%
</TABLE>
DEFINED CONTRIBUTION
The Company has a defined contribution plan in which all salaried employees and
certain hourly paid employees are eligible to participate following the
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 of approximately $1.0 million in 1998 and 1997
to the United Stationers 401(k) Savings Plan on behalf of certain non-highly
compensated employees who are eligible for participation in the plan. Company
contributions for matching of employees' contributions were approximately $1.4
million, $1.0 million and $0.9 million in 1998, 1997 and 1996, respectively.
10. 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, deductible, co-payment provision and other limitations. Retirees
pay one-half of the projected plan costs. The following tables set forth the
plan's change in Accrued Postretirement Benefit Obligation ("APBO"), plan assets
and funded status for the years ended December 31, 1998 and 1997 (dollars in
thousands):
39
<PAGE>
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Benefit obligation at beginning of year $ 3,045 $ 2,583
Service cost 479 268
Interest cost 209 190
Plan participants' contributions 89 82
Actuarial loss 163 127
Benefits paid (237) (205)
--------- ---------
Benefit obligation at end of year $ 3,748 $ 3,045
--------- ---------
--------- ---------
Fair value of assets at beginning of year $ - - $ - -
Company contributions 148 123
Plan participants' contributions 89 82
Benefits paid (237) (205)
--------- ---------
Fair value of plan assets at end of year $ - - $ - -
--------- ---------
--------- ---------
Funded status of the plan $ (3,748) $ (3,045)
Unrecognized net actuarial gain (148) (415)
--------- ---------
Accrued postretirement benefit obligation
in the Consolidated Balance Sheets $ (3,896) $ (3,460)
--------- ---------
--------- ---------
</TABLE>
The cost of postretirement health care benefits for the years ended December 31,
1998, 1997 and 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 479 $ 268 $ 239
Interest cost 209 190 204
Amortization of actuarial loss (15) (15) - -
-------- -------- --------
Net periodic postretirement benefit cost $ 673 $ 443 $ 443
-------- -------- --------
-------- -------- --------
</TABLE>
The assumptions used in accounting for the Company's postretirement plan for the
three years presented are set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Assumed average health care cost trend 3.0% 3.0% 3.0%
Assumed discount rate 6.75% 7.25% 7.50%
</TABLE>
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 APBO, an increase in the
medical trend rate above 3% has no effect on the APBO. A 1% change in the
assumed health care cost trend rate would have the following effects (dollars
in thousands):
<TABLE>
<CAPTION>
1% Increase 1% Decrease
----------- -------------
<S> <C> <C>
Effect on the APBO as of December 31, 1998 $487 $(412)
Effect on total of service cost and
interest cost components in 1998 118 (100)
</TABLE>
11. STOCK OPTION PLAN
The Management Equity Plan (the "Plan") 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 3.0 million additional options
to key management employees and directors of the Company. During 1998 and 1997,
options of approximately 1.0 million and 0.5 million, respectively, were granted
to management employees and directors with option exercise prices equal to fair
market value.
40
<PAGE>
In September 1995, the Company's Board of Directors approved an amendment to the
Plan which provided for the issuance of options in connection with the Merger
("Merger Incentive Options") to key management employees of the Company
exercisable for up to 4.4 million additional shares of its Common Stock.
Subsequently, approximately 4.4 million options were granted during 1995 and
1996 to management employees. Some of the options were granted at an option
exercise price below market value and the option exercise price of certain
options increased by $0.31 on a quarterly basis effective April 1, 1996.
These Merger Incentive Options, which were performance-based, 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 1997 Equity Offering and all time varying exercise prices became fixed.
All Common Stock issued from the exercise of Merger Incentive Options was
subject to a six-month holding period that 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. Based on the closing stock price on October 10,
1997 of $19.56 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 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 to meet only the minimum statutory withholding requirement
(except in the case of incentive stock options).
The following table summarizes the transactions of the Plan for the last three
years:
<TABLE>
<CAPTION>
Management Equity Plan Weighted Average Weighted Average Weighted Average
(excluding restricted stock) 1998 Exercise Prices 1997 Exercise Prices 1996 Exercise Prices
- ---------------------------- ---------- ----------------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the period 3,597,794 $ 6.89 4,995,536 $ 5.81 4,061,992 $ 5.37
Granted 965,150 24.13 538,000 11.44 1,301,544 3.98
Exercised (2,303,666) 5.72 (1,693,742) 7.71 - - - -
Canceled (46,700) 22.89 (242,000) 7.38 (368,000) 3.82
----------- --------- ----------
Options outstanding at
end of the period 2,212,578 15.28 3,597,794 6.89 4,995,536 5.81
----------- --------- ----------
----------- --------- ----------
Number of options
exercisable 862,128 7.64 3,067,794 6.09 - - - -
----------- --------- ----------
----------- --------- ----------
</TABLE>
The following table summarizes information concerning outstanding options of the
Plan at December 31, 1998:
<TABLE>
<CAPTION>
Remaining
Exercise Number Contractual Number
Prices Outstanding Life (years) Exercisable
---------- ----------- ------------ -----------
<S> <C> <C> <C>
$ 0.73 72,000 3.09 72,000
2.56 62,500 3.74 62,500
8.44 627,628 3.74 627,628
10.81 500,000 8.00 100,000
22.13 30,000 8.87 - -
23.38 779,450 9.07 - -
24.13 62,000 9.09 - -
27.06 5,000 9.13 - -
30.56 8,000 9.36 - -
31.63 30,000 9.20 - -
33.06 30,000 9.61 - -
33.56 6,000 9.50 - -
--------- -------
Total 2,212,578 862,128
--------- -------
--------- -------
</TABLE>
41
<PAGE>
During 1996, the Company adopted the supplemental disclosure requirements of
SFAS No. 123. Accordingly, the Company is required to disclose pro forma net
income and earnings per share as if the fair value-based accounting method in
SFAS No. 123 had been used to account for stock-based compensation cost. The
Company's Merger Incentive Options granted under the Plan were considered "all
or nothing" awards because the options did not vest to the employee until the
occurrence of a Vesting Event. The fair value of "all or nothing" awards were
measured at the grant date; however, amortization of compensation expense began
when it was probable that the awards were vested. The October 1997 Equity
Offering constituted a Vesting Event; as a result, all Merger Incentive Options
vested and became exercisable by the optionees.
Options granted under the Plan during 1998 and 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 1998 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 1998, 1997 and 1996, net income and
earnings per share would have been adjusted as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income attributable to common stockholders:
As reported $ 58,018 $ 776 $ 30,249
Before charges 72,212(1) 45,364(2) 30,249
Pro forma 55,758 18,396 30,249
Net income per common share - basic:
As reported $ 1.67 $ 0.03 $ 1.24
Before charges 2.08(1) 1.74(2) 1.24
Pro forma 1.61 0.70 1.24
Weighted average shares outstanding 34,680 26,128 24,410
Net income per common share - diluted:
As reported $ 1.60 $ 0.03 $ 1.01
Before charges 2.00(1) 1.47(2) 1.01
Pro forma 1.54 0.60 1.01
Weighted average shares outstanding
and assumed conversions 36,171 30,760 29,846
</TABLE>
(1) The year ended December 31, 1998 reflects a write off of the remaining
term of a contract for computer services from a vendor. As a result, the
Company recorded a non-recurring charge of $13.9 million ($8.3 million
net of tax benefit of $5.6 million) to write off the remaining payments
and related prepaid expense under this contract (see Note 1). In
addition, during 1998 the Company recorded an extraordinary loss of $9.9
million ($5.9 million net of tax benefit of $4.0 million) related to the
early retirement of debt (see Notes 1 and 7).
(2) The year ended December 31, 1997 reflects non-recurring charges of
$59.4 million ($35.5 million net of tax benefit of $23.9 million),
(non-cash), (see Note 1) and $5.3 million ($3.2 million net of tax
benefit of $2.1 million), (cash) related to the vesting of stock
options and the termination of certain management advisory service
agreements (see Note 13). In addition, during 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 (see
Note 1).
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 1998, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ---------------- -----------------
<S> <C> <C> <C>
Fair value of options granted $14.58 $ 6.85 $ 8.84
Exercise price $24.13 $11.44 $ 4.30
Expected stock price volatility 59.0% 64.7% 80.7%
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 5.5% 6.4% 5.2%
Expected life of options 6 years 5 years 2 years
</TABLE>
42
<PAGE>
12. PREFERRED STOCK
The authorized capital shares of the Company include 15,000,000 shares of
preferred stock. The rights and preferences of preferred stock are established
by the Company's Board of Directors upon issuance. At December 31, 1998, the
Company had zero shares of preferred stock outstanding, all 15,000,000 shares
are specified as undesignated preferred stock. On September 2, 1997, pursuant to
a plan to provide for an equity offering, 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.
13. TRANSACTIONS WITH RELATED PARTIES
Prior to the fourth quarter of 1997, the Company had management advisory service
agreements with three investor groups. These investor groups provided certain
advisory services to the Company.
Pursuant to an agreement, Wingate Partners, L.P. ("Wingate Partners") had agreed
to provide certain oversight and monitoring services to the Company in exchange
for an annual fee of up to $725,000, payment (but not accrual) of which is
subject to restrictions under the former credit agreement related to certain
Company performance criteria. Wingate Partners earned an aggregate of $513,540
and $725,000 with respect to each of the years ended 1997 and 1996,
respectively, for such oversight and monitoring services. Under the agreement,
the Company was obligated to reimburse Wingate Partners for its out-of-pocket
expenses and indemnify Wingate Partners and its affiliates from loss in
connection with these services.
Pursuant to an agreement, Cumberland Capital Corporation ("Cumberland") had
agreed to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of
which is subject to restrictions under the former credit agreement related to
certain Company performance criteria. Pursuant to the agreement, Cumberland
earned an aggregate of $97,400 and $137,000 with respect to the years ended 1997
and 1996, respectively, for such oversight and monitoring services. The Company
also was obligated to reimburse Cumberland for its out-of-pocket expenses and
indemnify Cumberland and its affiliates from loss in connection with these
services.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") had an
agreement to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of
which is subject to restrictions under the former credit agreement related to
certain Company performance criteria. Pursuant to the agreement, Good Capital
earned an aggregate of $97,400 and $137,500 with respect to the years ended 1997
and 1996, respectively, for such oversight and monitoring services. The Company
also was 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.
14. INCOME TAXES
The provision for (benefit from) income taxes consists of the following (dollars
in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable -
Federal $ 34,281 $ 19,812 $ 14,724
State 8,403 4,811 3,532
---------- ---------- ----------
Total currently payable 42,684 24,623 18,256
Deferred, net -
Federal 3,508 (12,889) 4,614
State 872 (3,202) 685
---------- ---------- ----------
Total deferred, net 4,380 (16,091) 5,299
---------- ---------- ----------
Provision for income taxes $ 47,064 $ 8,532 $ 23,555
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
43
<PAGE>
The Company's effective income tax rates for the years ended December 31, 1998,
1997 and 1996 varied from the statutory Federal income tax rate as set forth in
the following table (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- --------------------------
% 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 $38,846 35.0% $ 5,852 35.0% $19,442 35.0%
State and local income taxes -
net of federal income tax
benefit 5,993 5.4 1,053 6.3 3,000 5.4
Non-deductible and other 2,225 2.0 1,627 9.7 1,113 2.0
------- ---- ------- ---- ------- ----
Provision for income taxes $47,064 42.4% $ 8,532 51.0% $23,555 42.4%
------- ---- ------- ---- ------- ----
------- ---- ------- ---- ------- ----
</TABLE>
The deferred tax assets and liabilities result from timing differences in the
recognition of certain income and expense items for financial and tax accounting
purposes. The sources of these differences and the related tax effects were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997
---------------------- ----------------------
Assets Liabilities Assets Liabilities
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Accrued expenses $24,254 $ - - $18,280 $ - -
Allowance for doubtful accounts 6,754 - - 8,632 - -
Inventory reserves and adjustments - - 17,201 - - 16,852
Depreciation and amortization - - 38,315 - - 41,588
Reserve for stock option compensation 3,902 - - 16,792 - -
Other 6,672 - - 5,720 - -
------- ------- ------- -------
Total $41,582 $55,516 $49,424 $58,440
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
In the Consolidated Balance Sheets, these deferred assets and liabilities are
classified on a net basis as current and non-current based on the classification
of the related asset or liability or the expected reversal date of the temporary
difference.
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, 1998, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $42,592 $49,279 $52,871
Income taxes 26,439 13,663 17,482
</TABLE>
44
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 19,038 $ 19,038 $ 12,367 $ 12,367
Current maturities of long-term
obligations and capital lease 7,709 7,709 44,267 44,267
Long-term debt and capital lease:
12.75% Subordinated Notes 100,000 111,500 100,000 114,750
8.375% Subordinated Notes 100,000 99,750 - - - -
All other 107,675 107,675 392,868 392,868
Interest rate collar - - 463 - - 387
</TABLE>
The fair value of the Notes and interest rate collar are based on quoted market
prices and quotes from counterparties, respectively.
17. SUMMARIZED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES
Azerty Incorporated, Positive ID Wholesale, and AP Support Services
(collectively, the "Azerty Guarantor") and Lagasse guarantee the 12.75%
Notes and the 8.375% Notes issued by USSC. The Azerty Guarantor and Azerty
de Mexico, S.A. de C.V. (collectively, the "Azerty Business") were acquired
on April 3, 1998.
Set forth below is summarized combined financial data for the Azerty Business
(subsequent to its acquisition by USSC) and Lagasse. Summarized combined
financial data as of December 31, 1998 reflect both Lagasse and the Azerty
Business. The summarized combined income statement data for the year ended
December 31, 1998 reflect the operations of Lagasse for the 12 months and
the Azerty Business, subsequent to its acquisition by USSC, for the nine months
ended December 31, 1998. Summarized financial data as of December 31, 1997, for
the 12 months ended December 31, 1997 and for the two months ended December
31, 1996 reflect Lagasse only.
<TABLE>
<CAPTION>
As of December 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Balance Sheet Data:
Current assets $ 175,745 $ 29,731
Total assets 293,914 68,766
Current liabilities 90,498 13,564
Total liabilities 90,560 18,490
<CAPTION>
Year Ended
December 31, Two Months Ended
------------------------------ December 31,
1998 1997 1996
------------- ------------- -------------------
<S> <C> <C> <C>
Income Statement Data:
Net sales $ 423,297 $ 97,275 $ 12,668
Gross margin 47,756 18,014 1,790
Operating income 17,254 7,976 173
Net income (loss) 9,799 4,190 (21)
</TABLE>
18. SUBSEQUENT EVENT
The Company announced on March 11, 1999, that its Board of Directors authorized
a share repurchase program of up to $50.0 million of the Company's Common
Stock, contingent upon approval by the Company's senior lenders. On March 17,
1999, the Company received approval from its senior lenders for the share
repurchase program. Purchases will be made from time to time in the open
market or in privately negotiated transactions.
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant had no disagreements on accounting and financial disclosure of
the type referred to in Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to those individuals who are
currently serving as members of the Board of Directors or as executive officers
of the Company on February 15, 1999:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frederick B. Hegi, Jr...... 55 Chairman of the Board of Directors
Randall W. Larrimore....... 51 Director, President and Chief Executive Officer
Daniel J. Good............. 58 Director
James A. Johnson........... 44 Director
Benson P. Shapiro.......... 57 Director
Joel D. Spungin............ 61 Director
Max D. Hopper.............. 64 Director
Roy W. Haley............... 52 Director
Daniel H. Bushell.......... 47 Executive Vice President, Chief Development Officer and
Chief Financial Officer
Steven R. Schwarz.......... 45 Executive Vice President and President, United Supply Division
Kathleen S. Dvorak......... 42 Vice President, Investor Relations and Assistant Secretary
Tom Helton................. 51 Vice President, Human Resources
Susan Maloney Meyer........ 55 Vice President, General Counsel and Secretary
James A. Pribel............ 45 Treasurer
Ergin Uskup................ 60 Vice President, Management Information Systems
and Chief Information Officer
</TABLE>
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There is no family relationship between any
directors or executive officers of the Company. Officers of the Company are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
FREDERICK B. HEGI, JR. was elected to the Board of Directors of United 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 Texas Capital Bancshares, Inc., a bank holding company, and Lone
Star Technologies, Inc. (NYSE), a diversified company engaged in the manufacture
of tubular products.
RANDALL W. LARRIMORE was elected to the Board of Directors of United and the
Company and became President and Chief Executive Officer of the Company on May
23, 1997. From February 1988 to May 1997, Mr. Larrimore had been President and
Chief Executive Officer of MasterBrand Industries, Inc., a manufacturer of
leading brands including Master Lock padlocks and Moen faucets, and a subsidiary
of Fortune Brands (formerly American Brands). Prior to that time, Mr. Larrimore
was President and Chief Executive Officer of Twentieth Century Companies, a
manufacturer of plumbing repair parts and a division of Beatrice Foods. Prior,
thereto he was Vice President of Marketing for Beatrice Home Specialties, the
operating parent of Twentieth Century. Fortune Brands acquired Twentieth Century
Companies and other Beatrice Divisions and subsidiaries in 1988. Before joining
Beatrice in 1983, Mr. Larrimore was with Richardson-Vicks, McKinsey & Company
and then with PepsiCo International. Mr. Larrimore serves as a director of Olin
Corporation, a diversified manufacturer of chemicals, metals, micro-electronic
materials and sporting ammunition. He also serves as a director of Evanston
Northwestern Healthcare and S.I.F.E., Students in Free Enterprise.
46
<PAGE>
DANIEL J. GOOD was elected to the Board of Directors of United 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 of Shearson Lehman Bros. and President of A.G. Becker
Paribas, Inc. Mr. Good serves as an advisory director of AON Risk Services,
Inc., COM2001 and as Chairman of the Advisory Board of Brown Simpson
Asset Management LLC.
MAX D. HOPPER has served as a Director of the company since August 1998. In
1995, he founded Max D. Hopper Associates, Inc., a consulting firm specializing
in creating benefits from the strategic use of advanced information systems. He
is the retired chairman of the SABRE Technology Group and served as Senior Vice
President for American Airlines, both units of AMR Corporation. Mr. Hopper
currently serves on the board of directors of Gartner Group, Inc., Metrocall,
Inc., USDATA Corporation, Inc., Payless Cashways, Inc., VTEL Corporation,
Worldtalk Corporation and Exodus Communications, Inc.
ROY W. HALEY was elected to the Board of Directors of United in March 1998. Mr.
Haley currently serves as Chairman and Chief Executive Officer of WESCO
International Inc. ("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 Cambrex, Corp. (NYSE), Development Dimensions, Inc.,
and The National Association of Electrical Distribution Education Foundation.
JAMES A. JOHNSON was elected to the Board of Directors of United 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 Pro Parts Xpress, a wholesale distributor of
automotive parts.
BENSON P. SHAPIRO was elected to the Board of Directors of United 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 consulting, public speaking,
and writing. He serves on Indus River Networks, Inc. and several advisory boards
for private companies.
JOEL D. SPUNGIN has served as a member of the Board of Directors of United since
1972 and prior to the consummation of the Merger was Chairman of the Board of
Directors and Chief Executive Officer of United since August 1988. From October
1989 until April 1991, he was also President of United. Prior to that, since
March 1987, Mr. Spungin was Vice Chairman of the Board and Chief Executive
Officer of United. Previously, since August 1981, Mr. Spungin was President and
Chief Operating Officer of United. He also serves as a general partner of DMS
Enterprises, L.P., a management advisory and investment partnership, and as a
director of AAR Corp., an aviation and aerospace company, and Home Products
International, Inc., a manufacturer of home improvement products.
DANIEL H. BUSHELL became Executive Vice President and Chief Financial Officer of
the Company upon consummation of the Merger. In January 1999, Mr. Bushell was
also named Chief Development Officer and has responsibility for exploring market
options and acquisitions, including international opportunities. Mr. Bushell has
served as Assistant Secretary of the Company since January 1996, and served as
Secretary of the Company from June 1995 through such date. Mr. Bushell also
served as Assistant Secretary of the Company from the consummation of the Merger
until June 1995. Prior thereto, Mr. Bushell had been Chief Administrative and
Chief Financial Officer of Associated and ASI since January 1992. From 1978 to
January 1992, Mr. Bushell served in various capacities with ACE Hardware
Corporation, most recently as Vice President of Finance.
STEVEN R. SCHWARZ became Executive Vice President of the Company upon
consummation of the Merger with primary responsibility for marketing and
merchandising. In January 1999, Mr. Schwarz was also named to the position of
President, United Supply Division which is the Company's core office supply
business. Prior thereto, he was Senior Vice President, Marketing of United
since June 1992 and had previously been Senior Vice President, General
Manager, Micro United since 1990 and Vice President, General Manager, Micro
United since September 1989. He had held a staff position in the same
capacity since February 1987.
KATHLEEN S. DVORAK became Vice President, Investor Relations in July 1997. Ms.
Dvorak began her career at United in 1982 and has held various positions with
increasing responsibility within the investor relations function. Most recently,
she was Director of Investor Relations of the Company.
47
<PAGE>
TOM HELTON became Vice President of Human Resources in February 1998. Prior to
joining United, Mr. Helton spent 11 years, from 1986 to 1997, at Whirlpool
Corporation where he held a variety of management and executive positions within
the human resource function. Most recently, he was Vice President of Human
Resources for Whirlpool Asia. From 1980 to 1986, Mr. Helton was with Kaiser
Aluminum and Chemical working in personnel and labor relations.
SUSAN MALONEY MEYER became Vice President, General Counsel and Secretary of the
Company in July 1998. Prior thereto, since 1991 Ms. Meyer was at General
Instrument Corporation, a broadband technology company, most recently serving as
Vice President, Secretary and Deputy General Counsel. From 1986 through 1991,
Ms. Meyer served as senior counsel for Beatrice Companies, Inc., a large
conglomerate in a wide variety of businesses.
JAMES A. PRIBEL became Treasurer of the Company upon consummation of the Merger.
Prior thereto he was Treasurer of United since 1992. Mr. Pribel previously had
been Assistant Treasurer of USSC since 1984 and had served in various positions
since joining USSC in 1978.
ERGIN USKUP became Vice President, Management Information Systems and Chief
Information Officer of the Company upon consummation of the Merger. Prior
thereto, he was Vice President, Management Information Systems and Chief
Information Officer of United since February 1994, and since 1987 had been Vice
President, Corporate Information Services for Baxter International Inc., a
global manufacturer and distributor of health care products.
The Charter provides that the Board of Directors shall be divided into three
classes, each class as nearly equal in number as possible, and each term
consisting of three years. The directors currently in each class are as follows:
Class I (having terms expiring in 1999)--Messrs. Good, Hopper, Johnson and
Spungin; Class II (having terms expiring in 2000)--Messrs. Hegi and Larrimore
and Class III (having terms expiring in 2001)--Messrs.
Haley and Shapiro.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 12, 1999, to be filed within 120 days
after the end of the Registrant's year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 12, 1999, to be filed within 120 days
after the end of the Registrant's year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 12, 1999, to be filed within 120 days
after the end of the Registrant's year.
48
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements, schedules and exhibits are filed as part
of this report:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(1) Financial Statements of the Company
Report of Independent Auditors....................................... 22
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.................................. 23
Consolidated Balance Sheets as of December 31, 1998 and 1997......... 24-25
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996.............. 26-27
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.................................. 28
Notes to Consolidated Financial Statements........................... 29-45
</TABLE>
(2) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Certificate of Ownership and Merger merging Associated Stationers,
Inc. into the Company(2).
2.2 Stock Purchase Agreement among USSC and Lagasse Bros., Inc and the
shareholders of Lagasse Bros., Inc. (Exhibit 99.1 to the Company's
Report on Form 8-K filed November 5, 1996)(3).
2.3 Stock Purchase Agreement, dated as of February 10, 1998, among the
Company, United, Abitibi-Consolidated Inc., Abitibi-Consolidated
Sales Corporation. Azerty Incorporated, Azerty de Mexico,S.A. de
C.V., AP Support Services Incorporated and Positive I.D. Wholesale
Inc. (Exhibit 2.1 to the Company's Report on Form 8-K filed April 20,
1998)(3).
3.1 Second Restated Certificate of Incorporation dated as of November 5,
1998.*
3.2 Amended and Restated Bylaws dated as of March 24, 1999.*
3.3 Restated Articles of Incorporation of USSC(6).
3.4 Restated Bylaws of USSC(7).
4.1 Second Supplemental Indenture, dated as of April 3, 1998, among the
Company, Lagasse Bros., Inc., Azerty Incorporated, Positive ID
Wholesale Inc., AP Support Services Incorporated, as guarantors, and
The Bank of New York, as trustee (Exhibit 4.1 to the Company's Report
on Form 8-K filed April 20, 1998)(3).
4.2 Indenture, dated as of April 15, 1998, among the Company, USSC as
issuer, Logasse Bros., Inc., Azerty Incorporated, Positive ID
Wholesale Inc., AP Support Services Incorporated, as guarantors, and
The Bank of New York, as trustee (Exhibit 4.1 to the Company's Report
on Form 8-K filed April 20, 1998)(3).
4.3 Indenture, dated as of May 3, 1995, among the Company, as guarantor,
USSC, as issuer, and The Bank of New York, as trustee(1).
4.4 First Supplemental Indenture, dated as of July 28, 1995, among the
Company, USSC and The Bank of New York(1).
4.5 Amendment No. 1 to Second Amended and Restated Credit Agreement
dated December 30, 1998.*
4.6 Amendment No. 2 to Second Amended and Restated Credit Agreement
dated March 17, 1999.*
10.1 Registration Rights Agreement, dated as of January 31, 1992, between the
Company and CMIH (included in Exhibit 10.4, Annex 2).
10.2 Amendment No. 1 to Registration Rights Agreement, dated as of March 30,
1995, among the Company, CMIHI and certain other holders of Lender
Warrants(1).
10.3 Amended and Restated Registration Rights Agreement, dated as of March
30, 1995, among the Company, Wingate Partners L.P., Cumberland Capital
Corporation, Good Capital Co., Inc. and certain other Company
stockholders(1).
10.4 Warrant Agreement, dated as of January 31, 1992, among the Company, USSC
and CMIH(1).
10.5 Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992,
among the Company, USSC, CMIH and the other parties thereto(1).
10.6 Investment Banking Fee and Management Agreements, dated as of January
31, 1992, among the Company, USSC and each of Wingate Partners, L.P.,
Cumberland Capital Corporation and Good Capital Co., Inc.(1)
10.7 Amendment No. 1 to Investment Banking Fee and Management Agreements,
dated as of March 30, 1995, among the Company, USSC and each of
Wingate Partners, L.P., Cumberland Capital Corporation and Good
Capital Co., Inc.(1).
10.8 Termination Agreements, dated as of October 31, 1997, terminating the
Investment Banking Fee and Management Agreements, among the Company,
USSC and each of Wingate Partners, L.P., Cumberland Capital
Corporation, and Good Capital Co., Inc.(1)
10.9 Amendment No. 4 to Warrant Agreement, effective as of July 7, 1997,
among the Company, USSC, CMIH and the other parties thereto(5).
10.10 Warrant Agreement, dated as of January 31, 1992, between the Company and
Boise Cascade Corporation(1).
10.11 Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995,
between the Company and Boise Cascade Corporation(1).
10.12 Indenture, dated as of May 3, 1995, among USSC, the Company and The Bank
of New York(1).
10.13 First Supplemental Indenture, dated as of July 28, 1995, among USSC, the
Company, and The Bank of New York(1).
10.14 Investment Banking Fee and Management Agreements, dated as of January
31, 1992, among the Company, USSC and each of Wingate Partners,
Cumberland and Good Capital Co., Inc.(1).
10.15 Amendment No. 1 to Investment Banking Fee and Management Agreements,
dated as of March 30, 1995, among USSC, the Company and each of Wingate
Partners, Cumberland and Good Capital Co., Inc.(1).
49
<PAGE>
10.16 Termination Agreements, dated as of October 31, 1997, terminating the
Investment Banking Fee and Management Agreements among the Company,
USSC and each of Wingate Partners L.P., Cumberland Capital
Corporation and Good Capital Co., Inc.(8).
10.17 Amendment No. 4 to Management Equity Plan, dated as of August 19,
1997(5).**
10.18 United Stationers Inc. Management Equity Plan, as amended through August
19, 1997(5).**
10.19 Letter Agreements, dated as of January 31, 1992, between the Company (as
successor-in-interest to Associated) and each of Michael D. Rowsey,
Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J.
Ratay and Daniel H. Bushell regarding grants of stock options(1).
10.20 Amendment to Stock Option Grants, dated as of March 30, 1995, between
the Company and each of Michael D. Rowsey, Robert W. Eberspacher,
Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay and Daniel H.
Bushell(1).
10.21 Forms of Stock Option Agreements dated October 2, 1995, granting options
to certain management employees(4).**
10.22 Forms of Amendments to Stock Option Grants, dated September 29, 1995,
between the Company and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller, Daniel J. Schleppe and Daniel H.
Bushell(4).**
10.23 Stock Option Agreements dated as of January 1, 1996, between the Company
and Thomas W. Sturgess, granting options(4).**
10.24 Executive Stock Purchase Agreements, dated as of January 31, 1992,
among the Company, Wingate Partners L.P., ASI Partners, L.P. and each
of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and
Daniel J. Schleppe(1).
10.25 First Amendments to Executive Stock Purchase Agreements, dated as of
March 30, 1995, among the Company, Wingate Partners L.P., ASI
Partners, L.P. and each of Michael D. Rowsey, Robert W. Eberspacher,
Lawrence E. Miller and Daniel J. Schleppe(1).
10.26 Management Incentive Plan for 1996(4).**
10.27 Management Incentive Plan for 1997 (Exhibit 10.39 to Company's Report on
Form 10-K dated March 26, 1997)(3).**
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.28 1997 Special Bonus Plan (Exhibit 10.40 to the Company's Report on Form
10-K dated March 26, 1997)(3).**
10.29 United Stationers 401(k) Savings Plan, restated as of March 1, 1996
(Exhibit 10.45.1 to the Company's Report on Form 10-K dated March 26,
1997)(3).**
10.30 United Stationers Supply Co. Pension Plan as amended (See the Company's
Reports on Form 10-K for the fiscal years ended August 31, 1985, 1986,
1987 and 1989)(3).**
10.31 Amendment to Pension Plan adopted February 10, 1995(2).**
10.32 One Time Merger Integration Bonus Plan(4).**
10.33 Amended and Restated Employment and Consulting Agreement dated April 15,
1993 among the Company, USSC and Joel D. Spungin (Exhibit 10(b) to the
Company's Report on Form 10-K dated November 22, 1993)(3).**
10.34 Amendment dated February 13, 1995 to the Amended and Restated Employment
and Consulting Agreement among the Company, USSC and Joel D.
