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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED STATIONERS SUPPLY CO.
AND THE GUARANTORS NAMED IN FOOTNOTE (1) BELOW
(Exact name of Co-Registrants as specified in their charters)
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<S> <C> <C>
ILLINOIS 5112 36-2431718
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
RANDALL W. LARRIMORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(847) 699-5000
(Name, address, including zip code, and telephone number, including
area code, of principal executive offices and agent for service)
COPIES TO:
MARY R. KORBY
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201-6950
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
the General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
8 3/8% Senior Subordinated Notes due
2008..................................... $100,000,000 100% $100,000,000 $29,500
Senior Subordinated Guarantees(4).......... -- -- -- --
</TABLE>
(1) United Stationers Inc., a Delaware corporation (I.R.S. Employer
Identification No. 36-3141189), Lagasse Bros., Inc., a Louisiana corporation
(I.R.S. Employer Identification No. 72-0514669), Azerty Incorporated, a Delaware
corporation (I.R.S. Employer Identification No. 16-1187791), Positive ID
Wholesale Inc., a Delaware corporation (I.R.S. Employer Identification No.
16-1501732) and AP Support Services Incorporated, a Delaware corporation (I.R.S.
Employer Identification No. 16-1496499).
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(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated in accordance with Rule 457(f) under the Securities Act of 1933,
as amended.
(4) The 8 3/8% Senior Subordinated Notes due 2008 are guaranteed by the
Co-Registrants on a senior subordinated basis. No separate consideration
will be paid in respect of the guarantees.
------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
UNITED STATIONERS SUPPLY CO.
United Stationers Supply Co., an Illinois corporation (the "Company"), the
operating subsidiary of United Stationers Inc. ("United"), and the Guarantors
(as hereinafter defined) hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and the letter of transmittal
accompanying this Prospectus (the "Letter of Transmittal," which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount of 8 3/8%
Senior Subordinated Notes due 2008 (the "New Notes") issued by the Company for
each $1,000 principal amount of 8 3/8% Senior Subordinated Notes due 2008 (the
"Old Notes") issued by the Company (the "Original Offering"), of which an
aggregate principal amount of $100.0 million is outstanding. The form and terms
of the New Notes are identical to the form and terms of the Old Notes except
that the New Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and will not bear any legends restricting their
transfer. The New Notes will evidence the same debt as the Old Notes and will be
issued pursuant to, and entitled to the benefits of, the Indenture (as defined)
governing the Old Notes. The Exchange Offer is being made in order to satisfy
certain contractual obligations of the Company. See "The Exchange Offer" and
"Description of the New Notes." The New Notes and the Old Notes are sometimes
collectively referred to herein as the "Notes".
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES.
------------------------
Interest on the New Notes is payable semi-annually on April 15 and October 15 of
each year, commencing on October 15, 1998. The New Notes will mature on April
15, 2008. Except as described below, the Company may not redeem the New Notes
prior to April 15, 2003. On and after such date, the Company may redeem the New
Notes, in whole or in part, at any time at the redemption prices set forth
herein, together with accrued and unpaid interest and Additional Amounts (as
defined), if any, to the date of redemption. In addition, at any time and from
time to time prior to April 15, 2001, the Company may, subject to certain
requirements, redeem up to 35% of the aggregate principal amount of the New
Notes with the net cash proceeds received from one or more Public Equity
Offerings (as defined), at a redemption price equal to 108.375% of the principal
amount to be redeemed, together with accrued and unpaid interest and Additional
Amounts, if any, to the date of redemption, provided that at least 65% of the
aggregate principal amount of New Notes remains outstanding immediately after
each such redemption. The New Notes will not be subject to any sinking fund
requirement. Upon the occurrence of a Change of Control (as defined), the
Company will be required to make an offer to repurchase the New Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest and Additional Amounts, if any, to the date of repurchase. See
"Description of the New Notes."
The New Notes will be unsecured and will be subordinated to all existing and
future Senior Indebtedness (as defined) of the Company. The New Notes will rank
PARI PASSU in right of payment with all existing and future senior subordinated
Indebtedness (as defined) of the Company and will rank senior in right of
payment to all Subordinated Indebtedness (as defined) of the Company. The New
Notes will be guaranteed, on an unsecured senior subordinated basis, by United
and all of the Company's direct and indirect domestic subsidiaries on the Issue
Date (as defined) and by each direct and indirect domestic subsidiary of the
Company which incurs any Indebtedness (excluding any Securitization Subsidiary
(as defined) that has entered into or established a Permitted Receivables
Securitization Program (as defined) and any Unrestricted Subsidiaries (as
defined )) created or acquired thereafter. The Indenture under which the New
Notes will be issued (the "Indenture") permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. See
"Description of the New Notes." As of March 31, 1998, after giving pro forma
effect to the Azerty Acquisition (as defined), the Senior Credit Facilities
Refinancing (as defined), the Original Offering (including the application of
net proceeds therefrom), and the June Equity Offering (as defined) (including
the application of net proceeds therefrom), the aggregate principal amount of
the Company's Senior Indebtedness would have been approximately $162.7 million
(excluding unused commitments), and the Company would have had no senior
subordinated Indebtedness outstanding other than the Notes and the 12 3/4% Notes
(as defined). In addition, the Company would have had $78.4 million in
Subordinated Indebtedness, consisting of intercompany indebtedness payable to
United. See "Description of the New Notes--General" and "--Subordination," and
"Description of Certain Indebtedness--12 3/4% Notes."