Spungin(2).**
10.35 Severance Agreement between the Company, USSC and James A. Pribel dated
February 13, 1995(2).**
10.36 Letter Agreement dated February 13, 1995 between the Company and Ergin
Uskup(2).
10.37 Employment Agreements dated October 1, 1995 between USSC and each of
Daniel H. Bushell, Michael D. Rowsey, Steven R. Schwarz, Robert H.
Cornell, Ted S. Rzeszuto and Al Shaw(4).**
10.38 Employment Agreement dated November 1, 1995 between USSC and Otis H.
Halleen(4).**
10.39 Employment Agreement dated as of January 1, 1996 between the Company,
USSC and Thomas W. Sturgess(4).**
10.40 Deferred Compensation Plan. (Exhibit 10(f) to the Company's Annual
Report on Form 10-K dated October 6, 1994)(3).**
10.41 Letter Agreement dated November 29, 1995 granting shares of restricted
stock to Joel D. Spungin(4).**
10.42 Lease Agreement, dated as of March 4, 1988, between Crow-Alameda Limited
Partnership and Stationers Distributing Company, Inc., as amended(1).
10.43 Industrial Real Estate Lease, dated as of May 17, 1993, among Majestic
Realty Co. and Patrician Associates, Inc., as landlord, and United
Stationers Supply Co., as tenant(1).
10.44 Standard Industrial Lease, dated as of March 15, 1991, between Shelley
B. & Barbara Detrik and Lynn Edwards Corp.(1).
10.45 Lease Agreement, dated as of January 12, 1993, as amended, among
Stationers Antelope Joint Venture, AVP Trust, Adon V. Panattoni and
Yolanda M. Panattoni, as landlord, and United Stationers Supply Co., as
tenant(1).
10.46 Lease, dated as of February 1, 1993, between CMD Florida Four Limited
Partnership and United Stationers Supply Co., as amended(1).
10.47 Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
50
<PAGE>
10.48 First Amendment to Industrial Lease dated January 23, 1997 between
ERI-CP, Inc. (successor to Carol Point Builders I) and United Stationers
Supply Co. (successor to Associated Stationers, Inc.)(5).
10.49 Lease, dated March 22, 1973, between National Boulevard Bank of Chicago,
as trustee under Trust Agreement dated March 15, 1973 and known as Trust
No. 4722, and USSC, as amended(1).
10.50 Lease Agreement, dated July 20, 1993, between OTR, acting as the duly
authorized nominee of the Board of the State Teachers Retirement System
of Ohio, and United Stationers Supply Co., as amended(1).
10.51 Lease Agreement, dated as of December 20, 1988, between Corporate
Property Associates 8, L.P., and Stationers Distributing Company, Inc.,
as amended(1).
10.52 Industrial Lease, dated as of February 22, 1988, between Northtown Devco
and Stationers Distributing Company, as amended(1).
10.53 Lease, dated as of April 17,1989, between Isaac Heller and USSC, as
amended(1).
10.54 Lease Agreement, dated as of May 10, 1984, between Westbelt Business
Park Joint Venture and Boise Cascade Corporation, as amended(1).
10.55 Fourth Amendment to Lease between Keystone-Ohio Property Holding Corp.
(as successor to Westbelt Business Park) and USSC (as successor to
Associated Stationers, Inc.) dated December 3, 1996(5).
10.56 Lease effective March 1, 1997 between Davis Partnership and USSCO*.
10.57 Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.58 Lease Agreement, dated as of March 31, 1978, among Gillich O. Traughber
and J.T. Cruin, Joint Venturers, and Boise Cascade Corporation, as
amended(1).
10.59 Lease Agreement, dated November 7, 1988, between Delware II Associates
and Stationers Distributing Company, Inc., as amended(1).
10.60 Lease Agreement, dated November 7, 1988, between Central East Dallas
Development Limited Partnership and Stationers Distributing Company,
Inc., as amended(1).
10.61 Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing Company,
Inc., as amended(1).
10.62 Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.63 Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
10.64 Lease Agreement, dated as of July 1994, between Bettilyon Mortgage Loan
Company and USSC(1).
10.65 Agreement of Lease, dated as of January 5, 1994, between the Estate of
James Campbell, deceased, and USSC(1).
10.66 Amendment No. 2 to Agreement of Lease dated February 1, 1997 between the
Estate of James Campbell, deceased, and USSC(8).
10.67 Lease Agreement dated January 5, 1996, between Robinson Properties, L.P.
and USSC(4).
10.68 Agreement for Data Processing Services, dated January 31, 1992, between
USSC (as successor-in-interest to ASI) and Affiliated Computer Services,
Inc.(1).
10.69 Amended and Restated First Amendment to Agreement for Data Processing
Services, dated as of August 29, 1995, between USSC and Affiliated
Computer Services, Inc.(1).
10.70 Stock Purchase Agreement between United Stationers Supply Co. and
Lagasse Bros., Inc. ("Lagasse") and Kevin C. Lagasse, Cynthia Lagasse,
David C. Lagasse, Linette Lagasse Abadie, Clinton G. Lagasse, Raymond J.
Lagasse and Rickey Lagasse, being all of the shareholders of Lagasse
(Exhibit 99.1 to Registrant's Report on Form 8-K filed November 5,
1996)(3).
10.71 Amended and Restated Credit Agreement dated October 31, 1996 (amending
and restating the Credit Agreement dated as of March 30, 1995)(Exhibit
99.2 to Registrant's Report on Form 8-K filed November 5, 1996)(3).
10.72 USI Employee Benefits Trust Agreement dated March 21, 1995 between the
Company and American National Bank and Trust Company of Chicago as
Trustee(2).
10.73 Certificate of Insurance covering directors' and officers' liability
insurance effective March 30, 1996 through April 1, 1997(8).
10.74 Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 1997 through April 1, 1998(5).
10.75 Amendment to Medical Plan Document for the Company(2).**
10.76 The Company Severance Plan, adopted February 10, 1995(2).**
10.77 Securities Purchase Agreement, dated as of July 28, 1995, among the
Company, Boise Cascade, Wingate Partners, Wingate II, Wingate
Affiliates, Wingate Affiliates II, ASI Partners III, L.P., the Julie
Good Mora Grantor Trust and the Laura Good Stathos Grantor Trust(2).
10.78 Amendment dated February 23, 1996 to Option Agreements between the
Company and Thomas W. Sturgess (Exhibit 10.110 to the Company's Report
on Form 10-K dated March 28, 1996)(3).**
10.79 Amendment No. 3 to United Stationers Inc. Management Equity Plan, dated
as of September 27, 1995 (Exhibit 10.111 to the Company's Report on Form
10-K dated March 28, 1996(3).**
51
<PAGE>
10.80 Amendment No. 2 dated March 5, 1996 to Stock Option Agreements between
the Company and Thomas W. Sturgess (Exhibit 10.112 to the Company's
Report on Form 10-K dated March 28, 1996)(3).**
10.81 Amendment to Employment Agreement dated March 5, 1996 between the
Company, USSC and Thomas W. Sturgess (Exhibit 10.113 to the Company's
Form 10-K dated March 28, 1996)(3).**
10.82 Employment Agreement dated as of May 23, 1997 between the Company, USSC
and Randall W. Larrimore(5).**
10.83 Employment Agreements dated as of June 1, 1997 between USSC and each of
Daniel H. Bushell, Michael D. Rowsey and Steven R. Schwarz(5).**
10.84 Lease dated as of October 20, 1997 between Ozburn-Hessey Storage Co. and
USSC(8).
10.85 United Stationers Inc. Non-employee Directors' Deferred Stock
Compensation Plan(8).**
10.86 Amendments to Stock Option Grants, dated as of June 1, 1997, between
United and each of Daniel H. Bushell, Michael D. Rowsey and Steven R.
Schwarz(5).**
10.87 Second Amended and Restated Credit Agreement, dated April 3, 1998,
among United, the Company, the lenders parties thereto, Chase Securities
Inc., as arranger, and the Chase Manhattan Bank, as agent (Exhibit 10.1
to the Company's Report on Form 8-K filed April 20, 1998)(3).
10.88 Second Amended and Restated Security Agreement, dated April 3, 1998,
between the Company and the Chase Manhattan Bank, as administrative
agent (Exhibit 10.2 to the Company's Report on Form 8-K filed
April 20, 1998)(3).
10.89 Subsidiary Guarantee and Security Agreement, dated April 3, 1998,
among Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc., AP Support Services Incorporated and the Chase Manhattan Bank,
as administrative agent (Exhibit 10.3 to the Company's Report on Form
8-K filed April 20, 1998)(3).
10.90 Pooling Agreement, dated April 3, 1998, among USS Receivables
Company, Ltd., the Company, as servicer, and The Chase Manhattan Bank,
as trustee (Exhibit 10.4 to the Company's Report on Form 8-K filed
April 20, 1998)(3).
10.91 Receivables Sale Agreement, dated as of April 3, 1998, among the
Company, as seller, USS Receivables Company, Ltd., and the Company,
as servicer (Exhibit 10.6 to the Company's Report on Form 8-K filed
April 20, 1998(3).
10.92 Servicing Agreement, dated as of April 3, 1998, among USS Receivables
Company, Ltd., the Company, as servicer, and the Chase Manhattan
Bank, as trustee (Exhibit 10.7 to the Company's Report on Form 8-K
filed April 20, 1998(3).
10.93 Certificate of Insurance covering directors' and officers' liablity
insurance effective April 1, 1998 through April 1, 2000(9).
10.94 Lease Agreement, dated as of October 12, 1998, between Corum Carol
Stream Associates, LLC and USSC.*
10.95 Management Incentive Plan for 1998.(*)(**)
10.96 Restated Management Equity Plan as of November 5, 1998.(*)(**)
10.97 Severance Agreement between the Company, USSC and Michael Rowsey and
Cynthia Rowsey, dated as of January 1, 1999.*
10.98 Warrant Purchase Agreement between the Company and ASI Partners III,
L.P. dated December, 1998.(*)(**)
21 Subsidiaries of the issuer.*
23.1 Consent of Ernst & Young LLP, independent auditors.*
27.1 Financial Data Schedule for United Stationers Inc. (EDGAR filing only)*.
27.2 Financial Data Schedule for United Stationers Supply Co. (EDGAR filing
only)*.
</TABLE>
- --------------------------------------------------------------------------------
* Filed herewith.
** Compensatory Plan Arrangement.
(1) Incorporated by reference to USSC's Form S-1 (No. 33-59811), as amended,
initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated February
21, 1995.
(3) Incorporated by reference to other prior filings of the Company as
indicated.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-01089) as
filed with the Commission on February 20, 1996.
<PAGE>
(5) Incorporated by reference to the Company's Form S-2 (No. 333-34937) as
filed with the Commission on October 3, 1997.
(6) Adopted March 24, 1999.
(7) Incorporated by reference to United's Form S-1 (No. 33-59811), as
amended, initially filed with the Commission on June 12, 1995.
(8) Incorporated by reference to United's Form 10-K initially filed with
the Commission on March 12, 1998.
(9) Incorporated by reference to United's Form S-4 initially filed with
the Commission on June 12, 1998.
B) Reports on Form 8-K filed by the Registrant were as follows:
The Company filed a report on Form 8-K on December 31, 1998, reporting
under Item 5 the resignation of Michael D. Rowsey from Executive Vice
President and the Board of Directors of the Company.
For the purpose of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statement on Form S-8 No. 333-37665
(filed October 10, 1997).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED STATIONERS INC.
BY: /s/ Daniel H. Bushell
------------------------------------
Daniel H. Bushell
Executive Vice President,
Chief Development Officer and
Chief Financial Officer
(principal accounting officer)
Dated: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Frederick B. Hegi, Jr. Chairman of the Board of Directors March 29, 1999
- ----------------------------
Frederick B. Hegi, Jr.
/s/ Randall W. Larrimore President, Chief Executive Officer
- ---------------------------- and Director March 29, 1999
Randall W. Larrimore
/s/ Daniel J. Good Director March 29, 1999
- ----------------------------
Daniel J. Good
/s/ Roy W. Haley Director March 29, 1999
- ----------------------------
Roy W. Haley
/s/ Max D. Hopper Director March 29, 1999
- ----------------------------
Max D. Hopper
/s/ James A. Johnson Director March 29, 1999
- ----------------------------
James A. Johnson
/s/ Benson P. Shapiro Director March 29, 1999
- ----------------------------
Benson P. Shapiro
/s/ Joel D. Spungin Director March 29, 1999
- ----------------------------
Joel D. Spungin
</TABLE>
53
<PAGE>
EXHIBIT 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
UNITED STATIONERS INC.
United Stationers Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
A. The Corporation's original certificate of incorporation was filed
under the name United Stationers Inc. in the office of the Secretary of State of
Delaware on August 18, 1981.
B. This Second Restated Certificate of Incorporation restates and
integrates and does not further amend the Certificate of Incorporation of the
Corporation as heretofore amended and supplemented, and there is no discrepancy
between those provisions and the provisions of this Second Restated Certificate
of Incorporation.
C. This Second Restated Certificate of Incorporation was duly adopted
by the Board of Directors of the Corporation in accordance with Section 245 of
the General Corporation Law of the State of Delaware.
D. The text of the Second Restated Certificate of Incorporation is as
follows:
FIRST: The name of the corporation is:
UNITED STATIONERS INC.
SECOND: The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington 19801, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation are:
1. To acquire by purchase, subscription or otherwise, and to own,
hold, sell, negotiate, assign, hypothecate, deal in, exchange, transfer,
mortgage, pledge or otherwise dispose of, alone or in syndicate or otherwise in
conjunction with others, any shares of the capital stock, scrip, rights,
participating certificates, certificates of interest, or any voting trust
certificates in respect of the shares of capital stock of, or any bonds,
mortgages, securities, evidences of indebtedness, acceptances, commercial paper,
choses in action, and obligations of every kind and description (all of the
foregoing being hereinafter sometimes called "securities") issued or created by
any public, quasi-public or private corporation, joint stock company,
association, partnership, common law trust, firm or individual, or of any
combinations, organizations or entities whatsoever, irrespective of their forms
or the names by which they may be described, or of the Government of the United
States of America, or any foreign government, or of any state,
1
<PAGE>
territory, municipality or other political subdivision, or of any government
agency; and to issue in exchange therefor, in the manner permitted by law,
shares of the capital stock, bonds or other
2
<PAGE>
obligations of the Corporation; and while the holder or owner of any such
securities, to possess and exercise in respect thereof any and all rights,
powers and privileges of ownership, including the right to vote thereon; and, to
the extent now or hereafter permitted by law, to aid by loan, guarantee or
otherwise those issuing, creating or responsible for any such securities; and to
do any and all lawful things designed to protect, preserve, improve or enhance
the value of any such securities.
2. To carry on and conduct any and every kind of manufacturing,
distribution and service business; to manufacture, process, fabricate, rebuild,
service, purchase or otherwise acquire, to design, invent or develop, to import
or export, and to distribute, lease, sell, assign or otherwise dispose of and
generally deal in and with raw materials, products, goods, wares, merchandise
and real and personal property of every kind and character; and to provide
services of every kind and character.
3. To conduct any lawful business, to exercise any lawful purpose and
power, and to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
4. In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of the State of Delaware or by any other
law of Delaware or by this certificate of incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the Corporation.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 120,000,000 shares,
consisting of (a) 15,000,000 shares of a class designated as Preferred Stock,
par value $0.01 per share (the "Preferred Stock"), (b) 100,000,000 shares of a
class designated as Common Stock, par value $0.10 per share (the "Common
Stock"), and (c) 5,000,000 shares of a class designated as Nonvoting Common
Stock, par value $0.01 per share (the "Nonvoting Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock, Common Stock and Nonvoting
Common Stock are as follows:
1. PROVISIONS RELATING TO THE PREFERRED STOCK.
(a) The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have
such designations and powers, preferences, and rights, and
qualifications, limitations, and restrictions thereof, as are stated
and expressed herein and in the resolution or resolutions providing for
the issue of such class or series adopted by the board of directors of
the Corporation as hereafter prescribed.
3
<PAGE>
(b) Authority is hereby expressly granted to and vested in the
board of directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series, and
with respect to each class or series of the Preferred Stock to fix and
state by the resolution or resolutions from time to time adopted
providing for the issuance thereof the following:
(i) whether or not the class or series is to have
voting rights, full, special, or limited, or is to be without
voting rights, and whether or not such class or series is to
be entitled to vote as a separate class either alone or
together with the holders of one or more other classes or
series of stock;
(ii) the number of shares to constitute the class or
series and the designations thereof;
(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any,
with respect to any class or series;
(iv) whether or not the shares of any class or series
shall be redeemable at the option of the Corporation or the
holders thereof or upon the happening of any specified event,
and, if redeemable, the redemption price or prices (which may
be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and
conditions upon which, such shares shall be redeemable and the
manner of redemption;
(v) whether or not the shares of a class or series
shall be subject to the operation of retirement or sinking
funds to be applied to the purchase or redemption of such
shares for retirement, and, if such retirement or sinking fund
or funds are to be established, the annual amount thereof, and
the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable
in cash, stock of the Corporation, or other property,
conditions upon which and the times when such dividends are
payable, the preference to or the relation to the payment of
dividends payable on any other class or classes or series of
stock, whether or not such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which
such dividends shall accumulate;
(vii) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall
be entitled to receive upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
(viii) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof
or upon the happening of any specified event, shall be
convertible into or exchangeable for, the shares of any other
class or classes or of any other series of the same or any
other class or classes of stock,
4
<PAGE>
securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or
rates at which such exchange may be made, with such
adjustments, if any, as shall be stated and expressed or
provided for in such resolution or resolutions; and
(ix) such other special rights and protective
provisions with respect to any class or series as may to the
board of directors of the Corporation seem advisable.
(c) The shares of each class or series of the Preferred Stock
may vary from the shares of any other class or series thereof in any or
all of the foregoing respects. The board of directors of the
Corporation may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to
such class or series authorized and unissued shares of the preferred
Stock not designated for any other class or series. The board of
directors of the Corporation may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a
resolution subtracting from such class or series authorized and
unissued shares of the preferred Stock designated for such existing
class or series, and the shares so subtracted shall become authorized,
unissued, and undesignated shares of the Preferred Stock.
2. PROVISIONS RELATING TO THE COMMON STOCK AND NONVOTING COMMON STOCK.
(a) IDENTICAL RIGHTS. Except as otherwise provided in this
Article FOURTH, all shares of Common Stock and Nonvoting Common Stock
shall be identical and shall entitle the holder thereof to the same
rights and privileges.
(b) DIVIDENDS. From and after the date of issuance, the
holders of outstanding shares of Common Stock and Nonvoting Common
Stock shall be entitled to receive dividends on the shares of Common
Stock and Nonvoting Common Stock when, as, and if declared by the board
of directors, out of funds legally available for such purpose. All
holders of shares of Common Stock and Nonvoting Common Stock shall
share ratably, in accordance with the numbers of shares held by each
such holder, in all dividends or distributions on shares of Common
Stock payable in cash, in property or in securities of the Corporation
(other than shares of Common Stock). All dividends or distributions
declared on shares of Common Stock and Nonvoting Common Stock which are
payable in shares of Common Stock or Nonvoting Common Stock shall be
declared on both classes of shares at the same rate, provided that any
such dividend or distribution shall be payable in shares of the class
of Common Stock or Nonvoting Common Stock held by the stockholder to
whom the dividend or distribution is payable.
(c) STOCK SPLITS, ETC. The Corporation shall not in any manner
subdivide (by stock split, stock dividend, or otherwise), or combine
(by reverse stock split, or otherwise) the outstanding shares of Common
Stock or Nonvoting Common Stock unless the outstanding shares of the
other class shall be proportionately subdivided or combined. No
reclassification or any other adjustment or modification of the rights
or preferences shall be effected (including without limitation pursuant
to a merger, consolidation or liquidation involving the Corporation)
with respect to either the Common Stock or the Nonvoting Common Stock
unless both the Common Stock and Nonvoting Common
5
<PAGE>
Stock are reclassified or the rights or preferences are adjusted or
modified in exactly the same manner and at the same time. In this
regard, and without limiting the generality of the foregoing, in the
case of any consolidation or merger of the Corporation with or into any
other entity (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the Common
Stock), or in case of any sale or transfer of all or substantially all
the assets of the Corporation, or the reclassification of the Common
Stock into any other form of capital stock of the Corporation, whether
in whole or in part, each share of Nonvoting Common Stock shall, after
such consolidation, merger, sale, or transfer or reclassification, be
converted into the kind and amount of shares of stock and other
securities and property which such holder would have been entitled to
receive upon such consolidation, merger, sale, or transfer or
reclassification if such holder had held such Common Stock issuable
upon the conversion of such share of Nonvoting Common Stock immediately
prior to such consolidation, merger, sale, or transfer or
reclassification; provided, however, that no such shares of stock or
other securities into which shares of Nonvoting Common Stock are so
converted shall have any voting rights whatsoever.
(d) LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the
Corporation, the holders of shares of Common Stock and Nonvoting Common
Stock shall be entitled to share ratably, in accordance with the number
of shares held by each such holder, in all of the assets of the
Corporation available for distribution to the holders of shares of
Common Stock.
(e) VOTING RIGHTS. Except as otherwise provided herein or by
law, the entire voting power of the Corporation shall be vested in the
holders of shares of Common Stock and each holder of shares of Common
Stock shall be entitled to one vote for each share of Common Stock held
of record by such holder; provided that, without the consent of the
holders of record of at least 5l% of Nonvoting Common Stock at the time
outstanding (assuming, for the purposes of this provision, that the
holders of rights to acquire shares of Nonvoting Common Stock shall be
deemed to be the holders of the shares of Nonvoting Common Stock which
are at the time issuable upon the full exercise thereof whether or not
such holders are then entitled to exercise such rights pursuant to the
terms thereof), given in writing or by the vote at any regular or
special meeting of stockholders of the Corporation, the Corporation
shall not:
(i) amend, alter, modify, or repeal any provision of
this certificate of incorporation or the by-laws of the
Corporation in any manner which adversely affects the relative
rights, preferences, qualifications, powers, limitations or
restrictions of the Nonvoting Common Stock, or amend, alter,
modify, or repeal this Section 2(e);
(ii) increase or decrease the authorized number of
shares of any class of capital stock of the Corporation or
authorize, issue, or otherwise create securities convertible
into or exercisable for any shares of capital stock of the
Corporation other than the shares of Common Stock and
Nonvoting Common Stock authorized hereunder and the shares of
Series A, Series B, and Series C Preferred Stock designated in
that certain Certificate of the Powers, Designations,
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Preferences, and Rights of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock dated
March 30, 1995;
(iii) voluntarily effect an exchange or
reclassification of shares of Nonvoting Common Stock into
shares of another class of capital stock of the Corporation,
or
(iv) effect a merger or consolidation of the
Corporation with another corporation, unless the certificate
or articles of incorporation of the surviving corporation
shall provide that the shares of the capital stock of such
surviving corporation into which the shares of Nonvoting
Common Stock hereunder shall be converted shall have the
identical rights and privileges as the shares of capital stock
of such surviving corporation into which the shares of Common
Stock hereunder shall be converted, other than the voting
rights in this Section 2(e) and the conversion and other
rights in Section 3 below which shall not be adversely
affected by such merger or consolidation.
3. CONVERSION.
(a) RIGHT TO CONVERSION. Subject to and upon compliance with
the provisions of this Section 3, any holder of shares of Nonvoting
Common Stock shall be entitled at any time and from time to time to
convert each share of Nonvoting Common Stock held by such holder into a
share of Common Stock at the conversion rate of one share of Common
Stock for one share of Nonvoting Common Stock.
(b) PROCEDURE. The conversion of any shares of Nonvoting
Common Stock into shares of Common Stock shall be effected by the
holder of the shares of Nonvoting Common Stock to be converted
surrendering the certificate therefor, duly endorsed, at the office of
the Corporation or of any transfer agent for the shares of Common Stock
or at such other place as the Corporation is willing to accept such
surrender accompanied by written notice to the Corporation at such
office or other place that it elects to so convert and stating the
number of shares of Nonvoting Common Stock being converted. Thereupon
the Corporation shall promptly issue and deliver at such office or
other place to such holder a certificate or certificates for the number
of shares of Common Stock to which such holder is entitled, registered
in the name of such holder or a designee of such holder as specified in
such notice. Such conversion shall be deemed to have been made at the
close of business on the date of such surrender of the shares to be
converted in accordance with the procedure set forth in the first
sentence of this Section 3 (b) and the Person entitled to receive the
shares issuable upon such conversion shall be treated for all purposes
as having become the record holder of such shares at such time. In the
event of the conversion of less than all of the shares of Nonvoting
Common Stock into shares of Common Stock evidenced by the certificate
so surrendered, the Corporation shall execute and deliver to or upon
the written order of such holder, without charge to such holder, a new
certificate evidencing the shares of Nonvoting Common Stock not
converted.
(c) RESERVATION. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common
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Stock, or any shares of Common Stock held in its treasury, solely for
the purpose of issue upon conversion of the shares of Nonvoting Common
Stock as provided herein, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding shares of
Nonvoting Common Stock. The shares of Common Stock so issuable shall
when so issued be duly and validly issued, fully paid, and
nonassessable.
(d) CERTAIN LEGAL REQUIREMENTS. No person subject to the
provisions of Regulation Y shall, and no such Person shall permit any
of its Bank Holding Company Affiliates to, convert any shares of
Nonvoting Common Stock held by it into shares of Common Stock, and the
Corporation shall not be required to convert any such shares of
Nonvoting Common Stock, if after giving effect to such conversion, (i)
such Person and its Bank Holding company Affiliates would own more than
5% of the total issued and outstanding shares of Common Stock or (ii)
such Person would Control the Corporation (and, for purposes of this
clause (ii), a reasoned opinion of counsel to such Person (which is
based on facts and circumstances deemed appropriate by such counsel) to
the effect that such Person does not control the Corporation shall be
conclusive).
4. DEFINITIONS.
As used in this Article FOURTH, the terms indicated below shall have
the following respective meanings:
(a) "BANK HOLDING COMPANY AFFILIATE" shall mean, with respect
to any person subject to the provisions of Regulation Y, (i) if such
Person is a bank holding company, any company directly or indirectly
controlled by such bank holding company, and (ii) otherwise, the bank
holding company that controls such Person and any company (other than
such Person) directly or indirectly controlled by such bank holding
company.
(b) "CONTROL" (including, with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean, with
respect to any Person, the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract, or otherwise.
(c) "PERSON" means an individual, partnership, association,
joint venture, corporation, business, trust, estate, unincorporated
organization, or government or any department, agency or subdivision
thereof.
(d) "REGULATION Y" shall mean Regulation Y promulgated
by the Board of Governors of the Federal Reserve System
(12 C.F.R. Section 225) or any successor regulation.
FIFTH: In furtherance and not in limitation of the power conferred
by statute, the board of directors is expressly authorized:
1. To make, alter or repeal the by-laws of the Corporation.
2. To authorize and cause the mortgage or pledge of the property
and assets of the
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Corporation.
3. To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
SIXTH: All power of the Corporation shall be exercised by or under the
direction of the board of directors except as otherwise provided herein or
required by law. For the management of the business and for the conduct of the
affairs of the Corporation, and in further creation, definition, limitation and
regulation of the power of the Corporation and of its directors and of its
stockholders, it is further provided as follows:
1. ELECTION OF DIRECTORS. Election of directors need not be by written
ballot unless the by-laws of the Corporation shall so provide.
2. NUMBER TENURE AND QUALIFICATIONS. The total number of directors
which shall constitute the whole board shall be nine (9), but this number may be
increased or decreased from time to time by amendment of the by-laws by the
directors or the stockholders from time to time, provided that in no case shall
the number of directors constituting the whole board be less than three (3). The
directors shall be divided into three (3) classes with respect to their term of
office, class I, class II, and class III, as nearly equal in number as possible,
to be determined by the board of directors. The directors shall be elected at
the annual meetings of the stockholders, except as provided in Section 4 of this
Article SIXTH. At the 1987 annual meeting of stockholders, the class I directors
shall be elected to a term of office expiring at the 1988 annual meeting of
stockholders, the class II directors shall be elected to a term of office
expiring at the 1989 annual meeting of stockholders and the class III directors
shall be elected to a term of office expiring at the 1990 annual meeting of
stockholders; and, in each case, each director shall hold office until his
respective successor shall have been elected and qualified. At each annual
election of directors held after the 1987 annual meeting of stockholders, the
directors elected to succeed those directors whose terms then expire shall be
elected to a term of office expiring at the third succeeding annual meeting of
stockholders and shall hold office until their respective successors are elected
and qualified. In the event of any change in the number of directors, any
resultant increase or decrease in the number of directorships shall be
apportioned among the three classes of directors so as to maintain all classes
as nearly equal in number of directors as possible, as shall be determined by
the whole board of directors at the time of such increase or decrease. Directors
need not be stockholders or residents of Delaware.
3. BUSINESS AT ANNUAL MEETINGS; NOMINATIONS TO BOARD OF DIRECTORS.
(a) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before
the meeting. To be properly brought before an annual meeting, business
must be: (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors; (ii)
otherwise properly brought before the meeting by or at the direction
of the board of directors; or (iii) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the
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secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive
offices of the corporation not later than the close of business on the
tenth (10th) day following the date on which notice of such annual
meeting is first given to stockholders. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (A) a brief description of the
business desired to be brought before the annual meeting; (B) the name
and address (which shall be the same as they appear in the
Corporation's records if the stockholder is a record holder) of the
stockholder proposing such business; (C) the class and number of shares
of the Corporation which are beneficially owned by the stockholder; and
(D) any material interest of the stockholder in such business. The
presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this
Section 3(a), and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting
shall not be transacted.
(b) Nominations. Subject to the rights of holders of any
class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation, nominations for the election of
directors may be made by the board of directors or a committee
appointed by the board of directors or by any stockholder entitled to
vote in the election of directors generally. However, any stockholder
entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United
States mail, postage prepaid, to the secretary of the Corporation not
later than (i) with respect to an election to be held at an annual
meeting of stockholders, ninety (90) days prior to the anniversary date
of the immediately preceding annual meeting, and (ii) with respect to
an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the seventh (7th) day
following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the
stockholder is a record owner of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c)
a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (d) such other information regarding
each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
United States Securities and Exchange Commission; and (e) the consent
of each such nominee to serve as a director of the Corporation if so
elected. The presiding officer of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise fixed
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation
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or the right to elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors constituting
the board of directors shall shorten the term of any incumbent director.
5. REMOVAL OF DIRECTORS. Subject to the rights of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation or the right to elect directors under specified circumstances, any
director may be removed by the holders of a majority of the voting power of the
then outstanding shares of the "Voting Stock" (defined in Article SEVENTH),
voting together as a single class, but only for cause. Except as may otherwise
be provided by law, cause for removal shall be construed to exist only if:
(a) the director whose removal is proposed has been convicted
of a felony by a court of competent jurisdiction and such conviction is
no longer subject to direct appeal, or
(b) the director whose removal is proposed has been adjudged
by a court of competent jurisdiction to be liable for (i) any breach of
the director's duty of loyalty to the Corporation or its stockholders
or (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law.
6. STOCKHOLDER ACTION. Except as otherwise required by law and subject
to the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation:
(a) special meetings of stockholders of the Corporation may be
called only by the chairman of the board, the president, the board of
directors pursuant to a resolution approved by a majority of the entire
board of directors, or at the written request of the holders of at
least eighty percent (80%) of the voting power of the then outstanding
Voting Stock acting together as a single class. Such request shall
state the purpose or purposes of the proposed meeting. The notice of
any such special meeting shall be issued within sixty (60) days after
the Corporation's receipt of such request. Written notice of a special
meeting stating the time, place and object thereof shall be given to
each stockholder entitled to vote thereat, at least fifty (50) days
before the date fixed for the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated
in the notice; and
(b) any action required or permitted to be taken at any annual
or special meeting of the stockholders of the Corporation may be taken
without a meeting, without prior notice and without a vote, only if a
consent in writing setting forth the actions so taken shall be signed
by the holders of at least eighty percent (80%) of the voting power of
the then outstanding Voting Stock acting together as a single class.
All such consents
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must be executed and delivered to the secretary of the corporation not
less than thirty (30) days nor more than sixty (60) days prior to the
action to be taken pursuant to such consent.
7. BY-LAW AMENDMENTS. The board of directors shall have power to make,
alter, amend and repeal the by-laws (except to the extent that any by-laws
adopted by the stockholders may expressly prohibit amendment by the board of
directors). Any by-laws made by the directors under the powers conferred hereby
may be altered, amended or repealed by the directors or by the stockholders.
Anything to the contrary herein contained notwithstanding, no by-law shall be
adopted or amended by the board of directors or the stockholders which shall be
inconsistent with any of the terms and provisions of this certificate of
incorporation
8. ADDITIONAL POWERS OF DIRECTORS. In addition to the powers and
authority hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the corporation; subject,
nevertheless, to the provisions of the statutes of Delaware, of this certificate
of incorporation, and to any by-laws from time to time made by the stockholders;
provided, however, that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-laws had not been made.
SEVENTH: Vote Required for Certain Business Combinations.
1. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS.
(a) In addition to any affirmative vote required by law or
this certificate of incorporation, and except as otherwise expressly
provided in Section 2 of this Article SEVENTH:
(i) any merger or consolidation of the Corporation or
any "Subsidiary" (as herein defined) with (a) any "Interested
Stockholder" (as herein defined) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or
after such merger or consolidation would be, an "Affiliate"
(as herein defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of the assets of the
Corporation or any Subsidiary having a Fair Market Value equal
to ten percent (10%) or more of the total assets reflected on
the Corporation's most recently published consolidated balance
sheet; or
(iii) the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for securities or other
property (or a combination thereof), other than solely cash,
having a Fair Market Value equal to ten percent (10%) or more
of the total assets reflected on the corporation's most
recently
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published consolidated balance sheet; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or
on behalf of an Interested Stockholder or any Affiliate of any
Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any of
its Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall, in the case of each of clauses (i) through (v) above, require
the affirmative vote of the holders of at least eighty percent (80%) of
the voting power of the then outstanding shares of "Voting Stock" (as
herein defined) of the Corporation voting together as a single class
(it being understood that for purposes of this Article SEVENTH, each
share of the Voting Stock shall have the number of votes granted to it
pursuant to Article FOURTH of this certificate of incorporation)
(b) OTHER VOTE REQUIREMENTS NOT CONTROLLING. Such affirmative
vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or in
any agreement with any national securities exchange or otherwise.
2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section 1 of
this Article SEVENTH shall not be applicable to any particular "Business
Combination" (as herein defined), and such Business Combination shall require
only such affirmative vote as is required by law and any other provision of this
certificate of incorporation, if all of the conditions specified in either of
the following paragraphs (a) and (b) are met:
(a) APPROVAL BY DISINTERESTED DIRECTORS. The Business
Combination shall have been approved by a majority of the "Disinterested
Directors" (as herein defined); or
(b) PRICE AND PROCEDURAL REQUIREMENTS. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the "Fair
Market Value" (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to
the higher of the following:
(A) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by
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the Interested Stockholder for any shares of Common
Stock acquired by it (1) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date") or (2) in the transaction in
which it became an Interested Stockholder, whichever
is higher; and
(B) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date
on which the Interested Stockholder became an
Interested Stockholder (such latter date being
referred to in this Article SEVENTH as the
"Determination Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any other class of
outstanding Voting Stock shall be at least equal to the
highest of the following (it being intended that the
requirements of this paragraph (b)(ii) shall be required to be
met with respect to every class of outstanding Voting Stock,
whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock);
(A) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of such class
of Voting Stock acquired by it (1) within the
two-year period immediately prior to the Announcement
Date or (2) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(B) (if applicable) the highest preferential
amount per share to which the holders of shares of
such class of Voting Stock are entitled in the event
of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
(C) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determination Date, whichever is higher.
(iii) The consideration to be received by holders of
a particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of such
class of Voting Stock. If the Interested Stockholder has paid
for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such class of
Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock
previously acquired by it. The price determined in accordance
with paragraphs (b)(i) and (b)(ii) of this Section 2 shall be
subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
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(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (a) except as approved by a majority of
the Disinterested Directors, there shall have been no failure
to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on the
outstanding Preferred Stock; (b) there shall have been (1) no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Disinterested Directors, and (2) an increase in such annual
rate of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is
approved by a majority of the Disinterested Directors; and (c)
such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances
guarantees pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to
public stockholders of the Corporation at least thirty (30)
days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
3. CERTAIN DEFINITIONS. For the purposes of this Article SEVENTH:
(a) The term "PERSON" means any individual, firm, corporation
or other entity.
(b) The term "INTERESTED STOCKHOLDER" means any person (other
than the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly,
of twenty percent (20%) or more of the voting power of the
outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date
in question was the beneficial owner, directly or indirectly,
of twenty percent (20%) or more of the voting power of the
then outstanding Voting Stock; or
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(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
Anything in this Section 3(b) to the contrary notwithstanding, the term
"Interested Stockholder" shall not include (A) the Corporation, or (B)
any person or entity which, at the date of adoption of this certificate
of incorporation by the board of directors (the "Adoption Date") and at
all times (except during one or more periods not exceeding seven (7)
days in length) between the Adoption Date and the date of the proposed
Business Combination, holds at least one of the capacities listed
below:
(1) is a Subsidiary;
(2) is an employee benefit plan of the Corporation or
any Subsidiary; (3) is a member of the Executive
Committee of the board of directors of the
Corporation;
(4) is a beneficial owner of fifteen percent (15%)or
more of the outstanding common stock of the Corporation; or
(5) is any entity in which one or more of the persons
or entities referred to in clauses (B)(1), (B)(2), (B)(3) or
(B)(4) of this Section 3(b) owns or holds more than fifty
percent (50%) of the equity interest or voting power.
(c) The term "BUSINESS COMBINATION" as used in this Article
SEVENTH means any transaction which is referred to in any one or more
of clauses (i) through (v) of paragraph (a) of Section 1 of this
Article SEVENTH.
(d) A person shall be a "BENEFICIAL OWNER" of any Voting
Stock:
(i) which such person or any of its "Affiliates" or
"Associates" (as herein defined) beneficially owns, directly
or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Voting Stock.
(e) For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph (b) of this Section 3, the
number of shares of Voting
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Stock deemed to be outstanding shall include shares deemed owned
through application of Paragraph (d) of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options or otherwise.
(f) The term "AFFILIATE" of, or a person "AFFILIATED" with, a
specific person, means a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified.
(g) The term "ASSOCIATE" used to indicate a relationship with
any person, means (1) any corporation or organization (other than this
Corporation or a majority-owned subsidiary of this Corporation) of
which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any
class of equity securities, (2) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity, (3) any relative
or spouse of such person, or any relative of such spouse, who has the
same home as such person, or (4) any investment company registered
under the Investment Company Act of 1940 for which such person or any
affiliate of such person serves as investment adviser.
(h) The term "SUBSIDIARY" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definitions of Interested Stockholder set forth in
paragraph (b) of this Section 3, the term "Subsidiary" shall mean only
a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
(i) The term "DISINTERESTED DIRECTOR" means any member of the
board of directors who is unaffiliated with the Interested Stockholder
and was a member of the board of directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is unaffiliated with the
Interested Stockholder and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the board of
directors.
(j) The term "FAIR MARKET VALUE" means: (i) in the case of
stock, the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such stock on
the Composite Tape for New York Stock Exchange-Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing last
sale price or closing bid quotation with respect to a share of such
stock during the 3-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of
such stock as determined by the board of directors in good faith; and
(ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as
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determined by the board of directors in good faith.
(k) The term "VOTING STOCK" means all outstanding shares of
capital stock of the Corporation or another corporation entitled to
vote generally in the election of directors, and each reference to a
proportion of shares of Voting Stock shall refer to such proportion of
the votes entitled to be cast by such shares.
(l) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (b)(i) and (b)(ii) of Section 2 of this
Article SEVENTH shall include the shares of Common Stock and/or the
shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
(m) The term "ANNOUNCEMENT DATE" shall have the meaning
specified in Section 2(b)(i)(A).
(n) The term "DETERMINATION DATE" shall have the meaning
specified in Section 2(b)(i)(B).
4. POWERS OF THE BOARD OF DIRECTORS. A majority of the Directors shall
have the power and duty to determine for the purposes of this Article SEVENTH,
on the basis of information known to them after reasonable inquiry: (a) whether
a person is an Interested Stockholder, (b) the number of shares of Voting Stock
beneficially owned by any person, (c) whether a person is an Affiliate or
Associate of another, and (d) the Fair Market Value of any assets which are the
subject of any Business Combination. A majority of the Directors shall have the
further power to interpret all of the terms and provisions of this Article
SEVENTH.
5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED STOCKHOLDERS.
Nothing contained in this Article SEVENTH shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended. Such right shall be a
contract right and as such shall run to the benefit of any director or officer
who is elected and accepts the position of director or officer of the
Corporation or elects to continue to serve as a director or officer of the
Corporation while this Article EIGHTH is in effect. Any repeal or amendment of
this Article EIGHTH shall be prospective only and shall not limit the rights of
any such director or officer or the obligations of the Corporation with respect
to any claim arising from or related to the services of such director or officer
in any of the foregoing capacities prior to any such repeal or amendment to this
Article EIGHTH. Such right shall include the right to be paid by the Corporation
expenses incurred in investigating or defending any such proceeding in advance
of
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its final disposition to the maximum extent permitted under the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended. If a claim for indemnification or advancement of expenses hereunder is
not paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim,
and if successful in whole or in part, the claimant shall also be entitled to be
paid the expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense is not
permitted under the General Corporation Law of the State of Delaware, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) to have made its determination prior
to the commencement of such action that indemnification of, or advancement of
costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute by-law,
resolution of stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
Without limiting the generality of the foregoing, to the extent
permitted by then applicable law, the grant of mandatory indemnification
pursuant to this Article EIGHTH shall extend to proceedings involving the
negligence of such person.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or amendment of this Article NINTH by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article NINTH, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the
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General Corporation Law of the State of Delaware.
TENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ELEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the by-laws of the Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. The foregoing and
anything contained elsewhere in this certificate of incorporation to the
contrary notwithstanding, the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to alter, amend, repeal, or adopt
any provision inconsistent with Article SIXTH, Section 2; Article SIXTH, Section
3; Article SIXTH, Section 4; Article SIXTH, Section 6; and Article SEVENTH.
IN WITNESS WHEREOF, the undersigned has duly executed this Second
Restated Certificate of Incorporation on behalf of the Corporation as of the
5th day of November, 1998.
UNITED STATIONERS INC.
By: /s/ Susan Maloney Meyer
--------------------------------
Name: Susan Maloney Meyer
-----------------------------
Title:SECRETARY OF THE CORPORATION
-----------------------------
11/16/98
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
UNITED STATIONERS INC.
3/24/99
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. OFFICES 3
Section 1. Registered Office 3
Section 2. Other Offices 3
ARTICLE II. MEETINGS OF STOCKHOLDERS 3
Section 1. Place of Meetings 3
Section 2. Annual Meeting 3
Section 3. Notice of Annual Meeting 3
Section 4. Business at Annual Meetings 4
Section 5. List of Stockholders 4
Section 6. Special Meetings of Stockholders 4
Section 7. Procedure at Stockholders' Meetings 4
Section 8. Quorum 4
Section 9. Majority Vote 4
Section 10. Proxies and Voting of Shares 5
Section 11. Informal Action by Stockholders 5
ARTICLE III. DIRECTORS 5
Section 1. Number, Tenure and Qualifications 5
Section 2. Nominations 5
Section 3. Resignations 5
Section 4. Filling of Vacancies 5
Section 5. General Powers 6
Section 6. Place of Meetings 6
Section 7. First Meeting of New Board 6
Section 8. Regular Meetings 6
Section 9. Special Meetings 6
Section 10. Quorum 6
Section 11. Informal Action 7
Section 12. Telephone Meetings 7
Section 13. Designation of Committees 7
Section 14. Absence of a Committee Member. 7
Section 15. Powers of Committees 7
Section 16. Record of Proceedings 8
Section 17. Compensation of Directors 8
<PAGE>
ARTICLE IV. NOTICES TO STOCKHOLDERS AND DIRECTORS 8
Section 1. Notice 8
Section 2. Waiver of Notice 8
ARTICLE V. OFFICERS 9
Section 1. Number and Title 9
Section 2. Election and Qualification 9
Section 3. Appointment of Additional Officers 9
Section 4. Compensation 9
Section 5. Term of Office, Removal and Vacancies 9
Section 6. Resignations 9
Section 7. The Chairman of the Board of Directors 9
Section 7A. The Vice Chairman of the Board 10
Section 8. The President 10
Section 9. The Vice Presidents 11
Section 10. The Secretary 11
Section 11. Assistant Secretaries 11
Section 12. The Treasurer 11
Section 13. Bond 12
Section 14. Assistant Treasurers 12
ARTICLE VI. STOCK AND STOCKHOLDERS 12
Section 1. Certificate of Stock 12
Section 2. Classes and Series 12
Section 3. Signatures 13
Section 4. Lost Certificates 13
Section 5. Transfers of Stock 13
Section 6. Fixing Record Date 13
Section 7. Registered Stockholders 14
ARTICLE VII. INDEMNIFICATION 14
ARTICLE VIII. GENERAL PROVISIONS 14
Section 1. Dividends 14
Section 2. Reserves 14
Section 3. Annual Statement 15
Section 4. Checks 15
Section 5. Fiscal Year 15
Section 6. Seal 15
ARTICLE IX. AMENDMENTS 15
</TABLE>
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ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors shall be held in the Chicago metropolitan area, State of
Illinois, at such place as may be fixed from time to time by the board of
directors; at least ten (10) days' notice shall be given to the stockholders of
the place so fixed or, in the event of the failure of the board of directors to
fix such place, at the principal executive office of the corporation. Meetings
of stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as may be fixed from time to time by the board
of directors or as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2. ANNUAL MEETING. The annual meetings of stockholders shall be
held at such date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting, or in a duly executed
waiver of notice thereof, at which the stockholders shall elect by a plurality
vote persons to the board of directors, and transact such other business as may
properly be brought before the meeting. The meeting may be adjourned from time
to time and place to place until its business is completed. If the election of
directors shall not be held on the day designated herein for any annual meeting,
or at any adjournment thereof, the board of directors shall cause the election
to be held at a special meeting of the stockholders as soon thereafter as may be
convenient.
SECTION 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
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SECTION 4. BUSINESS AT ANNUAL MEETINGS. The business to be conducted at
annual meetings of the Corporation shall be as provided in the certificate of
incorporation.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the corporation shall prepare (and make), at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the Chicago metropolitan area, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 6. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders of the corporation shall be held as provided in the certificate of
incorporation.
SECTION 7. PROCEDURE AT STOCKHOLDERS' MEETINGS. The order of business
and all other matters of procedure at every meeting of the stockholders may be
determined by the presiding officer. The board of directors may appoint two or
more inspectors of election to serve at every meeting of the stockholders at
which directors are to be elected. In the absence of such appointment by the
board of directors, the presiding officer may appoint one or more inspectors of
election to serve at any such meeting.
SECTION 8. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed.
SECTION 9. MAJORITY VOTE. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power, present in
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person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which by express provision of statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
SECTION 10. PROXIES AND VOTING OF SHARES. At any meeting of the
stockholders every stockholder having the right to vote shall be entitled to
vote in person, or by proxy appointed by an instrument in writing subscribed by
such stockholder and bearing a date not more than three (3) years prior to said
meeting, unless said instrument provides for a longer period. Each stockholder
shall have one vote for each share of stock having voting power, registered in
his name on the books of the corporation. Unless the transfer books of the
corporation shall have been closed or a date shall have been fixed as a record
date for the determination of its stockholders entitled to vote, no share of
stock shall be voted on at any election for directors which shall have been
transferred on the books of the corporation within twenty (20) days next
preceding such election of directors.
SECTION 11. INFORMAL ACTION BY STOCKHOLDERS. Informal actions by the
stockholders of the corporation may be taken as provided in the certificate of
incorporation.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The tenure and
qualifications of directors on the board of directors of the corporation shall
be as provided in the certificate of incorporation. The number of directors
which shall constitute the whole board shall be nine, but such number may be
increased or decreased from time to time by amendment of these by-laws.
SECTION 2. NOMINATIONS. Nominations for election to the board of
directors shall be as provided in the certificate of incorporation.
SECTION 3. RESIGNATIONS. Any director may resign at any time by giving
written notice to the board of directors, the chairman of the board of
directors, the president or the secretary of the corporation. Such resignation
shall take effect at the time specified therein; and, unless tendered to take
effect upon acceptance thereof, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4. FILLING OF VACANCIES. Filling of vacancies on the board of
directors of the corporation shall be accomplished as provided in the
certificate
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of incorporation.
SECTION 5. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors which may
exercise all such powers of the corporation and do all such lawful acts as are
not by statute or by the certificate of incorporation or by these by-laws
directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 6. PLACE OF MEETINGS. The board of directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
SECTION 7. FIRST MEETING OF NEW BOARD. The first meeting of the board
of directors after each election of new directors thereto shall be held at such
time and place as shall be specified in a notice given as provided in these
by-laws for special meetings of the board of directors, or as shall be specified
in a written waiver of notice signed by all of the directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
SECTION 9. SPECIAL MEETINGS. Special meetings of the board may be
called by the chairman of the board of directors upon such notice as he deems
appropriate. In the absence of the chairman or a vacancy in the office of
chairman or if the chairman is unable or refuses to act, the president (or any
other officer of the corporation upon the request in writing of two (2) or more
directors) may call a special meeting of the board of directors, notice of which
shall be given to each director at his usual place of business, or at such other
address as shall have been furnished by him for the purpose. Such notice shall
be given at least forty-eight (48) hours before the meeting by telephone or by
being personally delivered, mailed or telegraphed. Such notice need not include
a statement of the business to be transacted at, or the purpose of, any such
meeting.
SECTION 10. QUORUM. At all meetings of the board, a majority of the
total number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be
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present. The term "total number of directors" as used in these by-laws means the
total number of directors which the corporation would have if there were no
vacancies.
SECTION 11. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted
by the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
SECTION 12. TELEPHONE MEETINGS. Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 13. DESIGNATION OF COMMITTEES. The board of directors may, by
resolution passed by a majority of the whole board of directors, designate one
or more committees, each committee to consist of two or more of the directors of
the corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
SECTION 14. ABSENCE OF A COMMITTEE MEMBER. In the absence or
disqualification of any member of a committee or committees or in the event that
any such member is unable or refuses to act, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such member.
SECTION 15. POWERS OF COMMITTEES. Any such committee, to the extent
provided in the resolution of the board of directors, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation and may authorize the
seat of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending
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to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution, the certificate of incorporation or any provision of these by-laws
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the board of directors.
SECTION 16. RECORD OF PROCEEDINGS. Each committee shall keep regular
minutes of its proceedings and report the same to the board of directors when
required.
COMPENSATION OF DIRECTORS
SECTION 17. IN GENERAL. The directors may be paid their expenses, if
any, of attendance at each meeting of the board of directors and may be paid a
fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES TO STOCKHOLDERS AND DIRECTORS
SECTION 1. NOTICE. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail or telegraph, addressed
to such director or stockholder, at such address as appears on the records of
the corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail or telegraphed, as the case may be. Notice to directors may also be given
as provided in Section 9 of Article III.
SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
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ARTICLE V
OFFICERS
SECTION 1. NUMBER AND TITLE. The officers of the corporation shall be
chosen by the board of directors and shall be a chairman of the board, a
president, a vice president, a secretary and a treasurer. The board of directors
may also choose a vice chairman of the board, additional vice presidents and one
or more assistant secretaries and assistant treasurers.
SECTION 2. ELECTION AND QUALIFICATION. The board of directors at its
first meeting after each annual meeting of stockholders shall choose a chairman
of the board, a president, one or more vice presidents, a secretary and a
treasurer. No officer need be a member of the board. If the election of officers
is not held at such meeting, such election shall be held as soon thereafter as
may be convenient. Vacancies may be filled or new offices created and filled at
any meeting of the board of directors.
SECTION 3. APPOINTMENT OF ADDITIONAL OFFICERS. The board of directors
may appoint such other officers and agents as it shall deem necessary who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board.
SECTION 4. COMPENSATION. The salaries and other compensation of all
officers and agents of the corporation shall be fixed by the board of directors.
SECTION 5. TERM OF OFFICE, REMOVAL AND VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualify or
until their deaths, resignations or removal. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation may be filled by the board of directors.
SECTION 6. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the board of directors, the chairman of the board of
directors, the president or the secretary of the corporation. Such resignation
shall take effect at the time specified in the written notice; and, unless the
resignation is tendered only to take effect upon acceptance thereof, the
acceptance of such resignation shall not be necessary to make the resignation
effective.
SECTION 7. THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the
board may not be the president/chief executive officer of the corporation.
Except as otherwise prescribed by the board of directors, the chairman of the
board of directors shall preside at all meetings of the stockholders, of the
board of directors and of the executive committee, if any, and shall designate
the
9
<PAGE>
acting secretary for such meetings to take the minutes thereof for delivery to
the secretary; may execute contracts in the name of the corporation and appoint
and discharge agents and employees of the corporation; and shall be ex-officio a
member of all committee except as otherwise proscribed by law (as advised by
counsel). Notwithstanding anything to the contrary in these by-laws, in the
event that the chairman of the board of directors and the vice chairman of the
board of directors is absent, has vacated his office, or otherwise is unable or
refuses to perform the duties of the chairman of the board of directors, those
duties will be performed by the president until such time as the board of
directors either makes a determination that another person should act in that
capacity or elects a new chairman of the board of directors.
SECTION 7A. THE VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The vice
chairman of the board may be the chief executive officer or the corporation and,
if so designated by the board of directors, shall have the general direction of
the affairs or the corporation, except as otherwise prescribed by the board of
directors, shall, in the event that the chairman of the board is absent or has
allowed the office of chairman of the board to be vacated, or is unable or
refuses to act, perform the duties of chairman or the board. The vice chairman
of the board may execute contracts in the name or the corporation and appoint
and discharge agents and employees of the corporation and shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe. The vice-chairman of the board shall be ex-officio a member
or all committees, except as otherwise proscribed by law (as advised by
counsel).
SECTION 8. THE PRESIDENT. The president may be the chief executive
officer and/or the chief operating officer of the corporation and, if so
designated as chief executive officer by the board of directors, shall have the
general direction of the affairs of the corporation, and if so designated as
chief operating officer of the corporation shall direct the operations of the
corporation. The president shall assume such other duties as the board of
directors may assign from time to time. In the event that the chairman of the
board and the vice chairman of the board each are one or more of the following:
absent, allowed the office of chairman or vice chairman to be vacated, or is
unable or refuses to act; the president shall perform all duties and functions
of the chairman of the board. The president may sign, with the chairman of the
board, a vice president and the secretary, or treasurer, certificates for shares
of the corporation, and may sign any policies, deeds, mortgages, bonds,
contracts, or other instruments on behalf of the Corporation, unless the board
of directors has expressly reserved authority to approve any such documents or
instruments for the board's approval, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors or by
these by-laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; appoint and discharge
10
<PAGE>
agents and employees of the corporation, and in general, shall perform all
duties incident to the office of president. The president shall be ex-officio a
member of all committees except as otherwise proscribed by law (as advised by
Counsel). Notwithstanding anything to the contrary in these by-laws, during
occasions that the president is absent, has vacated his office, or otherwise is
unable or refuses to perform the duties of the president, those duties will be
performed by the chairman of the board of directors until such time as the board
of directors either makes a determination that another person should act in that
capacity or elects a new president.
SECTION 9. THE VICE PRESIDENTS. The vice presidents then shall perform
such duties and have such powers as the board of directors may from time to time
prescribe.
SECTION 10. THE SECRETARY. The secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required; shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the board of directors;
shall perform such other duties as may be prescribed by the board of directors,
the chairman of the board or president, under whose supervision the secretary
shall be; and shall keep in safe custody the corporate seal of the corporation
and when authorized by the board of directors, shall affix the same to any
instrument requiring it and when so affixed, it shall be attested by the
signature of the secretary or by the signature of an assistant secretary.
SECTION 11. ASSISTANT SECRETARIES. The assistant secretaries in the
order of their seniority shall, in the event that the secretary is absent, or
has allowed the office of secretary to be vacated, or is unable or unwilling to
act, perform the duties and exercise the powers of the secretary. They shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
SECTION 12. THE TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as may be
ordered by the board of directors taking proper vouchers for such disbursements,
and shall render to the president and the board of directors, at its regular
meetings or when the board of directors so requires, an account of all such
person's transactions as treasurer and of the financial condition of the
corporation.
11
<PAGE>
SECTION 13. BOND. If required by the board of directors, the treasurer
shall give the corporation a bond (which shall be renewed as required from time
to time) in such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the duties of the
office and for the restoration to the corporation, in case of the death,
resignation, retirement or removal from office of the treasurer, of all books,
papers, vouchers, money and other property of whatever kind in the possession or
under the control of the treasurer belonging to the corporation.
SECTION 14. ASSISTANT TREASURERS. The assistant treasurers, in the
order of their seniority, unless otherwise determined by the board of directors,
shall in the event the treasurer is absent, or has allowed the office of
treasurer to be vacated, or is unable or refuses to act, perform the duties and
exercise the powers of the treasurer. They shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
STOCK AND STOCKHOLDERS
SECTION 1. CERTIFICATE OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of, the corporation by the chairman of the board, the president or a vice
president and the treasurer, or the secretary of the corporation, registered in
such stockholder's name, certifying the number of shares owned by such holder in
the corporation.
SECTION 2. CLASSES AND SERIES. If the corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
powers, assignations, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, provided that, in lieu of the foregoing requirements, there may be set
forth on the face or back of the certificate which the corporation shall issue
to represent such class or series of stock, a statement that the corporation
will furnish, without charge to each stockholder who so requests, the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 3. SIGNATURES. Where a certificate is countersigned (i) by a
transfer agent other than the corporation or its employee, or (ii) by a
registrar other than the corporation or its employee, any of or all the
signatures on the
12
<PAGE>
certificate of the officers of the corporation may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be an officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
SECTION 4. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 5. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6. FIXING RECORD DATE. The board of directors may close the
stock transfer books of the corporation for a period not exceeding sixty (60)
days preceding the date of any meeting of stockholders or the date for payment
of any dividend or other distribution or the date for the allotment of rights or
the date when any change or conversion or exchange of capital stock shall go
into effect or for a period of not exceeding sixty (60) days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing the
stock transfer books as aforesaid, the board of directors may fix in advance a
date, not exceeding sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or other distribution
or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such dividend, or
other distribution or to any such allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, or to
give such consent, and in such case such stockholders and only such stockholders
as shall be stockholders of record on the date so fixed shall be
13
<PAGE>
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or other distribution, or to
receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as aforesaid.
SECTION 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
The officers, directors, employees and agents of the corporation shall
be indemnified as provided in the certificate of incorporation.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 3. ANNUAL STATEMENT. The board of directors shall present at
each annual meeting and when called for by vote of the stockholders at any
special meeting of the stockholders, a full and clear statement of the business
and condition of the corporation.
14
<PAGE>
SECTION 4. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
SECTION 5. FISCAL YEAR. The fiscal year of the corporation shall end on
December 31 in each year, commencing with the first taxable year beginning after
the corporation's 1986 fiscal year.
SECTION 6. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
Subject to the provisions of the certificate of incorporation, these
by-laws may be altered, amended or repealed at any regular meeting of the
stockholders (or at any special meeting thereof duty called for that purpose) by
a majority vote of the shares represented and entitled to vote at such meeting;
provided that in the notice of such special meeting notice of such purpose shall
be given. Subject to the laws of the State of Delaware, the certificate of
incorporation and these by-laws, the board of directors may by majority vote of
those present at any meeting at which a quorum is present alter, amend or repeal
these by-laws, or enact such other by-laws as in their judgment may be advisable
for the regulation of the conduct of the affairs of the corporation.