------------------------------
THE COMPANY AND THE GUARANTORS WILL ACCEPT FOR EXCHANGE ANY AND ALL OLD NOTES
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (AS SO EXTENDED, SUCH TIME AND DATE BEING
THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR
TO THE EXPIRATION DATE. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY
CONDITIONS. SEE "THE EXCHANGE OFFER."
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed, for a period of 90 days after the Expiration Date, to make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
No public market existed for the Old Notes before the Exchange Offer. The
Company currently does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the New Notes is currently anticipated.
The Company will pay all the expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange pursuant to the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company and United are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information may
be inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
This Prospectus does not contain all the information set forth in the
Registration Statement filed with the Commission on Form S-4 with respect to the
New Notes (the "Registration Statement") and the exhibits and schedules thereto,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document set forth all material
elements of such documents, but are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. Copies of the Registration
Statement and the exhibits thereto are on file with the Commission and may be
examined without charge at the public reference facilities of the Commission
described above. Copies of such materials can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The reports, proxy
statements and other information may also be obtained from the web site that the
Commission maintains at http://www.sec.gov.
The Company is required by the Indenture to furnish the holders of the Notes
with copies of the annual reports and of the information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act, as long as any
Notes are outstanding.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY AND
UNITED, INCLUDING STATEMENTS UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "UNAUDITED
CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL
OF THESE FORWARD-LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE
BY MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE
INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH
ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES
OR STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2)
INCREASED COSTS; (3) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4)
INCREASES IN THE COMPANY'S COST OF BORROWINGS OR INABILITY OR UNAVAILABILITY OF
ADDITIONAL DEBT OR EQUITY CAPITAL; AND (5) CHANGES IN GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE.
MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS
MANAGEMENT. 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. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH
COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING
STATEMENTS, SEE "RISK FACTORS."
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. AS USED IN THIS
PROSPECTUS, UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES,
REFERENCES HEREIN TO THE "COMPANY" OR "UNITED STATIONERS" INCLUDE (I) UNITED
STATIONERS SUPPLY CO., THE OPERATING SUBSIDIARY OF UNITED, AND ITS DIRECT AND
INDIRECT SUBSIDIARIES, AND (II) THE BUSINESS CONDUCTED BY UNITED, THE COMPANY,
ASSOCIATED HOLDINGS, INC. ("ASSOCIATED") AND ASSOCIATED STATIONERS, INC.
("ASI"), THE OPERATING SUBSIDIARY OF ASSOCIATED, PRIOR TO THE MERGERS OF
ASSOCIATED WITH UNITED AND ASI WITH THE COMPANY ON MARCH 30, 1995 (COLLECTIVELY,
THE "MERGER"). EXCEPT AS OTHERWISE INDICATED, (I) THE PRO FORMA FINANCIAL
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997 GIVES EFFECT TO THE JUNE EQUITY
OFFERING (AS DEFINED) (INCLUDING THE APPLICATION OF THE NET PROCEEDS THEREFROM),
THE ORIGINAL OFFERING (INCLUDING THE APPLICATION OF THE NET PROCEEDS THEREFROM),
THE AZERTY ACQUISITION (AS DEFINED) AND THE SENIOR CREDIT FACILITIES REFINANCING
(AS DEFINED) AS IF EACH SUCH TRANSACTION HAD OCCURRED ON JANUARY 1, 1997, AND
(II) THE SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION FOR THE YEAR ENDED
DECEMBER 31, 1997 GIVES EFFECT TO THE OCTOBER EQUITY OFFERING (AS DEFINED)
(INCLUDING THE APPLICATION OF THE NET PROCEEDS THEREFROM), THE PREFERRED STOCK
REDEMPTION (AS DEFINED), THE JUNE EQUITY OFFERING (INCLUDING THE APPLICATION OF
THE NET PROCEEDS THEREFROM), THE ORIGINAL OFFERING (INCLUDING THE APPLICATION OF
THE NET PROCEEDS THEREFROM), THE AZERTY ACQUISITION, THE SENIOR CREDIT
FACILITIES REFINANCING, THE MANAGEMENT AGREEMENTS TERMINATION (AS DEFINED) AND
THE COMPUTER SERVICES CONTRACT WRITE-OFF (AS DEFINED), AS IF EACH SUCH
TRANSACTION HAD OCCURRED ON JANUARY 1, 1997. IN ADDITION, THE FINANCIAL
INFORMATION INCLUDED HEREIN PRESENTS UNITED, THE COMPANY AND ITS SUBSIDIARIES ON
A CONSOLIDATED BASIS. UNITED IS A HOLDING COMPANY WITH NO OPERATIONS SEPARATE
FROM THE COMPANY AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL INFORMATION FOR THE
COMPANY HAS BEEN PROVIDED HEREIN BECAUSE MANAGEMENT OF THE COMPANY BELIEVES SUCH
INFORMATION WOULD NOT BE MEANINGFUL BECAUSE (I) THE COMPANY IS THE ONLY DIRECT
SUBSIDIARY OF UNITED, WHICH HAS NO OPERATIONS OTHER THAN THOSE OF THE COMPANY
AND ITS SUBSIDIARIES, AND (II) ALL ASSETS AND LIABILITIES OF UNITED ARE RECORDED
ON THE BOOKS OF THE COMPANY.