15
<PAGE>
Exhibit 4.5
Execution Counterpart
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of December 30, 1998 among: UNITED STATIONERS SUPPLY CO., a
corporation duly organized and validly existing under the laws of the State of
Illinois (together with its successors and assigns, the "COMPANY"); UNITED
STATIONERS INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (together with its successors and assigns, the
"GUARANTOR" and, together with the Company, the "OBLIGORS"); each of the lenders
identified under the caption LENDERS on the signature pages hereto
(individually, a "LENDER" and, collectively, the "LENDERS" ); and THE CHASE
MANHATTAN BANK, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "ADMINISTRATIVE AGENT").
WHEREAS, the Company, the Guarantor, the Lenders and the
Administrative Agent are parties to a Second Amended and Restated Credit
Agreement dated as of April 3, 1998 (as amended, modified and supplemented and
in effect, the "CREDIT AGREEMENT"), providing, subject to the terms and
conditions thereof, for extensions of credit (by making of loans and issuing
letters of credit) to be made by the Lenders to the Company in an aggregate
principal amount not exceeding $500,000,000; and
WHEREAS, the Company, the Guarantor, the Lenders and the
Administrative Agent wish to amend the Credit Agreement in certain respects;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. Terms defined in the Credit Agreement
are used herein as defined therein.
Section 2. AMENDMENT. Effective as provided in Section 3
below, the Credit Agreement shall be amended as follows:
2.01. References in the Credit Agreement (including references
to the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
<PAGE>
2.02. Section 9.07(c) of the Credit Agreement shall be
amended to read in its entirety as follows:
"(c) Indebtedness of any Wholly-Owned Subsidiary of the
Company (i) to the Company in an aggregate unpaid principal amount of not more
than $100,000,000 or (ii) to any other Wholly-Owned Subsidiary of the Company;"
Section 3. EFFECTIVENESS. The amendments to the Credit
Agreement set forth in Section 2 above shall become effective as of the date
hereof upon receipt by the Administrative Agent of one or more counterpart of
this Amendment No. 1 executed by each of the Obligors and the Lenders
constituting the Majority Lenders.
Section 4. MISCELLANEOUS. Except as herein provided, the
Credit Agreement shall remain unchanged and in full force and effect. This
Amendment No. 1 may be executed in any number of counterparts, all of which
taken together shall constitute one and the same amendatory instrument and any
of the parties hereto may execute this Amendment No. 1 by signing any such
counterpart. This Amendment No. 1 shall be governed by, and construed in
accordance with, the law of the State of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to be duly executed and delivered as of the day and year first
above written.
UNITED STATIONERS SUPPLY CO.
By /s/ James A. Pribel
--------------------------
Title: Treasurer
UNITED STATIONERS INC.
By /s/ James A. Pribel
--------------------------
Title: Treasurer
3
<PAGE>
LENDERS
THE CHASE MANHATTAN BANK
By /s/ Karen M. Shurf
-------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By (Signature Illegible)
--------------------------
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By (Signature Illegible)
--------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By (Signature Illegible)
--------------------------
Title: Senior Vice President
ARAB BANKING CORPORATION
(B.S.C.)
By /s/ Grant E. McDonald
--------------------------
Title: Vice President
THE BANK OF NEW YORK
By (Signature Illegible)
--------------------------
Title: Vice President
BANK OF SCOTLAND
By (Signature Illegible)
--------------------------
Title:
4
<PAGE>
BANK ONE, MILWAUKEE, NA
By (Signature Illegible)
--------------------------
Title: Vice President
COMERICA BANK
By (Signature Illegible)
--------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF MARYLAND
By (Signature Illegible)
--------------------------
Title: Senior Vice President
HIBERNIA NATIONAL BANK
By /s/ Stephen H. Birnbaum
--------------------------
Title: Stephen H. Birnbaum
Vice President
KEY CORPORATE CAPITAL INC.
By (Signature Illegible)
--------------------------
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By (Signature Illegible)
--------------------------
Title:
MICHIGAN NATIONAL BANK
By (Signature Illegible)
--------------------------
Title: Relationship Manager
5
<PAGE>
NATIONAL BANK OF CANADA, a Canadian
Chartered Bank
By /s/ Jonathan M. Millard
----------------------------------
Title: Assistant Vice President
By /s/ Leroy A. Irvin
----------------------------------
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By (Signature Illegible)
----------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By (Signature Illegible)
----------------------------------
Title: Loan officer
WACHOVIA BANK, N.A.
By /s/ Debra L. Coheley
----------------------------------
Title: Senior Vice President
PARIBAS
By /s/ Karen E. Coons
----------------------------------
Title: Vice President
By /s/ Brian F. Hewitt
----------------------------------
Title: Vice President
DAI-ICHI KANGYO BANK, LTD.
By /s/ Sunao Hirata
----------------------------------
Title: Sr. Vice President &
Joint General Manager
6
<PAGE>
DEUTSCHE FINANCIAL SERVICES
By (Signature Illegible)
----------------------------------
Title: Vice President
THE FUJI BANK, LIMITED
By /s/ Peter L. Chinnici
----------------------------------
Title: Joint General Manager
THE MITSUBISHI TRUST AND BANKING
CORPORATION CHICAGO BRANCH
By /s/ Nobuo Tominuga
----------------------------------
Title: Chief Manager
NATIONAL CITY BANK
By /s/ Diego Tobon
----------------------------------
Title: Vice President
THE NORTHERN TRUST COMPANY
By (Signature Illegible)
----------------------------------
Title: Vice President
7
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Karen M. Shurf
--------------------------
Title: Vice President
<PAGE>
EXHIBIT 4.6
EXECUTION COPY
AMENDMENT NO. 2 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of March 17, 1999 among: UNITED STATIONERS SUPPLY CO., a
corporation duly organized and validly existing under the laws of the State of
Illinois (together with its successors and assigns, the "COMPANY"); UNITED
STATIONERS INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (together with its successors and assigns, the
"GUARANTOR" and, together with the Company, the "OBLIGORS"); each of the lenders
identified under the caption LENDERS on the signature pages hereto
(individually, a "LENDER" and, collectively, the "LENDERS" ); and THE CHASE
MANHATTAN BANK, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "ADMINISTRATIVE AGENT").
WHEREAS, the Company, the Guarantor, the Lenders and the
Administrative Agent are parties to a Second Amended and Restated Credit
Agreement dated as of April 3, 1998 (as amended, modified and supplemented and
in effect, the "CREDIT AGREEMENT"), providing, subject to the terms and
conditions thereof, for extensions of credit (by making of loans and issuing
letters of credit) to be made by the Lenders to the Company in an aggregate
principal amount not exceeding $500,000,000; and
WHEREAS, the Company, the Guarantor, the Lenders and the
Administrative Agent wish to amend the Credit Agreement in certain respects;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. Terms defined in the Credit Agreement
are used herein as defined therein.
Section 2. AMENDMENT. Effective as provided in Section 3
below, the Credit Agreement shall be amended as follows:
2.01. References in the Credit Agreement (including references
to the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. Section 1.01 of the Credit Agreement shall be amended by
replacing the definition of "Dividend Payment" with the following definition in
alphabetical order in said Section 1.01:
<PAGE>
"RESTRICTED PAYMENT" shall mean, with respect to any Person,
dividends (in cash, Property or obligations) on, or other payments or
distributions on account of, or the setting apart of money for a
sinking or other analogous fund for, or the purchase, redemption,
retirement or other acquisition of, any shares of any class of stock of
such Person or of any warrants, options or other rights to acquire the
same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the
fair market or equity value of such Person or any of its Subsidiaries),
but excluding (i) dividends payable solely in shares of common stock of
such Person or (ii) any cancellation of the Guarantor Note.
Each reference in the Credit Agreement to "Dividend Payment" or "Dividend
Payments" shall be replaced with "Restricted Payment" and "Restricted
Payments", respectively.
2.03. Section 9.09 of the Credit Agreement shall be amended to
read in its entirety as follows:
"9.09 RESTRICTED PAYMENTS.
(a) The Company will not, nor will it permit any of its
Subsidiaries to, declare or make any Restricted Payment at any time;
PROVIDED, HOWEVER, that (1) any Subsidiary of the Company may make any
Restricted Payment to the Company or any Wholly-Owned Subsidiary of the
Company and (2) the Company may declare and make any Restricted Payment
in cash in respect of its common stock in order to permit the Guarantor
(i) to pay any income, franchise or like taxes to the extent permitted
by the Tax Sharing Agreement, (ii) to pay its operating expenses
incurred in the ordinary course of business and other corporate
overhead costs and expenses (including, without limitation, legal,
accounting, reporting, listing and similar expenses) in an aggregate
amount not exceeding $750,000 in any fiscal year, (iii) to acquire
shares of its common stock in an aggregate amount not exceeding
$50,000,000, (iv) (A) to repurchase its common stock and warrants
and/or to redeem or repurchase vested management options for an
aggregate purchase price not exceeding $1,000,000 in any 12-month
period and (B) to pay Accrued Warrant Liabilities and (v) to pay cash
dividends on its common stock, subject, in the case of clauses (iii),
(iv) and (v) above, to the satisfaction of the following conditions on
the date of such Restricted Payment:
(1) no Default shall have occurred and be continuing;
(2) the Fixed Charges Ratio as at the last day of the
fiscal quarter of the Company most recently ended prior to the
date of such Restricted Payment (and after giving pro forma
effect thereto) shall not be less than 1.2 to 1; and
(3) the average, for the immediately preceding 90
days, of the excess of (i) the aggregate Revolving Credit
Commitments over (ii) the sum of the outstanding principal
amount of Revolving Credit Loans, and the Swingline Loans and
the aggregate amount of Letter of Credit Liabilities shall be
an amount at least equal to $50,000,000.
2
<PAGE>
(b) The Guarantor will not declare or make any Restricted
Payment, except for Restricted Payments in respect of the Guarantor's
stock (and/or warrants or options related thereto) permitted, and
subject to the limitations, under clauses (iii), (iv) and (v) of
Section 9.09(a) hereof."
2.04. Section 9.10 of the Credit Agreement shall be amended to
read in its entirety as follows:
"9.10 NET WORTH. The Guarantor will not permit Net Worth to be
less than the sum of (a) $305,000,000 plus (b) 50% of the sum of Net
Income (if positive) for each fiscal quarter of the Guarantor
commencing with the fiscal quarter ending March 31, 1999 plus (c) 100%
of the amount by which Net Worth shall have been increased as a result
of any Equity Issuance."
Section 3. EFFECTIVENESS. The amendments to the Credit
Agreement set forth in Section 2 above shall become effective as of the date
hereof upon receipt by the Administrative Agent of one or more counterpart of
this Amendment No. 2 executed by each of the Obligors and the Lenders
constituting the Majority Lenders.
Section 4. MISCELLANEOUS. Except as herein provided, the
Credit Agreement shall remain unchanged and in full force and effect. This
Amendment No. 2 may be executed in any number of counterparts, all of which
taken together shall constitute one and the same amendatory instrument and any
of the parties hereto may execute this Amendment No. 2 by signing any such
counterpart. This Amendment No. 2 shall be governed by, and construed in
accordance with, the law of the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 2 to be duly executed and delivered as of the day and year first
above written.
UNITED STATIONERS SUPPLY CO.
By /s/ James A. Pribel
--------------------------
Title: Treasurer
UNITED STATIONERS INC.
By /s/ James A. Pribel
--------------------------
Title: Treasurer
4
<PAGE>
LENDERS
THE CHASE MANHATTAN BANK
By /s/ Karen M. Shurf
--------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By (Signature Illegible)
--------------------------
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By (Signature Illegible)
--------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By (Signature Illegible)
--------------------------
Title: Senior Vice President
ARAB BANKING CORPORATION
(B.S.C.)
By /s/ Grant E. McDonald
--------------------------
Title: Vice President
THE BANK OF NEW YORK
By (Signature Illegible)
--------------------------
Title: Vice President
BANK OF SCOTLAND
By (Signature Illegible)
--------------------------
Title:
5
<PAGE>
BANK ONE, MILWAUKEE, NA
By (Signature Illegible)
--------------------------
Title: Vice President
COMERICA BANK
By (Signature Illegible)
--------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF MARYLAND
By (Signature Illegible)
--------------------------
Title: Senior Vice President
HIBERNIA NATIONAL BANK
By /s/ Stephen E. Birnbaum
--------------------------
Title: Vice Presidnet
KEY CORPORATE CAPITAL INC.
By (Signature Illegible)
--------------------------
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By (Signature Illegible)
--------------------------
Title:
MICHIGAN NATIONAL BANK
By (Signature Illegible)
--------------------------
Title: Relationship Manager
6
<PAGE>
NATIONAL BANK OF CANADA,
a Canadian Chartered Bank
By /s/ Jonathan M. Millard
----------------------------------
Title: Assistant Vice President
By /s/ Leroy A. Irvin
----------------------------------
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By (Signature Illegible)
----------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By (Signature Illegible)
----------------------------------
Title:
WACHOVIA BANK, N.A.
By /s/ Debra C. Coheley
----------------------------------
Title: Senior Vice President
PARIBAS
By /s/ Karen E. Coons
----------------------------------
Title: Vice President
By /s/ Brian F. Hewitt
----------------------------------
Title: Vice President
DAI-ICHI KANGYO BANK, LTD.
By /s/ Sunao Hirata
----------------------------------
Title: Senior Vice President &
Joint General Manager
7
<PAGE>
DEUTSCHE FINANCIAL SERVICES
By (Signature Illegible)
------------------------------
Title:
THE FUJI BANK, LIMITED
By /s/ Peter L. Chinnici
------------------------------
Title: Joint General Manager
THE MITSUBISHI TRUST AND BANKING
CORPORATION CHICAGO BRANCH
By /s/ Nobuo Tominuga
------------------------------
Title: Chief Manager
NATIONAL CITY BANK
By /s/ Diego Tobon
------------------------------
Title: Vice President
THE NORTHERN TRUST COMPANY
By (Signature Illegible)
------------------------------
Title: Vice President
8
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Karen M. Shurf
------------------------------
Title: Vice President
<PAGE>
Exhibit 10.94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORUM CAROL STREAM ASSOCIATES, LLC
AS LANDLORD,
AND
UNITED STATIONERS SUPPLY CO.,
AS TENANT
-----------------------
LEASE AGREEMENT
-----------------------
810 KIMBERLY DRIVE
CAROL STREAM, ILLINOIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1 REFERENCE DATA AND DEFINITIONS...........................................................................1
2 DEMISE AND TERM..........................................................................................3
2.1 Demise..........................................................................................3
2.2 Term............................................................................................3
2.3 Early Access to Bulk Storage Space..............................................................3
2.4 Early Access to Warehouse Portion of the Building...............................................4
2.5 Extension Options...............................................................................4
3 FIXED RENT...............................................................................................4
3.1 Fixed Rent......................................................................................4
3.2 Management Fee..................................................................................4
3.3 Additional Rent.................................................................................5
3.4 Past Due Rent...................................................................................5
3.5 Net Lease.......................................................................................5
4 TAXES AND PARK FEES......................................................................................5
4.1 Payment of Taxes and Park Fees..................................................................5
5 COMPLETION AND OCCUPANCY OF THE BUILDING.................................................................6
5.1 Completion of the Building......................................................................6
5.2 Occupancy of Building...........................................................................6
5.3 Allowances......................................................................................7
6 CONDUCT OF BUSINESS BY TENANT............................................................................7
6.1 Use of the Building.............................................................................7
6.2 Compliance with Laws and Requirements of Public Authorities.....................................7
7 ALTERATIONS AND MECHANICS' LIENS.........................................................................8
7.1 Alterations.....................................................................................8
7.2 Mechanics' Liens................................................................................8
8 UTILITIES................................................................................................9
9 MAINTENANCE AND REPAIR...................................................................................9
9.1 Tenant Obligations..............................................................................9
9.2 Landlord Obligations............................................................................9
10 INSURANCE AND INDEMNITY.................................................................................10
10.1 Required Insurance.............................................................................10
10.2 Reimbursement of Landlord's Insurance Premiums.................................................11
10.3 Indemnity and Non-Liability. ..................................................................11
10.4 Waiver of Subrogation..........................................................................12
11 DAMAGE BY CASUALTY......................................................................................12
11.1 Notice.........................................................................................12
11.2 Restoration of Improvements...................................................................12
12 EMINENT DOMAIN..........................................................................................13
12.1 Taking of the Building.........................................................................13
12.2 Partial or Temporary Taking of Building........................................................13
12.3 Surrender......................................................................................13
12.4 Rent Adjustment for Partial Taking of the Building.............................................13
12.5 Awards.........................................................................................13
13 RIGHTS RESERVED TO LANDLORD.............................................................................14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
14 ASSIGNMENT AND SUBLETTING...............................................................................14
14.1 Consent Required...............................................................................14
15 DEFAULT.................................................................................................15
15.1 Default........................................................................................15
15.2 Right of Re-Entry..............................................................................15
15.3 Termination of Right to Possession.............................................................15
15.4 Termination of Lease...........................................................................16
15.5 Other Remedies.................................................................................16
15.6 Bankruptcy.....................................................................................16
15.7 Waiver of Trial by Jury........................................................................16
15.8 Venue..........................................................................................16
16 SURRENDER...............................................................................................16
16.1 Possession.....................................................................................16
16.2 Merger.........................................................................................16
17 HOLDING OVER............................................................................................17
17.1 Holding Over...................................................................................17
18 ESTOPPEL CERTIFICATE, SUBORDINATION, ATTORNMENT.........................................................17
18.1 Estoppel Certificate...........................................................................17
18.2 Subordination..................................................................................17
18.3 Attornment.....................................................................................17
18.4 Mortgages......................................................................................17
18.5 Non-Disturbance Agreement......................................................................17
19 QUIET ENJOYMENT.........................................................................................18
19.1 Quiet Enjoyment................................................................................18
20 NOTICES.................................................................................................18
20.1 Notices........................................................................................18
21 MISCELLANEOUS PROVISIONS................................................................................18
21.1 Time...........................................................................................18
21.2 Applicable Law and Construction................................................................18
21.3 Parties Bound..................................................................................18
21.4 No Representations by Landlord.................................................................18
21.5 Brokers........................................................................................19
21.6 Severability...................................................................................19
21.7 Force Majeure..................................................................................19
21.8 Definition of Landlord.........................................................................19
21.9 No Option......................................................................................19
21.10 Exculpatory Clause.............................................................................19
21.11 No Recording...................................................................................19
21.12 ERISA..........................................................................................19
21.13 Consequential Damages..........................................................................20
22 OPTION TO EXTEND........................................................................................20
22.1 Option to Extend...............................................................................20
22.2 Fair Market Rent...............................................................................20
22.3 Dispute of Fair Market Rent....................................................................20
22.4 Arbitration of Fair Market Rent................................................................20
EXHIBIT A Legal Description
EXHIBIT B Plan of Bulk Storage Space
EXHIBIT C Landlord's Work
</TABLE>
ii
<PAGE>
LEASE
This Lease is made between Landlord and Tenant named in Article l as of
the date set forth therein. Landlord and Tenant, in consideration of the
covenants and agreements contained herein, agree as follows:
ARTICLE 1
REFERENCE DATA AND DEFINITIONS
The following are definitions of terms used in this Lease, and each
reference in this Lease to any of the following subjects shall be construed to
incorporate the data, terms, covenants and provisions stated for that subject in
this Article 1, subject to the terms of the balance of this Lease:
DATE OF EXECUTION OF THIS October , 1998
LEASE:
LANDLORD: Corum Carol Stream Associates, LLC, a
Colorado limited liability company
MANAGING AGENT: Corum Real Estate Group
LANDLORD'S MANAGING AGENT'S One DTC
ADDRESS: 5251 DTC Parkway
Englewood, CO 80111
Attn: Mike Komppa
TENANT: United Stationers Supply Co., an Illinois
corporation
TENANT'S ADDRESS: FOR NOTICE
2200 E. Golf Road
Des Plaines, Illinois 60016-1267
Attn: President
FOR BILLING
2200 E. Golf Road
Des Plaines, Illinois 60016-1267
Attn: Legal Dept.
BUILDING: The building and all other improvements,
including sidewalks, parking areas and
landscaped areas, located on that certain
parcel of real estate legally described on
Exhibit A attached hereto and commonly known
as 810 Kimberly Drive, Carol Stream,
Illinois
SCHEDULED COMMENCEMENT DATE: January 15, 1999
SCHEDULED EXPIRATION DATE March 14, 2009
TERM:
EXTENSION TERMS: two (2) extension terms of five (5) years
each
<PAGE>
BROKERS: Colliers, Bennett & Kahnweiler, Inc., and
Grubb & Ellis
FIXED RENT:
<TABLE>
<CAPTION>
___________________________________________________________________________
PERIOD ANNUAL FIXED RENT MONTHLY FIXED RENT
___________________________________________________________________________
<S> <C> <C>
From the Commencement $ 0 $ 0
Date to the date that is sixty
(60) days after the
Commencement Date
___________________________________________________________________________
From the date that is sixty- $1,295,600.04 $ 107,966.67
one (61) days after the
Commencement Date (the
"Rent Commencement Date")
to the day before the fifth
(5th) anniversary of the Rent
Commencement Date
___________________________________________________________________________
From the fifth (5th) $1,430,079.96 $ 119,173.33
anniversary of the Rent
Commencement Date to the
Expiration Date
___________________________________________________________________________
</TABLE>
ARTICLE 2
DEMISE AND TERM
2.1 DEMISE. Landlord hereby leases unto Tenant, and Tenant hereby
leases from Landlord, the Building, upon and subject to the covenants,
agreements, terms, conditions, limitations, exceptions and reservations of this
Lease.
2.2 TERM.
(a) The Term and Tenant's obligation to pay Rent shall
commence on the earlier to occur of (the "Commencement Date") (i) the
date Landlord obtains a certificate of occupancy from the applicable
municipal authority sufficient to permit Tenant to occupy the Building
for the uses permitted under Section 6.1 below, or (ii) the date on
which Tenant or anyone claiming by, under or through Tenant shall first
occupy any portion of the Building for any purpose, including
installation of equipment (other than early occupancy pursuant to
Sections 2.3 and 2.4 below), or (iii) the later of (A) the date
determined in accordance with the second sentence of Section 5.1 below
and (B) December 1, 1998; and shall end, unless sooner terminated as
herein provided or pursuant to law, at the close of business on the
Scheduled Expiration Date. If for any reason, other than by reason of
any event described in the second sentence of Section 5.1, the Building
is not substantially completed and/or available for occupancy by the
Scheduled Commencement Date, Landlord shall not be liable for any
claims, damages or liabilities in connection therewith or by reason
thereof, nor shall the same make this Lease void or voidable, but the
expiration date shall be extended to a date which shall allow the term
of this Lease to be a complete Term (the later of the Scheduled
Expiration Date or the date determined pursuant to this sentence being
the "Expiration Date").
(b) Following the Commencement Date, the parties shall execute
a supplemental agreement to become a part hereof setting forth the
Commencement Date and Expiration Date of the Term, as determined under
the provisions of this Article 2. The parties' failure
2
<PAGE>
to execute such supplemental agreement shall in no way affect Tenant's
obligation to perform under this Lease.
2.3 EARLY ACCESS TO BULK STORAGE SPACE. Notwithstanding anything
contained herein to the contrary, Tenant shall be permitted access prior to the
Commencement Date to approximately 100,000 square feet of the Building as
depicted on Exhibit B attached hereto (the "Bulk Storage Space") on or before
November 15, 1998. Landlord shall arrange for obtaining all necessary approvals
for such access by Tenant. Tenant acknowledges, however, that Landlord will not
have completed its construction of the Building as of such early occupancy date
and that Tenant will be accepting the Bulk Storage Space in its "as is"
condition, except, however, that the Bulk Storage Space shall be demised with a
snow fence and will include restrooms and 12 foot to 15 foot candle lighting.
Such acceptance of the Bulk Storage Space in its "as is" condition as of the
date of delivery shall not be deemed or construed, however, to be a waiver by
Tenant of Landlord's obligation to complete the balance of Landlord's Work or a
waiver or release of the general contractor, subcontractors or design
professionals under any warranties provided by any such parties. In connection
with such early occupancy, Tenant agrees to not interfere with Landlord's
completion of the balance of the Building. Such early occupancy of the Bulk
Storage Space shall be subject to all of the terms and conditions of this Lease,
except, however, Tenant shall not be obligated to pay Fixed Rent during such
period of early occupancy. Without limiting the generality of the foregoing,
from and after the date of such early occupancy, Tenant shall be obligated to
provide the insurance required hereunder, be obligated to pay a proportionate
share of Landlord's insurance for the Building, be obligated to pay a
proportionate share of Taxes and be obligated to pay its proportionate share of
utilities for the Building. As used in this Section 2.3, Tenant's proportionate
share shall mean 30.488% (which is 100,000 divided by 328,000).
2.4 EARLY ACCESS TO WAREHOUSE PORTION OF THE BUILDING. Notwithstanding
anything contained herein to the contrary, Tenant shall be permitted access
prior to the Commencement Date to the balance of the warehouse portion of the
Building (i.e., excluding the office space), on or before January 15, 1999.
Landlord shall arrange for obtaining all necessary approvals for such access by
Tenant. Tenant acknowledges, however, that Landlord will not have completed its
construction of the Building as of such early occupancy date and that Tenant
will be accepting the warehouse portion of the Building in its "as is"
condition. Such acceptance of the warehouse portion of the Building in its "as
is" condition as of the date of delivery shall not be deemed or construed,
however, to be a waiver by Tenant of Landlord's obligation to complete the
balance of Landlord's Work or a waiver or release of the general contractor,
subcontractors or design professionals under any warranties provided by any such
parties. In connection with such early occupancy, Tenant agrees not to interfere
with Landlord's completion of the balance of the Building. Such early occupancy
of the warehouse space shall be subject to all the terms and conditions of this
Lease, except, however, Tenant shall not be obligated to pay Fixed Rent during
such period of early occupancy. Without limiting the generality of the
foregoing, from and after the date of such early occupancy, Tenant shall be
obligated to provide the insurance required hereunder, be obligated to reimburse
Landlord for its insurance for the Building, be obligated to pay Taxes and be
obligated to pay utilities for the Building.
2.5 EXTENSION OPTIONS. As more fully provided under Article 21 below,
Tenant shall have the options to extend described under Article 1 above.
ARTICLE 3
FIXED RENT
3.1 FIXED RENT. Tenant shall pay to Landlord, without any prior demand
therefor and without any deduction or set-off whatsoever, the Fixed Rent set
forth in Article 1. Fixed Rent shall be due and payable in monthly installments
each equal to the Monthly Fixed Rent set forth in Article 1, in advance on the
first day of each and every calendar month during the Term. If the Commencement
Date shall be a day other than the first day of a calendar month, then Tenant
shall pay, upon the Commencement Date, an amount equal to the applicable Monthly
Fixed Rent multiplied by a fraction the numerator of which shall be the number
of days remaining in the month,
3
<PAGE>
including and after the Commencement Date, and the denominator of which shall be
the number of days in the month. Tenant shall pay to Landlord upon execution of
this Lease an amount equal to the first Monthly Fixed Rent, which amount shall
be held by Landlord without interest and applied to the first Monthly Fixed Rent
obligation of Tenant.
3.2 MANAGEMENT FEE. Tenant shall pay to Landlord, without prior demand
therefor, and without any deductions or set off whatsoever, a management fee for
a twelve (12) month period commencing on the Commencement Date in an amount
equal to $30,847.68 payable in twelve (12) equal monthly installments of
$2,570.64 each. Said management fee shall be payable on the first day of each of
the first twelve (12) calendar months following the Commencement Date. After
said initial twelve (12) month period, Tenant shall have no further obligation
to pay said management fee.
3.3 ADDITIONAL RENT. Any sums or charges to be paid by Tenant pursuant
to the provisions of this Lease, other than the Fixed Rent, shall be designated
as "Additional Rent" and shall be payable within thirty (30) days after receipt
by Tenant of written notice that payment is due, unless otherwise provided in
this Lease. Landlord shall have the same rights against Tenant for default in
payment of Additional Rent as for default in payment of the Fixed Rent. As used
in this Lease, the term "Rent" shall mean the Fixed Rent and Additional Rent.
3.4 PAST DUE RENT.
(a) If Tenant shall fail to pay any installment of Rent before
the tenth (10th) day after such Rent is due and payable, Tenant shall
pay a charge (the "Late Charge") which shall be 5% of the amount of
such unpaid installment of Rent; provided, however, that such Late
Charge shall not be imposed upon Tenant for the first (1st) time that
Tenant fails to pay any installment of Rent in any consecutive twelve
(12) month period.
(b) Any amount due from Tenant to Landlord which is not paid
on or before the fifth (5th) day after such Rent is due and payable
shall bear interest at the lesser of twelve percent (12%) or the
maximum rate of interest permitted by law (the "Default Rate") from the
date such payment is due, after the expiration of any applicable grace
period, until paid. The rate so determined shall continue in effect
following any default by Tenant pursuant to this Lease. Payment of such
interest shall not excuse or cure any default by Tenant under this
Lease.
3.5 NET LEASE. This is an absolutely net lease to Landlord. It is the
intent of the parties hereto that the Fixed Rent payable under this Lease shall
be an absolutely net return to Landlord and that Tenant shall pay all costs and
expense relating to the Building and the business carried on therein, unless
otherwise expressly provided in this Lease. Any amount or obligation herein
relating to the Building which is not expressly declared to be that of Landlord
shall be deemed to be an obligation of Tenant to be performed by Tenant at
Tenant's expense.
ARTICLE 4
TAXES AND PARK FEES
4.1 PAYMENT OF TAXES AND PARK FEES. Throughout the Term, Landlord shall
forward copies of all bills for Taxes (as hereinafter defined) to Tenant and
Tenant shall pay all Taxes directly to the applicable taxing authority prior to
the due date and shall simultaneously send evidence of such payment to Landlord.
To the extent any bill for Taxes applies to a period falling within the Term
hereof and also a period either before or after the Term hereof, Tenant shall
only be responsible for the portion of the bill related to Taxes applicable to
the Term hereof and, accordingly, such bill shall be appropriately prorated
between Landlord and Tenant. In addition to payment of Taxes, Tenant shall pay
prior to delinquency any and all payments due and payable under that certain
Declaration of Covenants, Conditions, Restrictions and Easements for Carol Point
Business Center dated October 5, 1990, recorded with the DuPage County Recorder
on October 11, 1990 as Document No. R90-136841, as amended or modified. In the
event Tenant fails to timely
4
<PAGE>
pay Taxes or Park fees as provided hereunder, in addition to any other rights or
remedies available to Landlord, Landlord may, at its option, pay such Taxes or
park fees, in which event Tenant shall promptly reimburse Landlord for such
payment with interest thereon at the Default Rate from the date paid until the
date reimbursed by Tenant.
Alternatively, and notwithstanding the foregoing or any provision of
the Lease to the contrary, Tenant shall have the right, before delinquency
occurs, of contesting, objecting to or opposing the legality or validity of any
such Taxes attributable to the Building; provided that prompt notice of such
contest, object or opposition shall be given to Landlord by Tenant at least
twenty (20) days before any delinquency; and provided, further, that such
contest, objection or opposition shall not be carried on or maintained after the
aforementioned time limit for the payment of said objections unless Tenant shall
have duly paid the amount involved under protest or shall have procured and
maintained a stay of all proceedings to enforce any collection thereof and shall
also have provided for payment thereof, togther with all penalties, interest,
costs and expenses, by a deposit of sufficient sum of money or by a good and
sufficient undertaking as may be required or permitted by law to accomplish such
a stay. In the event of any such contest, objection or opposition, Tenant agrees
to pay and discharge any unpaid amounts finally determined to be due within
thirty (30) days after the final determination thereof or within such later
grace period as may be allowed by law. Notwithstanding the foregoing, if Tenant
does not undertake to contest Taxes as provided above within fifteen (15) days
after written notice from Landlord, Landlord shall also retain the right to
contest Taxes.
4.2 DEFINITION OF TAXES. Taxes shall mean all taxes, assessments and
fees levied upon the Building, the property of Landlord located therein or the
rents collected therefrom, by any governmental entity based upon the ownership,
leasing, renting or operation of the Building, including all reasonable costs
and expenses of protesting in good faith any such taxes, assessments or fees. To
the extent assessments are permitted by law to be paid in installments, such
assessments shall only be required to be paid in the maximum number of
installments permitted by applicable law and, accordingly, Tenant shall only be
responsible for the payment of such assessments applicable to the Term hereof.
Notwithstanding anything to the contrary contained in this paragraph, Taxes
shall not include any net income, capital stock, succession, transfer,
franchise, gift, estate or inheritance taxes; provided, however, if at any time
during the Term, a tax or excise on income is levied or assessed by any
governmental entity, in lieu of or as a substitute for, in whole or in part,
real estate taxes or other AD VALOREM taxes, such tax shall constitute and be
included in Taxes. Additionally, the term "Taxes" shall not include any tax on
Landlord's "right" to rent or "right" to other income from the Building or
against Landlord's business of leasing the Building, imposed by any taxing
authority or other authority with the power to tax, except and only to the
extent such tax fee (i) is levied and assessed in lieu of a traditional ad
valorem property tax, (ii) applies to the Building and (iii) is applicable to
all owners of industrial properties (and not only to residents or other types of
properties) in the Carol Stream, Illinois, area. For the purpose of determining
Taxes for any given year, the amount to be included for such year shall be Taxes
which are assessed or become a lien during such year rather than Taxes which are
due for payment or paid during such year. For example, if the Commencement Date
occurs on January 1, 1999, Tenant shall be responsible for the 1999 Taxes
payable in 2000. Accordingly, Tenant's obligation to pay Taxes for the Building
shall survive the expiration or earlier termination of this Lease.
ARTICLE 5
COMPLETION AND OCCUPANCY OF THE BUILDING
5.1 COMPLETION OF THE BUILDING. Landlord shall complete the work
described on Exhibit C attached hereto ("Landlord's Work"). In the event
Landlord is delayed in completing Landlord's Work by any delay, interference or
hindrance (which shall include, without being limited to, any delays in the
submission by Tenant of completed and approved (by Landlord) plans and
specifications in respect of Landlord's Work), directly or indirectly, of such
work by Tenant, Tenant's contractors or any of their employees or agents or
Tenant's requirements with respect thereto, then the Commencement Date shall be
deemed to have occurred, notwithstanding that
5
<PAGE>
Landlord's Work is not completed, as of the date that Landlord's Work would have
been completed notwithstanding such delays .
5.2 OCCUPANCY OF BUILDING. The occupancy of the Building or any part
thereof for business by Tenant or anyone claiming by, under or through Tenant
shall be conclusive evidence that (a) Tenant accepts possession of the Building,
or applicable portion thereof; (b) the Building, or applicable portion thereof,
as the case may be, was in good and satisfactory condition, subject to latent
defects; and (c) Landlord's Work, if any, was satisfactorily completed at the
time such occupancy was so taken, subject to punchlist items, if any, indicated
on a list delivered by Tenant to Landlord and agreed to by Landlord on or before
the date Tenant takes occupancy of the Building, or applicable portion thereof,
as the case may be.
5.3 ALLOWANCES. Landlord's Work includes an allowance of $60,000 for
completion of the fire protection system for the Building, $577,500 for
completion of the office portion of the Building and an allowance of $15,000 for
completion of Tenant's identification signage as more fully described on Exhibit
C attached hereto. In the event the cost and expenses of construction of the
fire protection system, the office portion of the Building or the signage
exceeds the applicable allowance, Tenant shall be responsible for reimbursing
Landlord, promptly upon receipt of invoice for same from Landlord, the amount of
any such overage. In the event the costs and expenses of construction of the
fire protection system, the office portion of the Building or the signage is
less than the applicable allowance, Tenant shall be entitled to a credit against
Fixed Rent next becoming due for any such unused portion of the allowance.
ARTICLE 6
CONDUCT OF BUSINESS BY TENANT
6.1 USE OF THE BUILDING. Tenant shall use the Building during the Term
solely for the storage, assembly and distribution of business products, and/or
related general office purposes, and for no other purpose.
6.2 COMPLIANCE WITH LAWS AND REQUIREMENTS OF PUBLIC AUTHORITIES.
(a) At all times during the Term, Tenant shall give prompt
notice to Landlord of any notice Tenant receives of any violation of
any law or requirement of a governmental authority affecting the
Building or any regulation of the board of fire underwriters having
jurisdiction over the Building ("Applicable Law"), and, at its sole
cost and expense, shall comply with all Applicable Laws, including any
violation, order or duty imposed upon Landlord or Tenant, arising from
or relating to (1) Tenant's use of the Building; (2) the manner or
conduct of Tenant's business or operation of its installations,
equipment or other property therein; (3) any cause or condition created
by or at the insistence of Tenant; or (4) breach of any of Tenant's
obligations hereunder.
(b) Tenant shall not do, permit or suffer any act or thing to
be done which is injurious to the Building, which is immoral, a
nuisance, contrary to Applicable Law or in violation of the certificate
of occupancy issued for the Building or which would result in the
cancellation of, or any increase in premiums for, insurance, if any,
maintained by Landlord with respect to the Building.
(c) Tenant shall not use, maintain or allow the use or
maintenance of the Building or any part thereof to treat, store,
dispose of, transfer, release, convey or recover Hazardous Materials
(as hereinafter defined) nor shall Tenant otherwise, in any manner,
possess or allow the possession of any Hazardous Materials on or about
the Building; provided, however, any Hazardous Material lawfully
permitted and generally recognized as necessary and appropriate for the
permitted use described in Section 6.1 above may be stored and used on
the Building so long as (i) such storage and use is in the ordinary
course of Tenant's business permitted under this Lease; (ii) such
storage and use is performed in compliance with all Applicable Laws and
in compliance with the highest standards prevailing in the
6
<PAGE>
industry for the storage and use of such materials; and (iii) Tenant
delivers prior written notice to Landlord of the identity of and
information regarding such materials as Landlord may require.
"Hazardous Materials" shall mean any solid, liquid or gaseous waste,
substance or emission or any combination thereof which may (i) cause or
significantly contribute to an increase in mortality or serious
illness, or (ii) pose the risk of a substantial present or potential
hazard to human health, to the environment or otherwise to animal or
plant life, and shall include without limitation hazardous substances
and materials described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; the Resource
Conservation and Recovery Act, as amended; and any other applicable
federal, state or local laws. Tenant shall promptly notify Landlord of
the presence or suspected presence of any Hazardous Materials on or
about the Building and shall deliver to Landlord any notice received by
Tenant relating thereto.
(d) Tenant agrees that it shall not keep, use, sell or offer
for sale in or upon the Building any article which may be prohibited by
any then available standard forms of fire insurance policies with
extended coverage. Tenant agrees to pay to Landlord any increase in
premiums for insurance, if any, maintained by Landlord with respect to
the Building, whether, or not Landlord has consented to such use.
ARTICLE 7
ALTERATIONS AND MECHANICS' LIENS
7.1 ALTERATIONS. Tenant shall not make any alterations, additions or
improvements (collectively, "Alterations") in or to the Building without
Landlord's prior written consent. Tenant shall only utilize contractors approved
by Landlord. Tenant shall, before making any Alterations, at its expense, obtain
all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Landlord, and Tenant agrees to carry, and to cause Tenant's
contractors and sub-contractors to carry such workmen's compensation, general
liability, personal and property damage insurance as Landlord may reasonably
require. Upon completion of any Alterations, Tenant shall deliver to Landlord
one set of "as-built" plans and specifications therefor. All Alterations
installed in the Building, either by Tenant or by Landlord on Tenant's behalf,
shall become the property of Landlord and shall remain upon and be surrendered
with the Building upon the expiration or earlier termination of the Lease;
provided, however, that Landlord shall have the right to require Tenant to
remove such alterations at Tenant's sole cost and expense upon the expiration or
earlier termination of this Lease, which required removal shall be specified by
Landlord when Landlord consents to Tenant's requested alterations or shall be
specified by Landlord after written request from Tenant in the event of any
alteration which does not require Landlord's consent as hereinafter described.
Nothing in this section shall be construed to give Landlord title to or to
prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such equipment and fixtures from the Building
or upon removal of other installations as may be required by Landlord, Tenant
shall immediately and at its expense, repair and restore the Building to the
condition existing prior to installation (subject to ordinary wear and tear) and
repair any damage to the Building due to such removal. All property that was
permitted or required to be removed by Tenant at the end of the Term but which
remains in the Building for 10 days after Tenant vacates the Building shall be
deemed abandoned and may, at the election of Landlord, either be retained as
Landlord's property or may be removed from the Building by Landlord at Tenant's
expense.
Notwithstanding the foregoing, Tenant may perform alterations to the
Building without Landlord's prior written consent provided such alterations (or
the performance thereof) do not (i) affect the mechanical, electrical HVAC, life
safety, or other Building operating systems, (ii) affect the structural
components of the Building or require penetration of the floor or ceiling of the
Building, (iii) involve the use or disturbance of any Hazardous Materials or
(iv) cost more than Twenty-Five Thousand and No/100 Dollars ($25,000.00) in any
one instance, and further provided that Tenant gives Landlord prior written
notice of such alterations and that such alterations (and the
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performance thereof) shall otherwise be in compliance with the provisions of
this Article 7 (except for the requirement of Landlord's consent).
7.2 MECHANICS' LIENS. Tenant shall (a) pay before delinquency all costs
and expenses of work done or caused to be done by Tenant in the Building ; (b)
keep the title to the Building and every part thereof free and clear of any lien
or encumbrance in respect of such work; and (c) indemnify and hold harmless
Landlord against any claim, loss, cost, demand (including reasonable legal
fees), whether in respect of liens or otherwise, arising out of the supply of
material, services or labor for such work. Tenant shall promptly notify Landlord
of any lien, claim of lien or other action of which Tenant has knowledge and
which affects the title to the Building or any part thereof, and shall cause the
same to be removed within 15 days (or such additional time as Landlord may
consent to in writing) or deliver to Landlord a bond in form, amount, and issued
by a surety satisfactory to Landlord, indemnifying Landlord against all costs
and liabilities resulting from such lien and the foreclosure or attempted
foreclosure thereof. If Tenant shall fail to remove or bond over same within
said time period, Landlord may take such action as Landlord deems necessary to
remove the same and the entire cost thereof shall be immediately due and payable
by Tenant to Landlord and such amount shall bear interest at the Default Rate.
ARTICLE 8
UTILITIES
Tenant will pay all costs associated with the provision of all utility
services to the Building, including, without limitation, telephone, gas,
electricity, water and sewer service. Landlord and Tenant shall arrange for all
such utility service billings to commence in the name of Tenant upon delivery of
possession of the Building to Tenant, or any portion thereof, and Tenant shall
make all payments directly to the applicable utility company. Landlord will not
be liable to Tenant, nor will Tenant be relieved of any obligation hereunder if
any utility service to the Building is interrupted for any reason.
Notwithstanding the foregoing, in the event any such interruption of utilities
caused by the negligent or wilful misconduct of Landlord causes the Building to
be untenantable and as a result thereof Tenant in fact ceases to use the
Building for a period in excess of five (5) consecutive days, then commencing on
the sixth (6th) consecutive day of such untenantability and non-use, Rent
payable by Tenant shall be abated until the earliest to occur of (a) the date
such interruption is remedied, (b) the date the Building is again tenantable or
(c) the date Tenant resumes use of the Building.
ARTICLE 9
MAINTENANCE AND REPAIR
9.1 TENANT OBLIGATIONS. Except as hereinafter provided in Section 9.2,
Tenant will at its sole expense maintain the entire Building, exterior and
interior, in the same condition and repair as was delivered to Tenant. Tenant's
maintenance obligation will extend to and include the repair and replacement, if
necessary, of all mechanical systems of the Building. Tenant will provide and
maintain, at Tenant's sole cost and expense, maintenance contracts on a
quarterly basis for all air-conditioning, heating and ventilating systems
("HVAC") serving the Building. Copies of all maintenance and service contracts
will be delivered to Landlord upon request by Landlord. Tenant shall contract
with a reputable third party inspector to perform an annual roof inspection.
Copies of the results of such inspection will be delivered to Landlord upon
request by Landlord. Any repairs or replacements made to the Building by Tenant
pursuant to this Article 9 will be made in a workmanlike manner with materials
at least equal in quality and grade to those originally contained within the
Building. Tenant will also contract for its own janitorial and trash removal
services and will promptly pay all costs associated with such services. Landlord
reserves the right to enter upon the Building during normal business hours
(except, however, in the event of an emergency Landlord shall have the right to
enter upon the Building outside of normal business hours), upon reasonable
notice to Tenant (except in the event of an emergency no such notice shall be
required), to inspect same to determine Tenant's compliance with its obligations
under this Article 9.
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9.2 LANDLORD OBLIGATIONS. Notwithstanding anything contained in Section
9.1 above to the contrary, Landlord will be obligated to repair and replace the
roof and the structural components of the exterior walls and foundation in good
condition and order of repair. Notwithstanding the foregoing, however, Tenant
will be responsible for the payment of all costs associated with such repair and
replacement if the need therefore arises due to the fault or negligence of
Tenant or its agents, employees, licensees or invitees. Except as otherwise
expressly provided above, Landlord will not be at any time required to make
improvements, repairs, replacements or alterations to the Building.
ARTICLE 10
INSURANCE AND INDEMNITY
10.1 REQUIRED INSURANCE.
(a) TENANT'S INSURANCE. In consideration of the leasing of the
Building at the rent stated herein, Tenant agrees to maintain, at its
sole cost and expense, commencing on any occupancy of the Building, or
any portion thereof, by Tenant and continuing at all times during the
Term hereof, the following insurance:
(i) "All Risk" Property Insurance, at least as broad
as the Insurance Services Office - Causes of Loss Special Form
in an amount adequate to cover 100% of the replacement cost of
Tenant's leasehold improvements, fixtures, equipment,
furniture, furnishings and personal property.
(ii) Commercial General liability insurance for the
benefit of Landlord, Tenant and any mortgagee against claims
for damages to person or property occurring on, in or about
the Building and the adjoining sidewalks, gutters, curbs,
passageways and other areas adjacent thereto, if any, of at
least $1,000,000 per occurrence, and at least $5,000,000
general aggregate, with respect to property damage or such
greater limits as may be reasonably required from time to time
by a first mortgagee or Landlord, such insurance to included
full contractual liability coverage respecting the
indemnification obligations of Tenant hereunder. Policies for
such insurance shall be for the mutual benefit of Landlord,
Tenant and any mortgagee as their respective interests may
appear.
(iii) Worker's compensation insurance covering all
persons employed by Tenant in connection with any work done on
or about the Building with respect to which claims for death
or bodily injury could be asserted against Landlord, Tenant or
the Building, complying with the laws of the State of
Illinois.
(iv) At any time when any portion of the Building is
being altered or replaced by or on behalf of Tenant, builder's
risk insurance (in completed value nonreporting form) in an
amount not less than the actual replacement value of the
improvements being performed, exclusive of foundations and
excavations.
These policies shall name Landlord, its employees, directors,
officers, agents, invitees or licensees, shareholders, partners and
principals as additional insureds (including, without being limited to,
any mortgagee of Landlord) as their interest may appear under this
Lease and provide that the insurer will not cancel or change the
insurance without first given Landlord 30 days prior written notice.
The insurance shall be written by an insurance company, licensed and
qualified to do business in the State in which the Property is located,
which is reasonably acceptable to Landlord. A certificate of insurance
shall be delivered to Landlord prior to Tenant's occupancy of any
portion of the Building and renewal certificates shall be delivered not
less than ten (10) days prior to the expiration of any then existing
coverage. The insurance which Tenant is required to maintain in force
and effect under this Section 10.1(a) shall be primary insurance as
respects Landlord (and any other additional insureds designed by
Landlord in this Section 10.1) and not excess over or contributory with
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any other available insurance. In no event shall the limits of any
coverage maintained by Tenant pursuant to this Section 10.1(a) be
considered as limiting Tenant's liability under this Lease.
(b) LANDLORD'S INSURANCE. At all times during the term of this
Lease, Landlord shall keep in full force and effect "All Risk" Property
Insurance, at least as broad as the Insurance Services Office-Causes of
Loss Special Form in an amount adequate to cover 100% of the
replacement cost of the Building. Such property insurance may include
rent loss coverage and such other coverages as may be reasonably
determined by Landlord. Such coverage may be provided by Landlord under
a blanket policy of insurance covering other properties of Landlord.
The insurance shall be written by an insurance company, licensed and
qualified to do business in the State in which the Property is located.
A certificate of insurance shall be delivered to Tenant upon the
execution and delivery of this Lease and renewal certificates shall be
delivered not less than ten (10) days prior to the expiration of any
then existing coverage. The insurance which Landlord is required to
maintain in force and effect under this Section 10.1(b) shall be
primary insurance as respects Tenant and not excess over or
contributory with any other available insurance.
10.2 REIMBURSEMENT OF LANDLORD'S INSURANCE PREMIUMS. Tenant shall pay
Landlord, promptly after receipt of invoice for same from Landlord, and in any
event prior to the due date thereof, any premiums payable by Landlord in
connection with the insurance to be provided by Landlord under Section 10.1(b)
above.
10.3 INDEMNITY AND NON-LIABILITY.
(a) Neither Landlord nor Landlord's agents (including, without
limitation, the Managing Agent), employees, contractors, officers,
trustees, directors, shareholders, partners or principals (disclosed or
undisclosed) shall be liable to Tenant or Tenant's agents, employees,
contractors, invitees or licensees or any other occupant of the
Building, and Tenant shall save Landlord, its successors and assigns
and their respective agents, employees, contractors, officers,
trustees, directors, shareholders, partners and principals (disclosed
or undisclosed) harmless from any loss, cost, liability, claim, damage,
expense (including reasonable attorneys' fees and disbursements),
penalty or fine incurred in connection with or arising from any injury
to Tenant or to any other person or for any damage to, or loss (by
theft or otherwise) of, any of Tenant's property or of the property of
any other person, irrespective of the cause of such injury, damage or
loss (including the acts or negligence of any tenant or of any owners
or occupants of adjacent or neighborhood property or caused by
operations in construction of any private, public or quasi-public work)
unless due to the negligence or willful misconduct of Landlord or
Landlord's agents or employees. To the extent of Tenant's insurance
coverage, Landlord, and its agents and employees, shall not be liable
for any loss or damage to any person or property even if due to the
negligence or wilful misconduct of Landlord, its agents or employees.
(b) Neither any (i) performance by Landlord, Tenant or others
of any repairs, improvements, alterations, additions, installations,
substitutions, betterments or decorations in or to the Building or the
Building equipment and systems, (ii) failure of Landlord or others to
make any such repairs or improvements, (iii) damage to the Building,
the Building equipment and systems, or Tenant's property, (iv) injury
to any persons, caused by other tenants or persons in the Building, or
by operations in the construction of any private, public, or
quasi-public work, or by any other cause, (v) latent defect in the
Building or Building equipment and systems, nor (vi) inconvenience or
annoyance to Tenant or injury to or interruption of Tenant's business
by reason of any of the events or occurrences referred to in the
foregoing subdivisions (i) through (v) shall impose any liability on
Landlord to Tenant, other than, subject to Section 21.10 hereof, such
liability as may be imposed upon Landlord by law for Landlord's gross
negligence or the gross negligence of Landlord's agents or employees in
the operation or maintenance of the Building or Building equipment and
systems or for the breach by Landlord of any express covenant of this
Lease on Landlord's part to be performed.
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(c) Tenant hereby indemnifies and holds harmless Landlord and
Landlord's agents, employees, contractors, officers, trustees,
directors, shareholders, partners or principals (disclosed or
undisclosed) from any loss, cost, liability, claim, damage, expense
(including reasonable attorneys' fees and disbursements), penalty or
fine incurred in connection with or arising from (i) any default by
Tenant in the performance of any of the terms of this Lease on Tenant's
part to be performed, or (ii) the use or occupancy or manner of use or
occupancy of the Building by Tenant or any person claiming under
Tenant, or (iii) any acts, omissions or negligence of Tenant or any
such person, or the contractors, agents, employees, invitees,
licensees, assignees or sublessees of Tenant or any such person, or
(iv) any accident, injury or damage whatsoever caused to any person or
to the property of any person and occurring in or about the Building.
Tenant's obligations under this Section 10.3 shall survive the
expiration or earlier termination of this Lease.
10.4 WAIVER OF SUBROGATION. Landlord and Tenant shall each endeavor to
procure an appropriate clause in, or endorsement to, each of its policies for
fire and extended coverage insurance, pursuant to which the insurance company
waives subrogation or consents to waiver of its right of recovery against the
other party, which, in the case of Tenant, shall be deemed to include any
subtenant in the Building, and having obtained such clause or endorsement of
waiver of subrogation or consent to a waiver of the right of recovery, such
party hereby agrees that it will not make any claim against or seek to recover
from the other for any loss or damage to its property or the property of others
covered by such fire or extended coverage insurance; provided, however, that the
release, discharge and covenant not to sue herein contained shall be limited by
the terms and provisions of the waiver of subrogation clause or endorsement, or
the clause or endorsement consenting to a waiver of right of recovery, and shall
be co-extensive therewith.
ARTICLE 11
DAMAGE BY CASUALTY
11.1 NOTICE. Tenant shall give immediate written notice to Landlord of
any damage caused to the Building by fire or other casualty.
11.2 RESTORATION OF IMPROVEMENTS.
(a) In the event the Building is damaged by fire or other
casualty, Landlord shall, unless this Lease is terminated as
hereinafter provided, proceed with reasonable diligence and at its sole
cost and expense to repair the Building, but only to the extent of
available insurance proceeds or, if Landlord fails to maintain the
insurance required to be procured and maintained by Landlord pursuant
to Section 10.1(b) above, which should have been available had Landlord
procured and maintained such insurance. Tenant shall promptly, at its
sole cost and expense, remove such of its equipment and other
belongings from the Building as Landlord shall require in order to
repair and restore the Building. Until any such repairs to the Building
are completed, the Fixed Rent shall be abated in proportion to the part
of the Building, if any, that is unusable by Tenant in the conduct of
its business. If the fire or other casualty is due to the negligence or
misconduct of Tenant, its agents, employees, contractors or invitees,
there shall be no abatement of Fixed Rent.
(b) If (1) the Building shall be (i) totally destroyed or
substantially damaged, or (ii) partially destroyed or damaged by a
casualty not fully covered by insurance or which, in Landlord's good
faith reasonable judgment, cannot be restored to tenantable condition
within 180 days after the casualty, or (2) the Building shall be
destroyed to the extent of one-quarter or more of its then value or so
damaged that, in Landlord's good faith reasonable judgment, substantial
alteration, demolition or reconstruction of the Building shall be
required, whether or not covered by Landlord's insurance, then in
either such event Landlord may elect to proceed to rebuild and repair
the Building or to terminate this Lease, effective upon giving notice
of such election to Tenant within thirty (30) days after the occurrence
of such casualty. In either of such event, if Landlord does not elect
to terminate this Lease, Landlord shall
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notify Tenant within thirty (30) days following such casualty of
Landlord's good faith estimate of the time Landlord expects it will
take to complete such restoration. Within ten (10) business days
following receipt of such notice, Tenant may elect to terminate this
Lease or keep this Lease in effect, and in the latter case Landlord
shall proceed to rebuild and repair the Building with due diligence.
Landlord's obligation to rebuild and repair under this Section 11.2
shall in any event be limited to restoring the Building to
substantially the condition in which they existed prior to the casualty
(in no event shall Landlord be required to repair any of Tenant's
leasehold improvements, fixtures, equipment, furniture, furnishings and
personal property) and then only to the extent that insurance proceeds
shall be sufficient to pay for such restoration or, if Landlord fails
to maintain the insurance required to be procured and maintained by
Landlord pursuant to Section 10.1(b) above, which should have been
available had Landlord procured and maintained such insurance. Tenant
agrees that, promptly after the completion of such work by Landlord, it
will proceed with reasonable diligence and at its sole cost and expense
to rebuild, repair and restore its fixtures, equipment and other
installations.
ARTICLE 12
EMINENT DOMAIN
12.1 TAKING OF THE BUILDING. If during the Term all of the Building
shall be taken for any public or quasi-public use under any statute or by right
of eminent domain, or sale-in-lieu of such taking, this Lease shall
automatically terminate on the date on which the condemning authority takes
possession of the Building (hereinafter called the "Date of Taking"). If so much
of the Building (but less than all) is taken as shall render the Building
untenantable in Landlord's and Tenant's mutual good faith judgment, Tenant or
Landlord shall have the right to terminate this Lease by giving written notice
to the other party of termination within 30 days after the Date of Taking.
12.2 PARTIAL OR TEMPORARY TAKING OF BUILDING.
(a) If during the Term, the Building, or any portion thereof,
is taken or sold as set out in Section 12.1, then (1) if in the
reasonable good faith opinion of Landlord substantial alteration or
reconstruction of the Building is necessary as a result thereof, or (2)
if one-quarter or more of the value, in Landlord's reasonable good
faith judgment, of the Building is included in such taking or sale,
then, Landlord shall have the right to terminate this Lease by giving
to Tenant at least 30 days' written notice thereof.
(b) If during the Term the Building, or any portion thereof,
shall be taken as set out in Section 12.1 for a period of less than one
(1) year, this Lease shall remain in full force and effect subject to
Section 12.4 hereof. If such a taking shall be for a period of one (1)
year or more, then the provisions of Section 12.1 and Section 12.2(a),
as the case may be, shall be applicable.
(c) If either party exercises its rights of termination under
Section 12.1 or 12.2 (and any such right must be exercised within 30
days after the Date of Taking, failing which such right shall be deemed
waived), this Lease shall terminate on the date stated in the notice,
provided, however, that no termination pursuant to notice hereunder may
occur later than 60 days after the Date of Taking.
12.3 SURRENDER. On the date of any termination under Section 12.1 or
12.2, Tenant shall immediately surrender to Landlord the Building and all
interests therein under this Lease and Tenant shall pay Landlord Rent through
the date of termination (or through the Date of Taking if such date shall not be
the same as the date of termination). Landlord may re-enter and take possession
of the Building and remove Tenant therefrom.
12.4 RENT ADJUSTMENT FOR PARTIAL TAKING OF THE BUILDING. If any portion
of the Building (but less than the whole thereof) is so taken, and no rights of
termination herein conferred are timely exercised, the Term shall expire (or, in
respect of a taking pursuant to Section 12.2(b)
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hereof, have no force and effect for the period of such temporary taking) with
respect to the portion so taken on (or from) the Date of Taking. In such event,
the Rent thereafter payable under this Lease shall be adjusted pro rata by
Landlord in order to account for the resulting reduction (either temporarily or
permanently) in the number of rentable square feet in the Building.
12.5 AWARDS. Upon any taking or sale described in this Article 12,
Landlord shall be entitled to receive and retain the entire award or
consideration for the affected lands and improvements, and Tenant shall not have
nor advance any claim against Landlord or anyone else for the value of its
property or its leasehold estate under this Lease, or for the costs or removal
or relocation, or business interruption expense or any other damages arising out
of such taking or purchase. Nothing herein shall give Landlord any interest in
or preclude Tenant from seeking and recovering on its own account a separate
award from the condemning authority attributable to the taking or purchase of
Tenant's trade fixtures, or the removal or relocation of its business and
effects, or the interruption of its business provided that Landlord's award is
not diminished thereby. If any such award made or compensation paid to either
party specifically includes an award or amount for the other, the party first
receiving the same shall promptly account therefor to the other.
ARTICLE 13
RIGHTS RESERVED TO LANDLORD
Landlord and Landlord's agents shall have the right (but shall not be
obligated) to enter the Building in any emergency at any time, and to perform
any acts related to the safety, protection or preservation thereof or of the
Building. At other reasonable times, and upon reasonable notice, Landlord may
enter the Building (1) to examine and make such repairs, replacements and
improvements as Landlord may deem necessary or reasonably desirable to the
Building, (2) for the purpose of complying with laws, regulations and other
requirements of governmental authorities or the provisions of this Lease, or (3)
for the purposes of showing the same to prospective purchasers, mortgagees or
tenants of the Building or, parties thereof. Tenant shall not be entitled to any
damages by reason of loss or interruption of business or otherwise during such
periods. During such periods Landlord shall use reasonable efforts to minimize
any interference with Tenant's use of the Building. In the event of an
emergency, if Tenant is not present to open and permit an entry into the
Building, Landlord or Landlord's agents may enter the same whenever such entry
may be necessary by master key or otherwise, provided reasonable care is
exercised to safeguard Tenant's property.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 CONSENT REQUIRED.
(a) Tenant shall not, voluntarily or involuntarily, by
operation of law or otherwise: (i) assign, mortgage, pledge, encumber
or in any manner transfer this Lease in whole or in part, or (ii)
sublet all or any part of the Building, or allow any other person to
occupy all or any part thereof (a "Transfer"), without the prior
written consent of Landlord in each instance, which consent shall not,
as more fully provided hereafter, be unreasonably withheld, conditioned
or delayed, and any attempt to do any of such acts without such consent
shall be null and void and of no effect. A transfer of control of
Tenant, including, without being limited to, a transfer of stock or the
sale of all or substantially all of the assets of Tenant, shall be
deemed an assignment under this Lease and shall be subject to all the
provisions of this Article, including the requirement of obtaining
Landlord's prior consent. The consent by Landlord to any assignment,
mortgage, pledge, encumbrance, transfer or subletting shall not
constitute a waiver of the necessity for such consent to any subsequent
assignment, mortgage, pledge, encumbrance, transfer or subletting.
(b) If this Lease be assigned, or if the Building or any part
thereof be sublet or occupied by anyone other than Tenant, Landlord may
collect Rent from the assignee,
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subtenant or occupant, and apply the net amount collected to the Rent
herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance
of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part
of Tenant herein contained.
(c) Notwithstanding any assignment, mortgage, pledge,
encumbrance, transfer or sublease of this Lease, Tenant shall remain
fully liable for the performance of all of the terms, covenants,
obligations and conditions of this Lease and shall not be released
therefrom.
14.2 STANDARDS FOR CONSENT. If Tenant desires the consent of Landlord
to a Transfer, Tenant shall submit to Landlord, at least thirty (30) days prior
to the proposed effective date of the Transfer, a written notice which includes
such information as Landlord may require about the proposed Transfer and the
transferee. Landlord shall not unreasonably withhold its consent to any
assignment or sublease, which consent or lack thereof shall be provided within
thirty (30) days after receipt of Tenant's notice. Landlord shall not be deemed
to have unreasonably withheld its consent if, in the reasonable judgment of
Landlord: (i) the transferee is of a character or engaged in a business which is
not in keeping with the standards or criteria used by Landlord in leasing the
Building; (ii) the financial condition of the transferee is such that it may not
be able to perform its obligations in connection with this Lease; (iii) Tenant
is in default under this Lease; or (iv) in the judgment of Landlord, such a
Transfer would violate any term, condition, covenant or agreement of the
Landlord involving the Building. The foregoing, however, is not intended to be
an exhaustive list of reasonable reasons for Landlord to withhold such consent.
If Landlord wrongfully withholds its consent to any Transfer, Tenant's sole and
exclusive remedy therefor shall be to seek specific performance of Landlord's
obligation to consent to such Transfer, unless, however a finding is made by the
court rendering the judgement that Landlord acted in malicious bad faith in
withholding its consent to the proposed Transfer, in which case Tenant shall be
entitled to damages suffered by Tenant as a result thereof.
ARTICLE 15
DEFAULT
15.1 DEFAULT. The occurrence of any of the following shall constitute a
default (a "DEFAULT") by Tenant under this Lease: (i) Tenant fails to pay any
Rent when due and such failure is not cured within ten (10) business days after
notice (give in accordance with Article 20 below) from Landlord (which notice
may be in the form of a Landlord statutory notice); (ii) Tenant fails to perform
any other provision of this Lease and such failure is not cured within thirty
(30) days (or immediately if the failure involves a hazardous condition) after
notice from Landlord, provided, however, that if such failure to perform cannot
by its nature be cured within said thirty (30) day period using due diligence,
then said thirty (30) day period shall be extended for a reasonable period of
time to complete such cure so long as Tenant commences such cure within the
initial thirty (30) days and thereafter diligently proceeds to complete such
cure; (iii) the leasehold interest of Tenant is levied upon or attached under
process of law; (iv) Tenant abandons the Building without notice to Landlord; or
(v) any voluntary or involuntary proceedings are filed by or against Tenant as
debtor under any bankruptcy, insolvency or similar laws and, in the case of any
involuntary proceedings, are not dismissed within thirty (30) days after filing.
15.2 RIGHT OF RE-ENTRY. Upon the occurrence of a Default, Landlord may
elect to terminate this Lease or, without terminating this Lease, terminate
Tenant's right to possession of the Building. Upon any such termination, Tenant
shall immediately surrender and vacate the Building and deliver possession
thereof to Landlord. Tenant grants to Landlord the right to enter and repossess
the Building and to expel Tenant and any others who may be occupying the
Building and to remove any and all property therefrom, without being deemed in
any manner guilty of trespass and without relinquishing Landlord's rights to
Rent or any other right given to Landlord hereunder or by operation of law.
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15.3 TERMINATION OF RIGHT TO POSSESSION. If Landlord terminates
Tenant's right to possession of the Building without terminating this Lease,
Landlord may relet the Building or any part thereof. In such case, Landlord
shall use reasonable efforts to relet the Building on such terms as Landlord
shall reasonably deem appropriate; provided, however, Landlord may first lease
Landlord's other available space and shall not be required to accept any tenant
offered by Tenant or to observe any instructions given by Tenant about such
reletting. Tenant shall reimburse Landlord for the costs and expenses of
reletting the Building including, but not limited to, all brokerage,
advertising, legal, alteration, redecorating, repairs and other expenses
incurred to secure a new tenant for the Building. In addition, if the
consideration collected by Landlord upon any such reletting, after payment of
the expenses of reletting the Building which have not been reimbursed by Tenant,
is insufficient to pay monthly the full amount of the Rent, Tenant shall pay to
Landlord the amount of each monthly deficiency as it becomes due. If such
consideration is greater than the amount necessary to pay the full amount of the
Rent, the full amount of such excess shall be retained by Landlord and shall in
no event be payable to Tenant.
15.4 TERMINATION OF LEASE. If Landlord terminates this Lease, Landlord
may recover from Tenant and Tenant shall pay to Landlord, on demand, as and for
liquidated and final damages, an accelerated lump sum amount equal to the amount
by which Landlord's reasonable estimate of the aggregate amount of Rent owing
from the date of such termination through the Expiration Date plus Landlord's
estimate of the aggregate expenses of reletting the Building, exceeds Landlord's
estimate of the fair rental value of the Building for the same period (after
deducting from such fair rental value the time needed to relet the Building and
the amount of concessions which would normally be given to a new tenant) both
discounted to present value at the rate of five percent (5%) per annum.
15.5 OTHER REMEDIES. Landlord may, but shall not be obligated to,
perform any obligation of Tenant under this Lease, and, if Landlord so elects,
all costs and expenses paid by Landlord in performing such obligation, together
with interest at the Default Rate, shall be reimbursed by Tenant to Landlord on
demand. Any and all remedies set forth in this Lease: (i) shall be in addition
to any and all other remedies Landlord may have at law or in equity; (ii) shall
be cumulative; and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future.
15.6 BANKRUPTCY. If Tenant becomes bankrupt, the bankruptcy trustee
shall not have the right to assume or assign this Lease unless the trustee
complies with all requirements of the United States Bankruptcy Code, and
Landlord expressly reserves all of its rights, claims and remedies thereunder.
15.7 WAIVER OF TRIAL BY JURY. Landlord and Tenant waive trial by jury
in the event of any action, proceeding or counterclaim brought by either
Landlord or Tenant against the other in connection with this Lease.
15.8 VENUE. If either Landlord or Tenant desires to bring an action
against the other in connection with this Lease, such action shall be brought in
the federal courts located in Chicago, Illinois, or state courts located in
DuPage County, Illinois. Landlord and Tenant consent to the jurisdiction of such
courts.
ARTICLE 16
SURRENDER
16.1 POSSESSION. Upon the expiration or earlier termination of this
Lease, Tenant shall immediately quit and surrender possession of the Building in
as good a state and condition as they were when entered into, reasonable wear
and tear and casualty damage (other than that which Tenant is obligated to
repair) excepted. Upon such surrender, all right, title and interest of Tenant
in the Building shall cease.
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16.2 MERGER. The voluntary or other surrender of this Lease by Tenant
or the cancellation of this Lease by mutual agreement of Tenant and Landlord
shall not work a merger, but shall, at Landlord's option, terminate all or any
subleases and subtenancies or operate as an assignment to Landlord of all or any
subleases or subtenancies. Landlord's option hereunder shall be exercised by
notice to Tenant and all known sublessees or subtenants in the Building or any
part thereof.
ARTICLE 17
HOLDING OVER
17.1 HOLDING OVER. If Tenant retains possession of the Building or any
part thereof after the expiration or earlier termination of this Lease, Tenant
shall pay as Rent a sum equal to one and one-half times the amount, including
Fixed Rent and Additional Rent hereunder, payable for the month preceding such
holding over computed on a daily basis for each day that Tenant remains in
possession. In addition thereto, Tenant shall be liable for and shall pay to
Landlord, all damages, consequential as well as direct, sustained by reason of
Tenant's holding over.
ARTICLE 18
ESTOPPEL CERTIFICATE, SUBORDINATION, ATTORNMENT
18.1 ESTOPPEL CERTIFICATE. Tenant shall at any time upon the request of
Landlord, execute and deliver in recordable form and in substance satisfactory
to Landlord, an estoppel certificate certifying: the date Tenant accepted
occupancy of the Building; the date to which Rent has been paid; that this Lease
is in full force and effect and has not been modified or amended (or if modified
or amended, describing the same) and that there are no defenses or offsets
thereto or defaults of Landlord under this Lease (or if any be claimed,
describing the same); and such other matters as Landlord may reasonably request.
Tenant's failure to deliver such certificate within ten (10) days after receipt
of the demand therefor shall be a default hereunder.
18.2 SUBORDINATION. This Lease is and shall be subject and subordinate
to all ground or underlying leases, mortgages and deeds of trust which now or
hereafter affect the Building and/or any ground or underlying leases thereof and
to all renewals, modifications, consolidations, replacements and extensions
thereof. The provisions of this section shall be automatic and shall not require
any further action. In confirmation of such subordination, Tenant will execute
and deliver upon demand of Landlord any and all instruments desired by Landlord
subordinating this lease to such lease, mortgage or deed of trust.
18.3 ATTORNMENT. Tenant agrees that, at the option of the landlord
under any ground lease now or hereafter affecting the Building, Tenant shall
attorn to said landlord in the event of the termination or cancellation of such
ground lease and if requested by said landlord, enter into a new lease with said
landlord (or a successor ground-lessee designated by said landlord) for the
balance of the term then remaining hereunder upon the same terms and conditions
as those herein provided.
18.4 MORTGAGES. Tenant covenants and agrees that, if by reason of
default under any mortgage or deed of trust which may now or hereafter affect
the Building, the mortgagee thereunder enters into and becomes possessed of the
said mortgaged property either through possession or foreclosure action or
proceeding, or in the event of the sale of the said mortgaged property as a
result of any action or proceeding to foreclosure the said mortgage, Tenant will
attorn to the mortgagee or such then owner as its landlord under this Lease.
Tenant agrees to execute and deliver, at any time and from time to time, upon
the request of the mortgagee or the then owner of the said mortgaged property of
which the Building forms a part any instrument which may be necessary or
appropriate to evidence such attornment. Tenant further waives the provisions of
any statute or rule of law now or hereafter in effect which may give or purport
to give Tenant any right of election to terminate this Lease or to surrender
possession of the Building in the event any proceeding is brought by the
mortgagee under any such mortgage to terminate the same.
18.5 NON-DISTURBANCE AGREEMENT. Landlord agrees to make commercially
reasonable efforts to obtain from any superior ground lessor or mortgagee, if
any, a non-disturbance agreement
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for Tenant's protection on such terms and conditions as are mutually agreed upon
by Landlord, Tenant and such ground lessor or holder of a mortgage.
ARTICLE 19
QUIET ENJOYMENT
19.1 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that
upon payment by Tenant of the Rent hereunder and upon the observance and
performance of all of the terms, covenants and conditions on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Building,
free of all claims from Landlord. Landlord represents and warrants to Tenant
that Landlord is the holder of fee title to the Building.
ARTICLE 20
NOTICES
20.1 NOTICES. Whenever any notice or consent is required or permitted
hereunder, such notice or consent shall be in writing. Any notice or document
required or permitted to be delivered hereunder shall be deemed to be delivered
(a) upon receipt when sent by recognized overnight courier or (b) three (3)
business days after deposit in the United States Mail, postage prepaid,
Registered or Certified Mail, Return Receipt Requested, addressed to the parties
hereto at the addresses set forth in Article l, or at such other addresses as
they have theretofore specified by written notice delivered in accordance
herewith.
ARTICLE 21
MISCELLANEOUS PROVISIONS
21.1 TIME. Time is and shall be of the essence of this Lease and all
its provisions.
21.2 APPLICABLE LAW AND CONSTRUCTION.
(a) This Lease shall be governed by and construed under the
laws of the State in which the Building is located.
(b) The necessary grammatical changes required to make the
provisions of this Lease apply in the plural sense where there is more
than one tenant and to either corporations, associations, partnerships
or individuals, males or females, shall in all instances be assumed as
though fully expressed. If there is more than one person or entity who
or which are Tenant under this Lease, the obligations imposed upon
Tenant under this Lease shall be joint and several. The relationship
between Landlord and Tenant created hereunder shall be that of lessor
and lessee and nothing herein shall be construed as creating any joint
venture or partnership. The captions used in this Lease are for
convenience only and do not in any way limit or amplify the terms and
provisions hereof.
21.3 PARTIES BOUND. It is agreed that this Lease, and each and all the
covenants and obligations hereof, shall be binding upon and inure to the benefit
of, as the case may be, the parties hereto, their respective heirs, executors,
administrators, successors and assigns, subject to all agreements and
restrictions herein contained with respect to assignment or other transfer of
Tenant's interest herein.
21.4 NO REPRESENTATIONS BY LANDLORD. Except as may otherwise be
provided elsewhere in this Lease, neither Landlord nor Landlord's agents have
made any representations or promises with respect to the physical condition of
the Building, permissible uses of Building, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the Building
except as herein expressly set forth, and no rights, easements, or licenses are
acquired by Tenant by
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implication or otherwise except as expressly set forth in the provisions of this
Lease. Tenant has inspected the Building and is thoroughly acquainted with their
condition, and agrees to accept the same "as is" subject to completion of
Landlord's Work; provided, however, that the foregoing is not intended to and
shall not be construed as a waiver by Tenant of any obligations of the general
contractor, subcontractors or design professionals with respect to Landlord's
Work. All understandings and agreements heretofore made between the parties
hereto are merged in this Lease, which alone fully and completely expresses the
agreement between Landlord and Tenant, and any executory agreement hereafter
made shall be ineffective to change, modify, discharge or effect an abandonment
of it, in whole or in part, or a surrender of this Lease or of the Building or
any part thereof or of any interest of Tenant therein unless such executory
agreement is in writing and signed by Landlord and Tenant.
21.5 BROKERS. Each of Landlord and Tenant warrant that it has had no
dealings with any broker, agent or any other person in connection with the
negotiation or execution of this Lease other than the broker(s) identified in
Article 1, the commission due said broker(s) so identified being the sole
responsibility of Landlord. Each of Landlord and Tenant agree to indemnify and
hold harmless the other from and against any and all cost, expense, or liability
for commissions or other compensation and charges claimed by any broker or agent
(other than the broker(s) identified in Article 1) with respect to this Lease on
account of the acts of the indemnifying party.
21.6 SEVERABILITY. The invalidity or unenforceability of any provision
of this Lease shall not affect or impair the validity of any other provision.
21.7 FORCE MAJEURE. In the event Landlord or Tenant shall be delayed or
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war or other reason of a like nature beyond the reasonable control
of Landlord or Tenant, and the case may be, in performing work or doing acts
required under the terms of this Lease, then performance of such act shall be
extended for a period equivalent to the period of such delay, provided, however,
that the payment of Rent or any portion thereof by Tenant shall not be subject
to such delays or extension.
21.8 DEFINITION OF LANDLORD. As used in this Lease, the term "Landlord"
shall mean only the owner, or the mortgagee in possession, for the time being,
of the Building or the owner of a lease of the Building so that in the event of
any sale of the Building or in the event of a lease of the Building said
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder thereafter to be performed or observed, and it
shall be deemed and construed without further agreement between the parties or
their successors in interest, or between the parties and any such purchaser or
lessee, that such purchaser or lessee has assumed and agreed to performed and
observe any and all covenants and obligations of Landlord hereunder.
21.9 NO OPTION. The submission of this Lease for examination or
execution does not constitute a reservation of or option for the Building, and
this Lease becomes effective as a lease only upon execution and delivery thereof
by Landlord and Tenant.
21.10 EXCULPATORY CLAUSE. All separate and personal liability of
Landlord or any trustee, director, officer, partner or principal (disclosed or
undisclosed) thereof of every kind or nature, if any, is waived by Tenant, and
by every person now or hereafter claiming by, through or under Tenant; and
Tenant shall look solely to Landlord's estate in the Building for the payment of
any claim against Landlord. Tenant acknowledges that after the Commencement
Date, Landlord intends on assigning this Lease to Metropolitan Life Insurance
Company, or affiliated entity, and that the foregoing limitation of liability be
applicable to such successor Landlord.
21.11 NO RECORDING. Tenant shall not record this Lease, or any portion
or any reference hereto. In the event Tenant records this Lease, or permits or
causes this Lease, or any portion hereof or reference hereto to be recorded,
this Lease shall terminate at Landlord's option or Landlord may declare a
default hereunder and pursue any and all of its remedies provided in this Lease.
18
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21.12 ERISA. Tenant hereby represents and warrants to Landlord that (i)
Tenant is not a "party in interest" (within the meaning of Section 3(14) of the
Employee Retirement Income Security Act of 1974, as amended) or a "disqualified
person" (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended) with respect to any retirement or pension plan of the
Metropolitan Life Insurance Company, and (ii) no portion of or interest in the
Lease will be treated as a "plan asset" within the meaning of Regulation 29 CFR
Section 2510.3-101 issued by the Department of Labor.
21.13 CONSEQUENTIAL DAMAGES. Landlord and Tenant, respectively, each
waive, to full extent permitted by law, any claim of consequential damages
against the other party in connection with any default by the other party under
the terms and conditions of this Lease.
ARTICLE 22
OPTION TO EXTEND
22.1 OPTION TO EXTEND. Provided that Tenant is not in default hereunder
on the date of the Notice to Extend (as hereinafter defined) or on the
Expiration Date and on each such date shall be in occupancy of the entire
Building, Tenant shall have the right to extend the Term for the Extension
Term(s) described in Article 1 hereof, upon the same terms and conditions as are
herein provided, except that (a) Fixed Rent during the Extension Term(s) shall
be at the annual Fair Market Rent (as hereinafter defined) for the Building for
the Extension Term, (b) Tenant shall have no option to extend this Lease beyond
the expiration of the final Extension Term, and (c) the Building shall be
delivered in their existing condition (on an "as is" basis") at the time such
Extension Term commences. Such right shall be exercised by Tenant by giving
written notice (the "NOTICE TO EXTEND") to Landlord at least nine (9) months
prior to the Expiration Date of the applicable Term or Extend Term(s). Time
shall be of the essence for the exercise of such option. Tenant shall have no
further right to extend or renew this Lease. The extension options set forth in
this Article 22 are personal to United Stationers Supply Co. and shall not inure
to the benefit of any third party.
22.2 FAIR MARKET RENT. For the purposes of this Article, "FAIR MARKET
RENT" shall mean the Fixed Rent, on a so-called "net" basis, that would be paid
by a willing tenant, not compelled to lease, and accepted by a willing landlord,
not compelled to lease, for the Building as of the pertinent date taking into
account all terms and conditions for an extension, including, INTER ALIA, tenant
improvements and other concessions then being offered in the market. Fair Market
Rent shall be determined by Landlord in a notice ("FAIR MARKET RENT NOTICE")
delivered to Tenant not later than six (6) months prior to the commencement of
each Extension Term.
22.3 DISPUTE OF FAIR MARKET RENT. In the event Tenant shall elect to
dispute Landlord's determination of the Fair Market Rent, Tenant shall be
required to notify Landlord of such dispute in writing (the "DISPUTE NOTICE")
within thirty (30) days after delivery to Tenant of the Fair Market Rent Notice.
Failure by Tenant to so notify Landlord of Tenant's dispute of the amount
thereof shall be deemed to constitute Tenant's acceptance thereof. If Tenant
shall timely notify Landlord of Tenant's dispute, and if Landlord and Tenant are
not able, within thirty (30) days after such notice, to agree upon the fair
market rent, then the determination of Fair Market Rent shall be determined by
arbitration as hereinafter set forth. If such arbitration concerning Fair Market
Rent shall not be concluded prior to the commencement of the applicable Extend
Term, Tenant shall nevertheless pay all Fixed Rent and Additional Rent to
Landlord with respect thereto from and after the commencement of the applicable
Extension Term, which shall include Fixed Rent at the Rate payable for the
period immediately prior to the Extension Term. If the applicable Fair Market
Rent as determined by arbitration is greater than or less than that specified in
the Fair Market Rent Notice, then such adjustment as shall be needed to correct
the amount previously paid by Tenant on such overpaid or underpaid amount, as
the case may be, computed from the date of such overpayment or underpayment, as
the case may be, to the date of refund or payment, as appropriate shall be made
in a payment by the appropriate party within thirty (30) days after the
arbitration determination.
22.4 ARBITRATION OF FAIR MARKET RENT. In the event that arbitration of
the Fair Market Rent shall be required pursuant to this Article, then the
following procedures shall apply:
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(a) If Landlord or Tenant desires to invoke the arbitration
procedure set forth in this Article, the party invoking the arbitration
procedure shall give a notice to the other party and shall in such
notice appoint a person as arbitrator on its behalf. Within thirty (30)
days after such notice, the other party by notice to the original party
shall appoint a second person as arbitrator on its behalf. The
arbitrators thus appointed shall appoint a third person, and such three
arbitrators shall as promptly as possible determine such matter;
provided, however, that:
(i) If the second arbitrator shall not have been
appointed within the thirty (30) day period as aforesaid, the
first arbitrator shall proceed to determine such matter and
shall render his decision and award in writing within thirty
(30) days after the expiration of said thirty (30) day period;
and
(ii) If the two arbitrators are appointed by the
parties and shall be unable to agree, within ten (10) days
after the appointment of the second arbitrator, upon the
appointment of a third arbitrator, they shall give written
notice to the parties of such failure to agree, and if the
parties fail to agree upon the selection of such third
arbitrator within ten (10) days after the arbitrators
appointed by the parties give notice as aforesaid, then within
five (5) days thereafter either of the parties upon notice to
the other party may request such appointment by the nearest
office of the American Arbitration Association or any
organization which is the successor thereof (the "AAA"), or in
its absence, refusal, failure or inability to act, may apply
to a trial court of the state in which the Building is located
having jurisdiction over the Building (the "COURT"), for the
appointment of such arbitrator and the other party shall not
raise any question as to the Court's full power and
jurisdiction to entertain the application and make the
appointment.
All such arbitrators shall be competent real estate
professionals experienced in and knowledgeable of the North DuPage
County, Illinois, industrial real estate market.
(b) The arbitration shall be conducted in accordance with the
then prevailing rules of the AAA, modified as follows:
(i) To the extent that any statute of the state in
which the Building is located imposes requirements different
than those of the AAA in order for the decision of the
arbitrator or arbitrators to be enforceable in the courts of
such state, such requirements shall be complied with in the
arbitration;
(ii) Each arbitrator shall be disinterested and shall
not be affiliated with Landlord or Tenant; and
(iii) The arbitrators, if more than one, shall render
their decision and award in writing, upon the concurrence of
at least two of their number, within thirty (30) days after
the appointment of the third arbitrator.
(c) Such decision and award or the decision and award of the
single arbitrator as provided in this Article, shall be binding and
conclusive on the parties, shall constitute an "award" by the
arbitrator within the meaning of the AAA rules and applicable law, and
counterpart copies thereof shall be delivered to each of the parties.
In rendering such decision and award, the arbitrators shall not add to,
subtract from or otherwise modify the provisions of this Lease.
Judgment may be had on the decision and award of the arbitrators so
rendered in any court of competent jurisdiction.
(d) Each party shall pay the fees and expenses of one of the
two original arbitrators appointed by or for such party and the fees
and expenses of the third arbitrator and all other expenses of the
arbitration (other than the fees and disbursements of attorneys or
witnesses for each party) shall be borne by the parties equally.
20
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IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the ___ day of ___________, 1998.
LANDLORD:
CORUM CAROL STREAM
ASSOCIATES, LLC
By: /s/ [ILLEGIBLE]
---------------------
Name: [ILLEGIBLE]
Title: Manager
TENANT:
UNITED STATIONERS
SUPPLY CO.
By: /s/ Daniel H. Bushell
---------------------
Name: Daniel H. Bushell
Title: Executive Vice President & CFO
21
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EXHIBIT A
LEGAL DESCRIPTION
THAT PART OF LOTS 36 THROUGH 51 IN BLOCK 4 DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF LOT 1 IN 1ST RESUBDIVISION OF BLOCK 4
IN CAROL POINT BUSINESS CENTER; THENCE SOUTH 00 DEGREES 07 MINUTES 53 SECONDS
WEST, ALONG THE WEST LINE OF BLOCK 4, AFORESAID, 795.28 EAST TO THE POINT OF
BEGINNING, THENCE NORTH 89 DEGREES 52 MINUTES 07 SECONDS EAST, 887.06 FEET TO
A POINT ON THE WEST LINE OF KIMBERLY DRIVE; THENCE SOUTH 00 DEGREES 09
MINUTES 36 SECONDS EAST, ALONG SAID WEST LINE, 727.20 FEET TO THE NORTHEAST
CORNER OF LOT 52 IN SAID BLOCK 4; THENCE SOUTH 87 DEGREES 33 MINUTES 34
SECONDS WEST, ALONG THE NORTH LINE OF SAID LOT 52 (ALSO BEING A POINT ON THE
WEST LINE OF SAID BLOCK 4); THENCE NORTH 00 DEGREES 07 MINUTES 53 SECONDS
WEST, ALONG SAID WEST LINE, 762.98 FEET, TO THE POINT OF BEGINNING, IN CAROL
POINT BUSINESS CENTER. 1ST RESUBDIVISION OF BLOCK 4, BEING A RESUBDIVISION
OF PART OF THE NORTHEAST 1/4 OF SECTION 29, TOWNSHIP 40 NORTH, RANGE 10,
ACCORDING TO THE PLAT OF SAID RESUBDIVISION RECORDED MARCH 31, 1995 AS
DOCUMENT P95-037733, IN DU PAGE COUNTY, ILLINOIS.
PERMANENT INDEX NUMBER: 02-29-202-029, AFFECTS PART OF LOT 36
PERMANENT INDEX NUMBER: 02-29-202-030, AFFECTS PART OF LOT 37
PERMANENT INDEX NUMBER: 02-29-202-014, AFFECTS LOT 38
PERMANENT INDEX NUMBER: 02-29-202-015, AFFECTS LOT 39
PERMANENT INDEX NUMBER: 02-29-202-016, AFFECTS LOT 40
PERMANENT INDEX NUMBER: 02-29-202-017, AFFECTS LOT 41
PERMANENT INDEX NUMBER: 02-29-202-018, AFFECTS LOT 42
PERMANENT INDEX NUMBER: 02-29-202-019, AFFECTS LOT 43
PERMANENT INDEX NUMBER: 02-29-202-020, AFFECTS LOT 44
PERMANENT INDEX NUMBER: 02-29-202-021, AFFECTS LOT 45
PERMANENT INDEX NUMBER: 02-29-202-022, AFFECTS LOT 46
PERMANENT INDEX NUMBER: 02-29-202-023, AFFECTS LOT 47
PERMANENT INDEX NUMBER: 02-29-202-024, AFFECTS LOT 48
PERMANENT INDEX NUMBER: 02-29-202-025, AFFECTS LOT 49
PERMANENT INDEX NUMBER: 02-29-202-026, AFFECTS LOT 50
PERMANENT INDEX NUMBER: 02-29-202-027, AFFECTS LOT 51
A-1
<PAGE>
EXHIBIT B
DEPICTION OF BULK STORAGE SPACE
[GRAPHIC OMITTED]
B-1
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EXHIBIT C
LANDLORD'S WORK
TRUCK LOADING:
(One) 12' x 14' drive-in exterior steel sectional, motor operated overhead door,
insulated with backup panels and weather stripping, high lift hardware.
(42) 9' x 10' manual steel sectional overhead doors, insulated with backup
panels and weather stripping, vertical lift hardware.
60 ft. concrete dock staging apron.
42 manual dock levels, 6' x 8' 30,000 lb. Capacity, with bumpers.
42 dock seals at 9' x 10' exterior overhead dock doors.
5" diameter concrete-filled pipe bollard to be installed in order to protect
jambs at each overhead door.
Dock lights at each loading dock.
WAREHOUSE:
One 1,000 sq. ft. receiving dock office at the southwest corner of the property.
(Included in 16,500 sq. ft. allowance)
(1) 1,500 sq. ft. shipping office at the northeast corner of the facility.
(Included in 16,500 sq. ft. allowance)
Male and female remote bathrooms and small break room to accommodate ten people.
POWER:
2,000 amps/277/480 volt, 3-phase electrical service
200 amp, 480 volt, 3-phase distribution panel for battery charging area with
(24) 30 amp disconnect switches.
400 amp, 480 volt, 3-phase distribution panel for conveyor system.
200 amp, 120 volt, 1-phase distribution panel for convenience outlets on
mezzanine.
60 amp, 480 volt, 3-phase disconnect for trash compactor.
60, amp, 480 volt, 3-phase disconnect for corrugated compactor.
EXTERIOR LIGHTING:
Site lighting will include building wall-mounted 400 watt high pressure sodium
cutoff luminaries and prefinished metal light poles on concrete base in the
parking lot as required by code.
C-1
<PAGE>
WAREHOUSE LIGHTING:
Lighting levels specified will require 1000 watt metal halide fixtures providing
30 ft. candles outside the rack area and 20 ft. candles in the aisle ways of the
rack area measured 36" above the floor.
The final lighting grid within the warehouse will be designated to match the
proposed aisles.
FIRE PROTECTION:
ESFR system throughout the building and mezzanine sprinklers for tenant
installed 37,500 sq. ft. mezzanine. As more fully provided under Section 5.3 of
the Lease, a $60,000 allowance has been provided for installation of mezzanine
lighting and mezzanine electrical requirements.
WAREHOUSE HEAT:
Design criteria shall meet 65 degrees Fahrenhelt inside at -10 degrees outside
utilizing positive pressure heating units.
WAREHOUSE VENTILATION:
Three air changes per hour included.
FF RATING:
FF 35 with a 6" reinforced concrete floor.
WAREHOUSE FLOOR SEALANT:
Ashford formula
BATTERY CHARGING AREA:
Eyewash station, drain and hose bib 250' linear feet from sanitary line.
OFFICE AREAS
Approximately 16,500 square feet as more fully described on the plans and
specifications identified on Attachment 1 to then Exhibit C. As more fully
provided under Section 5.3 of the Lease, a $577,500 allowance has been
provided for completion of the office areas. Said allowance does not include
erecting the demising wall between the office areas and the warehouse areas
of the Building, which demising wall shall be erected by Landlord at
Landlord's expense.
SIGNAGE
Corporate identification space as more fully described on the plans and
specifications identified on Attachment 1 to them Exhibit C. As more fully
provided under Section 5.3 of the Lease, a $15,000 allowance has been
provided for such signage.
C-2
<PAGE>
ATTACHMENT 1 TO EXHIBIT C
PLANS AND SPECIFICATIONS
Harris Architects, Inc. Plans for United Stationers Supply Company at Carol
Point Business Center - Carol Stream, Illinois.
1. Site Plan - Page 1 issued for tenant sign off on 9/30/98.
100,000 s.f. site plan approved and signed by Georgia Kiaupa 10/2/98.
2. Floor Plan - Page 2 issued for tenant sign off on 9/30/98.
100,000 s.f. floor plan approved and signed by George Kiaupa 10/2/98.
With notation of:
- Eye wash and hose bib location
- Restroom location
- 8 and 2 new dock doors, levelers and seals to match existing
3. Schedule Details and Plumbing - Page 3 issued for tenant sign off on
9/30/98.
Approved and signed by George Kiaupa 10/2/98 with changes as noted.
4. Specifications - Page 4 issued for tenant sign off on 9/30/98.
Approved and signed by George Kiaupa 10/2/98.
5. Plan E1 dated 9/21/98 100,000 s.f.-approved and signed by George Kiaupa
10/2/98
6. Plan E2 dated 9/21/98 100,000 s.f.-approved and signed by George Kiaupa
10/2/98
7. Harris office plans to be described and signed.
Prairie Mechanical, Inc. Plans for United Stationers Supply Company at Carol
Point Business Center - Carol Stream, Illinois
8. Plan M-1 dated 9/18/98 approved by George Kiaupa 10/2/98
9. Plan M-2 dated 9/18/98 approved by George Kiaupa 10/2/98
10. Plan M-3 dated 9/18/98 approved by George Kiaupa 10/2/98
11. Plan M-4 dated 9/18/98 approved by George Kiaupa 10/2/98
12. Plan M-5 dated 9/18/98 approved by George Kiaupa 10/2/98
13.
Attachment 1-1
<PAGE>
EXHIBIT 10.95
- --------------------------------------------------------------------------------
1998
MANAGEMENT INCENTIVE PLAN
EFFECTIVE 1/1/98
- --------------------------------------------------------------------------------
PURPOSE
It is deemed desirable and in the best interests of the Stockholders and
Corporation that a portion of total compensation be made available to key
employees, in the form of incentive opportunity, when they discharge their
responsibilities in a manner which makes a measurable contribution to the
Corporation.
This is a general summary description of the Plan and is provided as an
information communication to Plan participants. A detailed Plan document is
available through the Vice President, Human Resources and upon request, any
participant may review the full text.
<PAGE>
CONCEPT
Participants are eligible to earn an annual incentive award based on attainment
of pre-approved Total Company Region Area, Division, Safety, and Key Measures
goals. Participants are assigned a target incentive award stated as a percent of
base salary. The target incentive award, or a greater or lesser amount as based
on a preset schedule, will be calculated at year-end based on the attainment of
predetermined goals. The Plan year shall be January 1, 1998 - December 31, 1998.
ELIGIBILITY
Eligibility for participation in the Plan will be limited to those key employees
who, by the nature and scope of their position, regularly and directly make or
influence policy or operating decisions which impact the profitability and
earnings results of the Company. However, employees participating in a sales
incentive, or commission arrangement, or those covered by a consulting
agreement, shall be excluded from participation in this Plan.
PARTICIPATION
Participation in the Plan shall be determined annually and approved by the Board
of Directors. The Board shall base its approval upon the recommendations of the
Compensation Committee of the Board of Directors. Employees approved for
participation shall be notified of their selection as soon after approval as
practicable.
PARTIAL PLAN YEAR PARTICIPATION
The Board may allow an individual who becomes eligible during the Plan year to
participate in the Plan. In such case, the participant's final award shall be
prorated based on the number of full months of participation during the
pertinent year.
A participant whose incentive category level is changed during the Plan year
shall receive a bonus based on the number of months spent in each incentive
category during the Plan year. The pro-ration shall be determined by multiplying
the final award for a full year of participation at each incentive category
level by a fraction; the numerator of which shall be the number of months spent
at the incentive category level and the denominator of which shall be twelve
(12). The participant's final award shall be the sum of the prorated awards
calculated for the time spent at each incentive category level, with
consideration to changes in base salary, when appropriate.
GOALS
TARGET INCENTIVE - At the beginning of each Plan year, the Board shall establish
the target incentive levels for participants. The target incentive (expressed as
a percent of salary) will vary according to the participant's duties and
responsibilities.
PERFORMANCE GOALS - The Board shall establish, at the beginning of each Plan
year, a planned level of performance at which participant bonus awards shall be
earned. The Board also shall establish a range of performance levels at which
the maximum and minimum incentive awards shall be earned.
ADJUSTMENT OF PERFORMANCE TARGETS - The Board shall have the right to adjust the
performance goals (either up or down) during the Plan year if it determines that
external changes or other unanticipated business conditions have materially
affected the fairness of the goals and unduly influenced the Company's ability
to meet them.
At the end of each Plan year, final awards shall be computed for each
participant. Participants must be actively employed by the Company on the last
day of the Plan year to receive an award for that Plan year. Final award
amounts, may be adjusted (either up or down) based on the Board's assessment of
Company performance results. Further, the Board shall have the right to adjust
the performance goals and the final award amounts in the event of a Plan year
consisting of less than twelve (12) months. Notwithstanding anything here into
the contrary, the Board of Directors shall not make any such adjustment after
December 31, 1998.
<PAGE>
HOW THE PLAN WORKS
1. TARGET INCENTIVE - Target incentives are based on level of responsibility,
expressed as a percent of annual salary and represent a reasonable and
competitive incentive opportunity for the achievement of an Earnings Per
Share (EPS) goal pre-bonus for Total Company and EBIT goals for Region Area
or Division. January 1, 1998 base salary is used for calculations under
this plan, along with promotional adjustments or other salary changes that
occur during the Plan year. Such changes will be made on pro-rata basis,
using whole months. Participant target incentives are:
<TABLE>
<CAPTION>
TARGET INCENTIVE EXPRESSED
PARTICIPANT INCENTIVE CATEGORY AS A % OF BASE SALARY
------------------------------ --------------------------
<S> <C>
President & CEO 80.0%
Executive Vice Presidents 60.0%
RVP's, Corp. Officers & Executive Committee Members 40.0%
Other Officers/Staff Directors/Area Managers 33.0%
Other Participants 20.0%, 15.0%, 10.0%
</TABLE>
The Chairman and Chief Executive Officer shall participate in this Plan,
receiving incentive awards, as determined by the Board of Directors.
2. WEIGHTING OF TARGET INCENTIVE - The Plan contains an EPS goal to reward
Total Company performance, EBIT goals to reward Region Area or Division
performance, and Safety goals to reward safety performance. Participant's
target incentives are weighed as follows:
WEIGHTING BY ORGANIZATIONAL LEVEL
---------------------------------
<TABLE>
<CAPTION>
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
TOTAL SAFETY
PARTICIPANTS COMPANY REGION AREA DIVISION* PERFORMANCE**
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Officers 100%
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
Corporate
Staff 100%
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
Region
Staff 25% 75%
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
Area
Managers 25% 25% 37.5% 12.5%
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
Division
Managers &
Staff 25% 25% 37.5% 12.5%
------------------- ------------------ ------------------ ------------------- ------------------ -------------------
</TABLE>
* Two facilities in one location are not measured separately, i.e.,
Minneapolis: Brooklyn Park & Eagan, etc.
** Safety targets are provided through separate correspondence.
<PAGE>
3. POSSIBLE PAYOUTS (BASED ON PERFORMANCE) FOR TOTAL COMPANY, REGION AREA,
OR DIVISION PERFORMANCE
a) Total Company Performance will be calculated on Earnings Per
Share (EPS) using the following scale:
<TABLE>
<CAPTION>
EPS PAYOUT AS PERCENT OF
LEVEL OF PERFORMANCE PERCENT OF 97 EPS TARGET BONUS OPPORTUNITY
-------------------- ----------------- ------------------------
<S> <C> <C>
Maximum 125% 150%
Target 115% 100%
Minimum 110% 50%
</TABLE>
b) Region Area and Division performance will be calculated on the
following scale. Bonuses earned under this scale will be
limited to the lesser of Total Company performance or actual
Region Area or Division performance achieved. However, a
"pool" will be established equal to field bonuses at the Total
Company less field bonuses paid, to be shared among the field
locations that performed at a rate higher than the Total
Company rate.
<TABLE>
<CAPTION>
EBIT PAYOUT AS PERCENT OF
LEVEL OF PERFORMANCE PERCENT OF 97 EPS TARGET BONUS OPPORTUNITY
-------------------- ----------------- ------------------------
<S> <C> <C>
Maximum 111% 150%
Target 107% 100%
Minimum 105% 50%
</TABLE>
c) Discretionary Award - A Discretionary bonus will be set aside
for the use of the Compensation Committee of the Board of
Directors to reward extraordinary performance at the Region
Area and Division level(s). Such discretionary bonus will be
over and above any other bonus entitlements.
<PAGE>
GENERAL PROVISIONS
OTHER
1. The Compensation Committee shall review performance against goals at the
conclusion of the Plan and shall approve awards for individuals eligible to
participate in this Plan.
2. The judgement of the Compensation Committee in construing this Plan or any
provision thereof, or in making any decision hereunder, shall be final and
binding upon all participants and their beneficiaries, heirs, executors,
personal representatives and assigns.
3. Except as expressly provided in point 6 below, nothing herein contained
shall limit or affect in any manner or degree the normal and usual powers
of management, exercised by the Officers and the Board of Directors to
change the duties or the character of employment of any employee of the
Company or to remove the individual from the employment of the Company at
any time, all of which rights and powers are expressly reserved.
4. Except as expressly provided in point 6 below, no award will be paid an
individual who is not a regular full time employee in good standing when
the Plan concludes, except an award may be considered in the event of
retirement or death of a participant during the Plan year, at the
discretion of the Compensation Committee.
5. Except as expressly provided in point 6 below, the awards to participants
shall become a liability of the Company when the plan concludes, and all
payments to be made hereunder will be made as soon as practicable
thereafter.
6. In the event the involuntary termination of a participant occurs prior to
the conclusion of this Plan, he or she may be entitled to payment of a
reduced award for the year at the discretion of the Compensation Committee.
Such award shall be paid to such employee as soon as practicable after
awards have been approved. For purposes of understanding "involuntary
termination" shall mean actual or express termination of employment by the
Company for its convenience, or any of its subsidiaries, provided, however,
that in no event shall it include a termination based upon (a) any willful
and continued failure to substantially perform assigned duties (other than
as a result of incapacity) after demand giving specifics have been made for
such performance, or (b) any willful misconduct which is materially
injurious to the Company or any of its subsidiaries. As used here, the word
"willful" means any act done or omitted to be done not in good faith and
without reasonable belief that such action or omission was in the best
interest of the Company.
<PAGE>
EXHIBIT 10.96
UNITED STATIONERS INC.
Restated Management Equity Plan
(11/5/98)
1. PURPOSE
United Stationers Inc., a Delaware corporation (the "Company"), by means of this
Management Equity Plan (the "Plan") desires to afford certain of its directors,
key employees and the key employees of any parent corporation or subsidiary
corporation thereof now existing or hereafter formed or acquired who are
responsible for the continued growth of the Company an opportunity to acquire a
proprietary interest in the Company, and thus to create in such persons an
increased interest in and a greater concern for the welfare of the company and
any parent corporation or subsidiary corporation thereof. As used in the Plan,
the terms "parent corporation" and "subsidiary corporation" shall mean,
respectively, a corporation within the definition of such terms contained in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
The stock options described in Section 6 (the "Options"), and the shares of
common stock of the Company acquired pursuant to the exercise of such Options
are a matter of separate inducement and are not in lieu of any salary or other
compensation for services.
2. ADMINISTRATION
The Plan shall be administered by the Option Committee, or any successor
thereto, of the Board of Directors of the Company or by such other committee, as
determined by the Board (the "Committee"). The Committee shall consist of not
less than two members of the Board of Directors of the Company, each of whom
shall qualify as a "disinterested person" to administer the Plan within the
meaning of Rule 16b-3, as amended, or other applicable Rules under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Committee shall administer the Plan so as to comply at all times with the
Exchange Act. A majority of the Committee shall constitute a quorum, and subject
to the provisions of Section 5, the acts of a majority of the members present at
any meeting at which a quorum is present, or acts approved in writing by a
majority of the Committee, shall be the acts of the Committee.
3. SHARES AVAILABLE
Subject to the adjustments provided in Section 7, the maximum aggregate number
of shares of common stock of the Company which may be granted for all purposes
under the Plan shall be 4,100,000 [8,200,000 shares of common after 1998 stock
split]. If, for any reason, any shares as to which Options have been granted
cease to be subject to purchase thereunder, including, without limitation, the
expiration of such Option, the termination of such option prior to exercise or
the forfeiture of such Option, such shares shall thereafter be available for
grants to such individual or other individuals under the Plan. Options granted
under the Plan may be fulfilled in accordance with the terms of the Plan with
either authorized and unissued shares of the common stock of the Company or
issued shares of such common stock held in the Company's treasury.
<PAGE>
4. ELIGIBILITY AND BASES OF PARTICIPATION
Grants under the Plan may be made, pursuant to Section 6, to key employees,
officers and directors of the Company, or any parent corporation or subsidiary
corporation thereof, who are regularly employed on a salaried basis and who are
so employed on the date of such grant (the "Officer and Key Employee
Participants"), or who are non-employee directors of the Company on the date of
such grant.
5. AUTHORITY OF COMMITTEE
Subject to and not inconsistent with the express provisions of the Plan and the
Code, the Committee shall have plenary authority, in its sole discretion, to:
a. determine the persons to whom Options shall be granted, the time when
such Options shall be granted, the number of Options, the purchase price
or exercise price of each Option, the period(s) during which such Option
shall be exercisable (whether in whole or in part), the restrictions to
be applicable to Options and the other terms and provisions thereof
(which need not be identical);
b. require, as a condition to the granting of any Option, that the person
receiving such Option agree not to sell or otherwise dispose of such
Option, any common stock acquired pursuant to such Option or any other
"derivative security" (as defined by Rule 16a-l(c) under the Exchange
Act) for a period of at least six (6) months following the later of (i)
the date of the grant of such Option or (ii) the date when the exercise
price of such Option is fixed if such exercise price is not fixed at the
date of grant of such Option;
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Federal Reserve
Board, for the purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company of the
commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee (1) to have
withheld from the total number of shares to be acquired upon the exercise
of an Option that number of Shares having a Fair Market Value (as defined
in Section 9) which, together with such cash as shall be paid in respect
of fractional Shares, shall equal the Option exercise price, and (2) to
exercise a portion of an Option by delivering that number of shares
already owned by such optionee having a Fair Market Value which shall
equal the partial Option exercise price and to deliver the shares thus
acquired by such optionee in payment of shares to be received pursuant to
the exercise of additional portions of such Option, the effect of which
shall be that such optionee can in sequence utilize such newly acquired
shares in payment of the exercise price of the entire Option, together
with such cash as shall be paid in respect of fractional shares;
e. provide the establishment of a procedure whereby a number of shares of
common stock or other securities may be withheld from the total number of
shares of common stock or other securities to be issued upon exercise of
an Option to meet the obligation of withholding for taxes incurred by an
optionee upon such exercise;
f. prescribe, amend, modify and rescind rules and regulations relating to
the Plan;
g. make all determinations specified in or permitted by the Plan or
deemed necessary or desirable for its administration or for the conduct
of the Committee's business; and
<PAGE>
h. establish any procedures determined to be appropriate in discharging
its responsibilities under the Plan.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan; PROVIDED, HOWEVER, that the Committee
may not delegate any duties to a member of the Board of Directors of the Company
who, if elected to serve on the Committee, would not qualify as a "disinterested
person" to administer the Plan as contemplated by Rule 16b-3, as amended, or
other applicable rules under the Exchange Act. The Committee may employ
attorneys, consultants, accountants, or other persons and the committee, the
Company, and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all persons who have received grants under the Plan, the
company and all other interested persons. No member or agent of the Committee
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan and all members and agents of the
Committee shall be fully protected by the Company in respect of any such action,
determination or interpretation.
6. GRANTS OF STOCK OPTIONS
The Committee shall have the authority, in its sole discretion, to grant
incentive stock options ("Incentive Options") pursuant to Section 422 of the
Code, or to grant non-qualified stock options ("Non-Qualified 0ptions") (options
which do not qualify under Section 422 of the Code) or to grant both types of
Options. No option shall be granted for a term of more than ten (10) years.
Notwithstanding anything contained herein to the contrary, an Incentive Option
may be granted only to Officer and Key Employee Participants. The terms and
conditions of the Options shall be determined from time to time by the
Committee: PROVIDED, HOWEVER, that the Options granted under the Plan shall be
subject to the following:
a. OPTION PRICE. The Committee shall establish the option price at
the time any Option is granted at such amount as the Committee
shall determine. The option price for each share purchasable under
any Incentive Option granted hereunder shall be such amount as the
Committee shall, in its best judgment, determine to be not less
than one hundred percent (100%) of the Fair Market Value per share
at the date the Option is granted; PROVIDED, HOWEVER, that in the
case of an Incentive Option granted to a person who, at the time
such Incentive Option is granted, owns shares of the Company, or
any parent corporation or subsidiary corporation thereof, which
possess more than ten percent (10%) of the total combined voting
power of all classes of shares of the Company or of any subsidiary
corporation or parent corporation of the Company, the purchase
price for each share shall be such amount as the Committee, in its
best judgment, shall determine to be not less than one hundred ten
percent (110%) of the Fair Market Value per share at the date the
Option is granted. The Option price will be subject to adjustment
in accordance with the provisions of Section 7 of the Plan.
b. PAYMENT. The price per share of common stock of the Company with
respect to each Option shall be payable at the time the Option is
exercised. Such price shall be payable in cash, which may be paid
by wire transfer in immediately available funds, by check or by any
other instrument acceptable to the Company or, in the discretion of
the Committee, by delivery to the Company of shares or common stock
of the Company owned by the optionee
<PAGE>
or by the Company withholding from the total number of shares to
be acquired pursuant to the Option a portion of such shares.
Shares delivered to or withheld by the Company in payment of the
option price shall be valued at the Fair Market Value of the
common stock of the Company on the day preceding the date of the
exercise of the option.
c. CONTINUATION OF EMPLOYMENT. Notwithstanding anything else
contained herein, each Option by its terms shall require the
optionee to remain in the continuous employ of, or as a director
of, the Company, or any parent corporation or subsidiary
corporation thereof, for at least six (6) months (or three (3)
months in the case of an Incentive Option) from the date of grant
of the Option before the right to exercise any part of the Option
will accrue.
d. EXERCISABILITY OF STOCK OPTION. Each Option shall be exercisable
in such installments as may be determined by the Committee at the
time of the grant. The right to purchase shares shall be cumulative
so that when the right to purchase any shares has accrued such
shares or any part thereof may be purchased at any time thereafter
until the expiration or termination of the Option. No Option by its
terms shall be exercisable after the expiration of ten (10) years
from the date of the grant of the Option; PROVIDED, HOWEVER, in the
case of an Incentive Option granted to a person who, at the time
such Option is granted, owns stock of the Company, or any parent
corporation or subsidiary corporation thereof, possessing more than
ten percent (10%) of the total combined voting power of all classes
of stock of the Company, or any corporation or subsidiary
corporation thereof, such Option shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.
e. DEATH. In the event of the death of any optionee, the estate of
such optionee shall have the right, within the period designated by
the Committee at the time of grant, which shall in no event be less
than within six (6) months after the date of death (but not after
the expiration date of the Option), to exercise such optionee's
Option with respect to all or any part of the shares of stock which
such optionee was entitled to purchase immediately prior to the
time of his death, or will become entitled to purchase during the
period of exercise.
f. DISABILITY OR RETIREMENT. If the employment of any optionee is
terminated because of Disability (as defined in Section 9), or
because of retirement, such optionee shall have the right, within
the period designated by the Committee at the time of grant, which
shall in no event be less that within six (6) months after the date
of termination (or within one (1) year after the date of such
termination in the case of an Incentive Option) (but in no case
after the expiration of the Option), to exercise the Option with
respect to all or any part of the shares of stock which such
optionee was entitled to purchase immediately prior to the time of
such termination, or will become entitled to purchase during the
period of exercise.
g. OTHER TERMINATION OR FOR CAUSE. If the employment of an optionee
is terminated for any reason other than those specified in the
subsections 6(e) and (f) above, such optionee shall have the right,
within the period designated by the Committee which shall in no
event be less than thirty (30) days (or three (3) months in the
case of an Incentive Option) after the date of such termination
(but not after the expiration date of the Option), to exercise his
Option with respect to all or any part of the shares of stock which
such optionee was entitled to purchase immediately prior to the
time of such termination, except that, if such optionee's
employment was terminated by the Company, or any parent corporation
or subsidiary corporation thereof, for good cause, or if the
optionee voluntarily terminates employment without the consent of
the Company, or
<PAGE>
any parent corporation or subsidiary corporation thereof (of
which fact the Committee shall be the sole judge), such optionee
shall immediately forfeit all rights under his Option except as
to the shares of stock already purchased. Termination for "good
cause" shall mean (unless another definition is agreed to in
writing by the Company and the optionee) termination by action of
the Board of Directors because of: (A) the optionee's theft or
embezzlement, or attempted theft or embezzlement, of money or
tangible or intangible assets or property of the Company or any
parent corporation or subsidiary corporation thereof, (B) any act
or acts of moral turpitude by optionee, (C) other than as a
result of a Disability, optionee's failure to devote adequate
time to the Company's or such parent corporation's or such
subsidiary corporation's business as determined in the reasonable
judgment of the Board of Directors, after having given notice of
the asserted problem and a reasonable opportunity to cure, (D)
any intentional acts by optionee which establish optionee's
loyalty to a business entity or person other than the Company,
(E) gross negligence or willful misconduct in the performance of
optionee's duties, (F) conviction of a felony, (G) conviction of
a crime, the conviction of which results in a material injury to
the Company or any parent corporation or subsidiary corporation
thereof, or (H) a willful material breach of any employment
agreement entered into between optionee and the Company or any
parent corporation or subsidiary corporation thereof. The
determination that there exists "good cause" for termination
shall be made by the Option Committee (unless otherwise agreed to
in writing by the Company and the optionee) and such
determination shall be conclusive.
h. MAXIMUM EXERCISE. The aggregate Fair Market Value of stock
(determined at the time of the grant of the Option) with respect to
which Incentive Options are exercisable for the first time by an
optionee during any calendar year under all plans of the Company,
or any parent corporation or subsidiary corporation thereof, shall
not exceed $100,000.
i. LIMIT ON INDIVIDUAL GRANTS. In any calendar year, the maximum
number of shares for which options may be granted under the Plan to
any one optionee is 400,000 shares of common stock [800,000 shares
of common stock after 1998 stock split] (subject to adjustment in
accordance with Section 7 of the Plan.
7. ADJUSTMENT OF SHARES
In the event there is any change in the common stock of the Company by reason of
any consolidation, combination, liquidation, reorganization, recapitalization ,
stock dividend, stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares or other like change in the capital structure of the
Company, the number or kind of shares or interests subject to an Option and the
per share price or value thereof shall be appropriately adjusted by the
Committee at the time of such event, provided that each optionee's position with
respect to the Option and the per share price or value thereof shall not, as a
result of such adjustment, be worse than it had been immediately prior to such
event. Any fractional shares or interests resulting from such adjustment shall
be eliminated. Notwithstanding the foregoing, (i) each such adjustment with
respect to an Incentive Option shall comply with the rules of Section 424(a) of
the Code, and (ii) in no event shall nay adjustment be made which would render
any Incentive Option granted hereunder other than an "incentive stock option"
for purposes of Section 422 of the Code.
In the event of a Change of Control or a merger between the Company and another
corporation in which the Company is not the surviving entity and where any
optionee holds Options issued pursuant to this Plan which have not been
exercised, such Options shall be canceled and replacement Options shall be
issued by the surviving entity in accordance with Rule 16b-3(f)(1) under the
Exchange Act.
<PAGE>
8. MISCELLANEOUS PROVISIONS
a. ASSIGNMENT OR TRANSFER. The Committee may, in its discretion,
authorize all or a portion of the options, other than Incentive
Stock Options, to be granted to an optionee to be on terms which
permit transfer by such optionee to (i) the spouse, children or
grandchildren of the optionee ("Immediate Family Members"), (ii) a
trust or trusts for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership in which such Immediate Family
Members are the only partners, provided that (x) there may be no
consideration for any such transfer, (y) the stock option agreement
pursuant to which such options are granted must be approved by the
Committee and must expressly provide for transferability in a
manner consistent with this Section, and (z) subsequent transfers
of transferred options shall be prohibited except by will or the
laws of descent and distribution. Following transfer, any such
options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer."
b. INVESTMENT REPRESENTATION. If a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with
respect to the common stock issuable upon exercise of an Option, is
not in effect at the time such Option is exercised, the Company may
require, for the sole purpose of complying with the Securities Act,
that prior to delivering such common stock to the exercising
optionee, such optionee must deliver to the Secretary of the
Company a written statement (i) representing and warranting that
such common stock is being acquired for investment only and not
with a view to the resale or distribution thereof, (ii)
acknowledging and confirming that such common stock may not be sold
unless registered for sale under the Securities Act or pursuant to
an exemption from such registration and (iii) agreeing that the
certificates representing such common stock shall bear a legend to
the effect of the foregoing.
If subsequent to the delivery by an optionee of the written
statement described in the preceding paragraph, the common stock
issuable upon exercise of an Option is registered under the
Securities Act, the Company may release such optionee from such
written statement without effecting a "modification" of the Plan
within the meaning of Section 424(h)(3) of the Code.
c. WITHHOLDING TAXES. In the case of distributions of common stock
or other securities hereunder, the Company, as a condition of such
distribution, may require the payment (through withholding from the
optionee's salary, reduction of the number of shares of common
stock or other securities to be issued, or otherwise) of any
federal, state, local or foreign taxes required by law to be
withheld with respect to such distribution.
d. COSTS AND EXPENSES. The costs and expenses of administering the
Plan shall be borne by the Company and shall not be charged against
any Option nor to any employee receiving an Option.
e. FUNDING OF PLAN. The Plan shall be unfunded. The Company shall
not be required to make any segregation of assets to assure the
payment of any Option under the Plan.
f. OTHER INCENTIVE PLANS. The adoption of the Plan does not
preclude the adoption by appropriate means of any other incentive
plan for employees.
<PAGE>
g. EFFECT ON EMPLOYMENT. Nothing contained in the Plan or any
agreement related hereto or referred to herein shall affect, or be
construed as affecting, the terms of employment of any Officer and
Key Employee Participants except to the extent specifically
provided herein shall impose, or be construed as imposing, an
obligation on (i) the Company, or any parent corporation or
subsidiary corporation thereof, to continue the employment of any
Officer and Key Employee Participant, and (ii) any Officer and Key
Employee Participant to remain in the employ of the Company, or any
parent corporation or subsidiary corporation thereof.
9. DEFINITIONS
a. "Fair Market Value" shall, as it relates to the common stock of
the Company, mean the average of the high and low prices of such
common stock as reported on a national stock exchange or as listed
for quotation on the NASDAQ National Market System on the date
specified herein, or if there were no sales on such date, on the
next preceding day on which there were sales, or if such common
stock is not listed on a national stock exchange or is not listed
for quotation on the NASDAQ National Market System, the value of
such common stock on such date as determined by the Board of
Directors of the Company in good faith.
b. "Disability" means optionee's inability, due to illness,
accident, injury, physical or mental incapacity or other disability
effectively to carry out his duties and obligations as an employee
of the Company or to participate effectively and actively as an
employee of the Company for 90 consecutive days or shorter periods
aggregating at least 180 days (whether or not consecutive) during
any twelve-month period.
10. AMENDMENT OF PLAN
The Board of Directors of the Company shall have the right to amend, modify,
suspend or terminate the Plan at any time, provided that no amendment shall be
made which shall increase the total number of shares of the common stock of the
Company which may be issued and sold pursuant to Options granted under the Plan
or decrease the minimum option price in the case of an Incentive Option, or
modify the provisions of the Plan relating to eligibility with respect to
Incentive Options unless such amendment is made by or with the approval of the
stockholders. The Board of Directors shall be authorized to amend the Plan and
the Options granted thereunder (i) to qualify as "incentive stock options"
within the meaning of Section 422 of the Code or (ii) to comply with Rule 16b-3
(or any successor rule) under the Exchange Act. No amendment, modification,
suspension or termination of the Plan shall alter or impair any Options
previously granted under the Plan, without the consent of the holder thereof.
11. EFFECTIVE DATE
The Plan shall become effective January 31, 1992, the date as of which the Plan
was adopted by the Board of Directors (the "Effective Date"); PROVIDED, HOWEVER,
that if the Plan is not approved by a vote of the stockholders of the Company at
an annual meeting or by written consent within twelve (12) months before or
after the Effective Date, the Plan and any Options granted thereunder shall
terminate.
<PAGE>
EXHIBIT 10.97
AGREEMENT
Agreement dated as of January 1, 1999 (the "Agreement") between Michael D.
Rowsey ("Executive"), Cynthia Rowsey ("Spouse"), United Stationers Inc. (the
"Company") and United Stationers Supply Co. ("Supply").
WHEREAS, the Executive, the Company and Supply are parties to
an Employment Agreement, dated as of June 1, 1997, pursuant to which the Company
and Supply have employed the Executive as Executive Vice President (the
"Employment Agreement");
WHEREAS, the parties desire to terminate the Employment
Agreement and Executive's employment with the Company and Supply; and
WHEREAS, the parties desire that certain provisions of the
Employment Agreement remain in full force and effect, as set forth in this
Agreement;
NOW THEREFORE, for and in consideration of the mutual
covenants, agreements, promises set forth herein, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Executive, Spouse, the Company and Supply hereby agree as follows:
1. TERMINATION: For "Good Reason" as defined in the Employment
Agreement, the Executive hereby resigns from his employment with the Company and
Supply as of the date of this Agreement (the "Termination Date"). Executive
further agrees to and does hereby resign effective as of the Termination Date
from any other appointments or positions which he may hold with the Company or
any of its Subsidiaries, including without limitation, his position as an
officer of the Company and each of its Subsidiaries. Executive agrees to execute
all further documents which the Company may request of him to effectuate such
resignations.
2. TERMINATION PAYMENT: (a) In connection with such
termination of employment and the execution of this Agreement, the Executive
will be paid the amount of $1,046,000, which is equal to: two years of the
Executive's current base salary of $275,500 per year, plus two years of
Executive's 1997 targeted bonus of $247,500 per year (hereinafter `Severance
Amount"). The Severance Amount will be paid in equal semi-monthly installments
over two years, beginning on January 31, 1999 and ending on December 31, 2000.
However, the Severance Amount will be offset by the amount of any remuneration
(whether paid currently or deferred, whether paid in cash,
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property, services or otherwise) paid or provided to or on behalf of Executive
with respect to any services performed by Executive (whether as an employee,
consultant or otherwise) for a party other than the Company or Supply or any of
their respective Subsidiaries during the period that the Severance Amount is
payable, provided, however, that nothing in the preceding sentence or otherwise
will be construed to obligate Executive to seek employment. In addition, the
Executive will be paid his 1998 bonus under the Company's Management Incentive
Plan at the time such bonuses are paid to other employees. In each case,
payments will be made to the Executive by the Company or Supply less any
applicable deductions or other amounts to be withheld required by applicable
law. (b) Until the earlier of December 31, 2000 or the time Executive receives
at least equivalent coverage (determined on a coverage by coverage basis) from
or in connection with a subsequent employer, Company and Supply shall cause
Executive to be provided health care coverage for himself, his Spouse and his
eligible dependents under the group health plan of Company or Supply as in
effect from time to time, group term life insurance (currently in the coverage
amount of $689,000) and split dollar insurance coverage (in the face amount of
$510,000 subject to the Company's right to recovery of premiums paid) under the
same terms as though the Executive was still an employee. Notwithstanding the
prior sentence, if the Executive is precluded from continuing participation in
any such program or arrangement, or if his Spouse and/or his eligible dependents
are precluded from coverage under any such plan or arrangement due to the fact
that Executive is no longer an employee of the Company, Executive shall be paid
by the Company or Supply with the after-tax economic equivalent of the benefits
to be provided under such plan or arrangement in which he, his Spouse and/or his
eligible dependents are unable to participate until the time such coverage would
have ended pursuant to the preceding sentence. Such after-tax economic
equivalent payment (determined by the Company as the lowest cost that would be
incurred by the Executive in obtaining a comparable benefit on a non-group
basis) will be made quarterly in advance. (c) To the extent permitted by the
Company's group health plan as in effect from time to time and any insurers of
such plan, other than limitations imposed unilaterally AND in bad faith by
the Company or Supply will provide health care coverage under the group
health plan as in effect from time to time after the entitlement to group
health coverage under subsection (b) expires to the Executive until he
reaches age 65, his Spouse until she reaches age 65 and each of his eligible
dependents until such eligible dependent reaches age 21. To receive such
coverage, noted in this Section (c), the COBRA premium amount (as determined
under Section 4980B(f)(4) of the Internal Revenue Code of 1986, as amended
through the date hereof) as reasonably determined by the Company must be paid
on an annual basis in advance by the Executive, Spouse and eligible
dependents, as applicable. (d) Subject to the foregoing
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effective as of the date hereof, all benefits under all other Company plans,
programs and/or arrangements will terminate, except that Executive will be
entitled to his vested benefits under the United Stationers Pension Plan, the
United Stationers Inc. 401(K) Savings Plan and United Stationers Supply Co.'s
Deferred Compensation Plan and may have continuation or conversion rights under
the voluntary contributory term life insurance and accident insurance which
Executive should review.
3. OPTIONS: All vested options held by the Executive for the
purchase of the Company's common stock listed on Exhibit "1" hereto will remain
vested and exercisable in accordance with their terms until January 1, 2001, at
which time they will lapse and be of no further force or effect, except to the
extent previously exercised. The Executive acknowledges and agrees that the
option to purchase 15,000 shares of Company common stock granted to the
Executive on January 28, 1998 has not vested and will lapse and be of no further
force or effect as of the date hereof. Executive acknowledges and agrees that to
the extent required by applicable law that he will remain an "affiliate" of the
Company for purposes of Rule 144 promulgated under the Securities Act of 1933,
as amended, for a period of three months following termination of his employment
and his resignation as a director of the Company and that, prior to any sale of
any Company common stock, he must otherwise comply with the requirements of Rule
144. In addition Executive acknowledges that he will to the extent required by
applicable law not buy or sell any securities of the Company during any period
in which he is privy to material information not generally disclosed to the
public.
4. VACATION/REIMBURSEMENT. Within one week of the execution of
this Agreement, Executive will be paid by the Company or Supply for four weeks
of earned but unused vacation, and reimbursed for any submitted business
expenses pursuant to the provisions of Supply's expense reimbursement policy.
5. RETURN OF ITEMS AND DOCUMENTS: Executive agrees that he has
returned to the Company all property of or relating to the Company or its
Subsidiaries, including but without limitation, (1) the automobile leased for
his use by the Company; (2) the computer provided for his use by the Company;
and (3) all originals and all copies of documents, notes, computer discs, tapes
or other tangible information of any sort which he has in his possession or
under his custody or control that is the property of the Company or any of its
Subsidiaries or that relate in any manner to his duties at the Company or
Supply, which is not otherwise available to the public, and will not retain any
copies of such matter. The materials required to be returned pursuant to this
paragraph 6 shall not include personal correspondence that does not relate to
the Company, its Subsidiaries or any of its businesses.
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6. WITHHOLDING: The payments and benefits set forth in
paragraph 2 shall be subject to applicable federal, state and local withholding
taxes and to any withholding required by applicable law or pursuant to this
Agreement that would be applicable were he an employee of the Company. Executive
agrees that, to the extent that any individual Federal or State taxes of any
kind may be due as a result of any such payment to Executive, Executive shall be
solely responsible for such taxes and will indemnify, defend, and hold harmless
the Company and Supply in the event there is any claim against the Company
and/or Supply for such taxes.
7. GENERAL RELEASE AND COVENANT NOT TO SUE:
(a) The Executive and Spouse, on behalf of themselves, their
attorneys, heirs, executors, administrators and assigns (together the "Executive
Parties"), hereby generally release and forever discharge the Company, Supply
and their respective predecessors, successors, assigns, parents, Subsidiaries
and affiliates and their respective past and present shareholders, directors,
officers, employees, agents, representatives, principals, insurers and attorneys
(together the "Company Parties") from any and all claims, demands, liabilities,
suits, damages, losses, expenses, attorneys' fees, obligations or causes of
action, known or unknown of any kind and every nature whatsoever, and whether or
not accrued or matured, which any of them may have, arising out of or relating
to (A) any transaction, dealing, relationship, conduct, act or omission, or any
other matters or things occurring or existing at any time prior to and including
the Termination Date, including but not limited to the Executive's employment by
the Company or his services as an Officer or Employee of the Company or its
Subsidiaries, or otherwise relating to the termination of such employment or
services, and any claim against the Company or Supply based on, relating to or
arising under wrongful discharge, breach of contract (whether oral or written),
tort, fraud, defamation, negligence, promissory estoppel, Title VII of the Civil
Rights Act of 1964, as amended, any other civil or human rights law, the Age
Discrimination In Employment Act, Americans With Disabilities Act, Employee
Retirement Income Security Act of 1974, as amended, or any other Federal, State
or local law relating to employment or discrimination in employment or
otherwise, provided, however, that such General Release will not limit or
release (i) Executive's rights under this Agreement (including but not limited
to the provisions of the Employment Agreement incorporated herein), (ii)
Executive's rights to indemnification from the Company in respect of his
services as an officer, employee or director of the Company or Supply any of
their Subsidiaries as provided by law or the Certificate of Incorporation or
by-laws (or like constitutive documents) of the Company or Supply or any
Subsidiary thereof, or (iii) except as set forth herein, Executive's contractual
rights under any Stock Option Agreement that is in effect with respect to Stock
Options that have been granted to Executive prior to the Termination Date. The
Executive and Spouse, on behalf of themselves
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<PAGE>
and the Executive Parties, hereby covenant forever not to assert, file,
prosecute, commence, institute (or sponsor or purposely facilitate any person in
connection with the foregoing), any complaint or lawsuit or any legal, equitable
or administrative proceeding of any nature, against any of the Company Parties
in connection with any matter released in this paragraph 7, and represent and
warrant that no other person or entity has initiated or, to the extent within
his control, will initiate any such proceeding on their behalf.
(b) The Company and Supply, on their own behalf and on behalf
of the Company Parties, hereby generally releases and forever discharges the
Executive Parties from any and all claims, demands, liabilities, suits, damages,
losses, expenses, attorneys' fees, obligations or causes of action, known or
unknown of any kind and every nature whatsoever, and whether or not accrued or
matured, which any of them may have, arising out of or relating to any
transaction, dealing, relationship, conduct, act or omission, or any other
matters or things occurring or existing at any time prior to and including the
Termination Date, including but not limited to the Executive's employment by the
Company or Supply or his services as an Officer, Director or Employee of the
Company or Supply or its Subsidiaries, or otherwise relating to the termination
of such employment or services, provided, however, that such General Release
will not limit or release (i) the Company's or Supply's rights under this
Agreement including those provisions of the Employment Agreement incorporated
herein by reference, (ii) the Company's or Supply's rights against Executive
with respect to any fraudulent or criminal activity (the Company and Supply
acknowledge they have no current knowledge of any such activity) or (iii) the
Company's rights under any Stock Option Agreement that is in effect with respect
to Stock Options that have been granted to Executive prior to the Termination
Date. The Company and Supply each, on behalf of itself and the Company Parties,
hereby covenants forever not to assert, file, prosecute, commence, institute (or
sponsor or purposely facilitate any person in connection with the foregoing),
any complaint or lawsuit or any legal, equitable or administrative proceeding of
any nature, against any of the Executive Parties in connection with any matter
released in this paragraph 7, and represents and warrants that no other person
or entity has initiated or will initiate any such proceeding on their behalf.
8. NON-DISPARAGEMENT:
(a) Executive and Spouse shall not, directly or indirectly,
make or cause to be made and shall cause the officers, directors, employees,
agents and representatives of any entity or person controlled by Executive or
Spouse not to make or cause to be made, any disparaging, denigrating, derogatory
or other negative or false statement orally or in writing to any person or
entity about the Company, Supply, its or their respective parents, Subsidiaries
or affiliates, its
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or their respective executive officers or members of its or their Boards of
Directors, or the business strategy or plans, policies, practices or operations
of the Company or Supply, or of its or their respective parents, Subsidiaries or
affiliates.
(b) Company and Supply shall not, directly or indirectly, make
or cause to be made any disparaging, denigrating, derogatory or other negative
or false statement orally or in writing to any person or entity about the
Executive. Notwithstanding, Executive acknowledges that the Company cannot
control the conduct of each of its employees.
9. COOPERATION: Executive agrees to reasonably cooperate with
the Company as reasonably directed by the Company by responding to questions,
depositions, administrative proceedings and court hearings, executing documents,
and cooperating with the Company and its accountants and legal counsel with
respect to business issues, and/or claims and litigation of which he has
personal or corporate knowledge. Executive further agrees, except as required by
subpoena or other applicable legal process (after the Company has been given
reasonable notice and opportunity to seek relief from such requirement) to
maintain, in strict confidence, any information of which he has knowledge
regarding current and/or future claims, administrative proceedings and
litigation. Executive agrees, except as required by subpoena or other applicable
legal process (after the Company has been given reasonable notice and
opportunity to seek relief from such requirement) not to communicate with any
party(ies), their legal counsel or others adverse to the Company and/or Supply
in any such claims, administrative proceedings or litigation except through the
Company's designated legal counsel. Executive also shall make himself available
at reasonable times and upon reasonable notice to answer questions or provide
other information within his possession and requested by the Company relating to
the Company, its Subsidiaries and/or their respective operations in order to
facilitate the smooth transition of Executive's duties to his successor. The
Company shall reimburse Executive for any documented out-of-pocket expenses,
including but not limited to reasonable legal fees, reasonably incurred by
Executive in complying with this paragraph 9. To the extent Executive's services
are required pursuant to this paragraph 9 for any extended period, the Company
will pay to Executive a per diem amount calculated based on Executive's annual
base salary in effect immediately prior to the Termination Date.
10. MAIL: The Company may open and answer, and authorize
others to open and answer, all mail, communications, and other correspondence
addressed to Executive at the Company, Supply or any of their respective
Subsidiaries (excluding any such mail, communications or correspondence clearly
marked "personal or confidential"), and Executive shall
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<PAGE>
promptly refer to the Company all inquiries, mail, communications, and
correspondence received by him as an Officer or Director of the Company, Supply
or any of their respective Subsidiaries. If any such mail, communications or
correspondence received by the Company includes any threat of or could result in
any claim against Executive personally, the Company shall promptly notify
Executive thereof.
11. NOTICES: Any notice required or permitted by this
Agreement shall be in writing, sent by registered or certified mail, return
receipt requested, addressed to the Board of Directors, the Company and Supply
at the Company's then principal office, or to the Executive at the address set
forth on the signature page hereof, as the case may be, or to such other address
or addresses as any party hereto may from time to time specify in writing for
the purpose in a notice given to the other parties in compliance with this
paragraph 11. Notices shall be deemed given when received.
12. CERTAIN ACKNOWLEDGMENTS: Executive and Spouse acknowledge
that before entering into this Agreement they have had the opportunity to
consult with any attorney or other advisor of their choice, and have done so,
and have not relied in connection herewith on legal counsel for the Company.
Executive and Spouse acknowledge that they have entered into this Agreement of
their own free will, that no promises or representations have been made to them
by any person to induce them to enter into this Agreement other than the terms
expressly set forth herein.
13. AUTHORIZATION BY THE COMPANY AND SUPPLY: Each of the
Company and Supply represents and warrants to Executive that (i) it has the
corporate power and authority to enter into this Agreement and to carry out its
respective obligations hereunder; (ii) the execution, delivery and performance
of this Agreement by it and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of the
Company or Supply, as appropriate; and (iii) this Agreement is a valid and
binding obligation of each of the Company and Supply, enforceable against it in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, and other laws now or
hereafter in effect relating to the enforcement of creditors' rights generally.
14. PRIOR AGREEMENTS: With the exception of certain provisions
of the Employment Agreement to which paragraph 15 of this Agreement specifically
refers and the provisions of any Stock Option Agreement that is in effect with
respect to stock options that have been granted to Executive prior to the
Termination Date, this Agreement integrates the whole of all agreements and
understandings of any sort or character between the parties concerning the
subject matter of this Agreement and any other dealings between the parties, and
supersedes all prior negotiations, discussions, or agreements of any sort
whatsoever relating to the subject matter hereof, or any claims that
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<PAGE>
might have ever been made by one party against any opposing party to this
Agreement. There are no representations, agreements, or inducements except as
set forth expressly and specifically in this Agreement. Further, except as
expressly as set forth herein, all prior employment contracts, if any, between
the parties are superseded by this Agreement. There are no unwritten oral, or
verbal understandings, agreements, or representations of any sort whatsoever, it
being stipulated that the rights of the parties shall be governed exclusively by
this Agreement.
15. SURVIVAL OF OTHER EMPLOYMENT AGREEMENT PROVISIONS: The
provisions of Employment Agreement Sections 12 (Confidentiality), 13
(Noncompetition-Nonsolicitation), 14 (Assignability), and 21 (Beneficiaries)
attached hereto and incorporated herein by reference, shall survive the
Termination Date and shall continue in full force and effect and the Company and
Supply represent and warrant that they have no knowledge of any breach by the
Executive of any such provisions. Executive affirms and acknowledges his
obligations of confidentiality and his obligations not to compete with the
Company or its Subsidiaries or to solicit any employee of Company or its
Subsidiaries or their customers as set forth in Sections 12 and 13 respectively
of the Employment Agreement. Except as specifically described herein, all of
Executive's rights and obligations and the rights and obligations of the Company
and Supply under the Employment Agreement are extinguished upon the
effectiveness of this Agreement.
16. MODIFICATION: This Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing by the party
charged with waiver. A waiver shall operate only as to the specific term or
condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
17. COUNTERPARTS: This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which, together
shall constitute one and the same instrument. Any counterpart of this Agreement
that has attached to it separate signature pages which together contain the
signature of all parties hereto shall for all purposes be deemed a fully
executed original. Facsimile signatures shall constitute original signatures.
18. SUCCESSORS AND ASSIGNS: All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and to their respective successors and permitted assigns. Neither this
Agreement nor any rights or obligations hereunder may be assigned by the
Executive, other than by will or the laws of descent or distribution.
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19. SEVERABILITY: All provisions of this Agreement are
intended to be severable. In the event any provision or restriction contained
herein is held to be invalid or unenforceable in any respect, in whole or in
part, such finding shall in no way affect the validity or enforceability of any
other provision of this Agreement. The parties hereto further agree that any
such invalid or unenforceable provision shall be deemed modified so that it
shall be enforced to the greatest extent permissible under law, and to the
extent that any court or arbitrator of competent jurisdiction determines any
restriction herein to be unreasonable in any respect, such court or arbitrator
may limit this Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically enforce this
Agreement as limited.
20. INDEMNIFICATION: (a) Executive and Spouse agree, warrant,
and represent to the Company and Supply that Executive and Spouse have full
express authority to settle all claims and demands that are the subject of
paragraph 7 of this Agreement and that neither Executive nor Spouse has given or
made any assignment to anyone, including Executive's or Spouse's family or legal
counsel of any claims against any person or entity associated with the Company
or any Company Parties. To the extent that any claim released pursuant to this
Agreement may be brought by persons or entities claiming by, through, or under
Executive, Spouse, their respective heirs, successors, or assigns, then
Executive further agrees to indemnify, defend, and hold harmless the Company or
any Company Party, its agents and its successors from any lawsuit, judgment, or
settlement arising from such claims.
(b) Company warrants, represents and acknowledges that
Executive remains covered by the Directors and Officers insurance in effect
during his employment as an Officer of the Company and/or Supply.
21. INJUNCTION: Executive and Spouse hereby expressly
acknowledge that any breach or threatened breach by either of them of any of
their obligations set forth in paragraph 8 (Non-Disparagement), or any breach or
threatened breach by Executive of Sections 12 or 13 of the Employment Agreement
(the provisions of which shall survive the execution and delivery of this
Agreement and which are incorporated herein), may result in significant and
continuing injury and irreparable harm to the Company and Supply, the monetary
value of which would be impossible to establish. Therefore, Executive and Spouse
agree that the Company and Supply shall be entitled to injunctive relief in a
court of appropriate jurisdiction with respect to such provisions. Attorneys'
fees with respect to any action seeking injunctive relief shall be paid by the
party against whom such relief is sought (if such action is successful) or by
the party seeking such relief (if such action is unsuccessful). Executive and
Spouse further agree that this provision is a material inducement to the Company
and Supply entering into this Agreement Company and Supply each expressly
acknowledge that any breach or
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threatened breach by either of them of any of their obligations set forth in
Subparagraph 8(b) (non-Disparagement) may result in significant and continuing
injury and irreparable harm to Executive, the monetary value of which would be
impossible to establish. Therefore, the Company and Supply agree that the
Executive shall be entitled to injunctive relief in a court of appropriate
jurisdiction with respect to such provision. Attorneys' fees with respect to any
action seeking injunctive relief shall be paid by the Party against whom such
relief is sought ( if such action is successful) or by the Party seeking such
relief (if such action is unsuccessful). Company and Supply further agree that
this provision is a material inducement to Executive entering into this
Agreement.
22. CHOICE OF LAW: This Agreement, including but not limited
to the provisions of the Employment Agreement that are incorporated herein,
shall be governed by and construed in accordance with the laws of the State of
Illinois (without giving effect to principles of conflict of laws).
23. NO RIGHT TO ADDITIONAL COMPENSATION: Except as expressly
provided or referred to in this Agreement, neither the Company, Supply or any of
their respective predecessors, successors, assigns or affiliates shall have any
further obligation to Executive or Spouse in connection with the Employment
Agreement or Executive's employment by the Company, Supply or any of their
respective Subsidiaries, including but not limited to severance, compensation
(including but not limited to deferred compensation, employment contracts, stock
options, bonuses and commissions), health insurance, life insurance, disability
insurance, club dues, vehicle allowances, vacation pay, sick pay and any similar
obligations.
24. NO ADMISSION: The parties agree that by entering into this
Agreement, no party admits to having engaged in any unlawful, wrongful or
unconscionable conduct, any such conduct being expressly denied.
25. CONSTRUCTION: The parties agree that this Agreement was
negotiated by the parties and shall not be construed against any party.
26. WAIVER OF AGE DISCRIMINATION CLAIM. Executive acknowledges
that this Agreement includes a waiver of any rights and claims arising under the
Age Discrimination in Employment Act. Executive understands he is not waiving
rights or claims that may arise after the date this Agreement is executed.
Executive acknowledges that the consideration he is receiving in exchange for
his waiver of the rights and claims specified herein exceeds anything of value
to which he already is entitled. Executive acknowledges that he was advised in
writing to consult with an attorney prior to executing this Agreement. Executive
represents and agrees that he fully understands his right to discuss all aspects
of this Agreement with legal counsel and, to the extent he deems appropriate, he
has fully availed himself of this right.
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Executive acknowledges that he has entered into this Agreement knowingly and
voluntarily with full understanding of its terms and after having had the
opportunity to seek and receive advice and counsel from his attorney. Executive
acknowledges that he has been given a period of at least twenty-one (21) days
within which to consider this Agreement. Executive understands that he may
revoke this Agreement during the seven (7) days following the execution of this
Agreement and that the Agreement will not become effective until that seven-day
revocation period has expired.
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IN WITNESS WHEREOF, the Company and Supply have caused this
Agreement to be executed in their respective corporate names by an officer
thereof thereunto duly authorized, and Executive and Spouse have hereunto set
their hands, as of the day and year first above written.
UNITED STATIONERS INC.
By: /s/ Randall W. Larrimore
---------------------------------
Name: Randall W. Larrimore
-------------------------------
Title: President & CEO
------------------------------
UNITED STATIONERS SUPPLY CO.
By: /s/ Randall W. Larrimore
---------------------------------
Name: Randall W. Larrimore
-------------------------------
Title: President & CEO
------------------------------
/s/ Michael D. Rowsey
------------------------------------
Michael D. Rowsey
1112 Reddington, Aurora, IL 60504
/s/ Cynthia D. Rowsey
------------------------------------
Cynthia Rowsey
1112 Reddington, Aurora, IL 60504
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EXHIBIT 1
OPTIONEE STATEMENT UNITED STATIONERS INC.
EXERCISABLE AS OF 2/1/1999
- --------------------------------------------------------------------------------
MICHAEL ROWSEY
1112 REDDINGTON CT
AURORA, IL 60504
SSN ###-##-####
<TABLE>
<CAPTION>
GRANT EXPIRATION PLAN ID GRANT OPTIONS OPTION OPTIONS OPTIONS
DATE DATE TYPE GRANTED PRICE OUTSTANDING VESTED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/2/1995 10/10/2000 MGMT Non-Qualified 30,000 $2.560000 30,000 CURRENT
10/2/1995 10/10/2000 MGMT Non-Qualified 210,000 $8.437500 151,428 CURRENT
</TABLE>
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EXHIBIT 10.98
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (this "Agreement") is made and entered
into as of December , 1998 by and among United Stationers Inc., a
Delaware corporation (the "Company") and ASI Partners III, L.P. ("ASI")
at .
WHEREAS, ASI owns warrants (the "Warrants") for the purchase of
3,099.55 shares of Common Stock, Par Value $0.10, of the Company;
WHEREAS, ASI wishes to sell the Warrants to the Company and the Company
wishes to repurchase the Warrants from ASI;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. SALE AND PURCHASE OF WARRANTS.
(a) SALE OF WARRANTS. ASI shall hereby sells, transfers, conveys and
assigns Warrants to the Company.
(b) PURCHASE PRICE FOR WARRANTS. Upon delivery to the Company of the
Warrants and subject to the terms and conditions set forth herein (i) the
Company hereby agrees to transfer the amount of $74,466.68 by wire transfer in
immediately available funds to the following account designated (the "designated
Account") in consideration for the Warrants.
(c) CONSEQUENCES OF TRANSACTIONS. As a consequence of the transactions
described in Sections 1(a) and 1(b), ASI ceases to have any right, title or
interest in, to or under any of the Warrants.
2. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF ASI. ASI hereby represents and
warrants to the Company as follows:
(1) TITLE TO WARRANTS. ASI has good title to the Warrants,
free and clear of any and all liens, pledges, charges, reservations,
restrictions, options, rights of first offer or refusal, security interests,
adverse claims or other encumbrances of any character whatsoever, whether
written or oral and whether or not relating to the extension of credit or the
borrowing of money ("Encumbrances").
The sale and delivery of the Warrants to the Company, pursuant to Section 1 will
vest in the Company legal and valid title to the Warrants, free and clear of all
Encumbrances. There are no agreements or understandings between ASI and any
other person or entity with respect to any matter pertaining to the Warrants.
(2) ASI is a limited partnership duly organized and existing
in good
1
<PAGE>
standing under the laws of its jurisdiction of formation. ASI has all requisite
partnership power and authority to (i) enter into this Agreement, (ii) perform
all of its obligations hereunder, and (iii) consummate the transactions
hereunder. The execution, delivery and performance of this Agreement has been
duly authorized by all necessary partnership action.
(3) No consent, approval or authorization of, exemption by, or
filing with, any governmental or regulatory authority or other third party is
required in connection with the execution, delivery and performance by ASI of
this Agreement and the consummation by ASI of the transactions contemplated
hereby (or if so required, the same has been duly obtained or made).
(b) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PURCHASERS.
The Company hereby represents and warrants to ASI as follows:
(1) ORGANIZATION; CORPORATE AUTHORITY; GOOD STANDING. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company has all requisite corporate
power and authority to (i) enter into this Agreement, (ii) perform all of its
obligations hereunder, (iii) consummate the transactions hereunder, and (iv) to
carry on its business as it is now being conducted.
(2) NO CONSENT OR APPROVAL REQUIRED. No Consent, approval or
authorization of, exemption by, or filing with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby (or if so required, the same has been duly
obtained or made).
3. INDEMNIFICATION AND SURVIVAL.
(a) SURVIVAL. The representations, warranties and covenants contained
in Section 2 hereof shall survive the transaction contemplated by this
Agreement.
(b) INDEMNIFICATION. Each party hereto (the "Indemnifying Party")
agrees to indemnify and hold harmless each other party from and against any and
all loss, claim, damage, liability, or expense (including court costs and
reasonable attorneys' fees and expenses) (each, an "INDEMNIFIABLE LOSS")
incurred by such other party resulting from or reasonably related to any breach
by the Indemnifying Party of its representations and warranties set forth in
Section 2 hereof.
4. MISCELLANEOUS.
(a) EXPENSES. Each party shall pay all costs and expenses incurred by
it or on its behalf in connection with this Agreement and the transactions
contemplated hereby, including, without limiting the generality of the
foregoing, fees and expenses of its own financial consultants, accountants and
counsel.
2
<PAGE>
(b) GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Illinois applicable to agreements made
and wholly performed within such jurisdiction.
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first written above.
UNITED STATIONERS INC.
By:/s/ Susan Maloney Meyer
-----------------------------------------
Name: Susan Maloney Meyer
---------------------------------------
Title: Vice President, General Counsel
--------------------------------------
ASI PARTNERS III, L.P.
By:/s/ Gary G. Miller
-----------------------------------------
Name: GARY G. MILLER
--------------------------------------
Title:
--------------------------------------
4
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNITED STATIONERS INC.
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
AZERTY INCORPORATED
LAGASSE BROS., INC.
AZERTY de MEXICO, S.A. de C.V.
UNITED WORLDWIDE LIMITED
UNITED STATIONERS HONG KONG LIMITED
SAH, INC.
USS RECEIVABLES COMPANY, LTD.
UNITED BUSINESS COMPUTERS, INC.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-37665) pertaining to the Management Equity Plan of United
Stationers Inc. of our report dated January 26, 1999 except for Note 18, as
to which the date is March 17, 1999, with respect to the consolidated
financial statements of United Stationers Inc. and Subsidiaries, included in
this Annual Report (Form 10-K) for the year ended December 31, 1998.
/S/ERNST & YOUNG LLP
Ernst & Young LLP
Chicago, Illinois
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000355999
<NAME> UNITED STATIONERS, INC.
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 19,038
<SECURITIES> 0
<RECEIVABLES> 213,242
<ALLOWANCES> 9,775
<INVENTORY> 554,940
<CURRENT-ASSETS> 798,738
<PP&E> 267,967
<DEPRECIATION> 98,907
<TOTAL-ASSETS> 1,166,991
<CURRENT-LIABILITIES> 441,714
<BONDS> 0
0
0
<COMMON> 3,691
<OTHER-SE> 366,872
<TOTAL-LIABILITY-AND-EQUITY> 1,166,991
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<TOTAL-REVENUES> 3,059,166
<CGS> 2,529,928
<TOTAL-COSTS> 2,529,928
<OTHER-EXPENSES> 381,948
<LOSS-PROVISION> 3,687
<INTEREST-EXPENSE> 36,301
<INCOME-PRETAX> 110,989
<INCOME-TAX> 47,064
<INCOME-CONTINUING> 63,925
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<EPS-DILUTED> 1.60
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY CO.
<MULTIPLIER> 1,000
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<S> <C>
<PERIOD-TYPE> 12-MOS
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0
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<INCOME-CONTINUING> 63,925
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<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.60
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