THE COMPANY
OVERVIEW
United Stationers is the largest broad line wholesale distributor of
business products in North America, with annual sales of more than twice its
next largest competitor. The Company offers more than 35,000 stockkeeping units
("SKUs"), including traditional office products, office furniture, information
technology products, facilities management supplies and janitorial and
sanitation supplies. The Company's customer base is comprised of more than
20,000 resellers, including office products dealers, office furniture dealers,
office products superstores, mass merchandisers, computer products resellers,
mail order companies and sanitary supply distributors. United Stationers serves
its customers through an integrated nationwide network of 41 business products
distribution centers and 18 janitorial and sanitation distribution centers. In
addition to its broad product offering, the Company provides value-added
marketing and logistics services to both manufacturers and resellers. For the
year ended December 31, 1997, the Company's net sales and EBITDA were $2.6
billion and $96.3 million (after non-recurring charges of $64.7 million),
respectively, and the Company's supplemental pro forma net sales and EBITDA
would have been $2.9 billion and $177.5 million, respectively.
The Company estimates that the U.S. business products industry generated
sales of more than $120 billion in manufacturers' shipments in 1996 (based on
independent industry sources). In recent years, this industry has experienced
significant consolidation at all levels of the supply chain, including
manufacturers, wholesalers and resellers. During this period, the Company has
strengthened its competitive position by: (i) leveraging its significant scale;
(ii) emphasizing cost-effective operations and systems; (iii) stocking the
broadest range of business products in the industry; and (iv) providing a high
level of customer service, including quick and accurate order fulfillment and
consistent on-time and
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accurate order delivery. Throughout this consolidation, the Company has
successfully maintained relationships with a diverse customer base, with no
single reseller accounting for more than 6% of the Company's net sales in 1997.
As competition within the business products industry has increased,
resellers have focused on broadening their product offerings on a cost-effective
basis as well as providing high in-stock order fill rates on same day and
overnight delivery to end users. A primary goal of the Company is to be the
reseller's "partner of choice" by assisting its customers in achieving these
objectives and enabling them to increase their own profitability and return on
assets. United Stationers offers one-stop shopping to its customers by providing
a comprehensive inventory of products from more than 550 manufacturers. As the
Company's product line is much larger and broader than that which resellers can
economically stock themselves, resellers can rely on the Company to offer safety
stock (inventory back-up on high volume items) and to stock certain
slower-moving, generally higher margin products. As a result of volume
purchasing, the Company often qualifies for better pricing and terms than are
available to resellers. In addition, the Company can offer significantly lower
minimum order quantities than are available to resellers directly from
manufacturers.
United Stationers also provides a broad range of value-added services to
resellers. The Company produces catalogs (available in paper form, on CD-ROM and
through seamless links to the Company's web site) for its resellers to customize
and use as consumer marketing tools. For the 1998 catalog season, the Company
circulated more than 10 million broad line and specialized catalogs. The
Company's order entry systems allow resellers to place orders electronically
with the Company, thereby increasing a reseller's efficiency. Further, the
Company is able to deliver pre-sold products directly to the reseller's
customers or to the reseller for delivery to the end user without further
packaging. Through its state-of-the-art information systems and integrated
nationwide network of distribution centers, the Company has been able to achieve
a high order fill rate, which is an important benefit to resellers in providing
timely deliveries to end users. All of these services are provided in such a
manner that the end user has no knowledge of the Company's role in the supply
chain, as all catalogs and packaging are customized with the name of the
reseller, allowing the reseller to maintain and foster end-user relationships.
By utilizing the Company's services and products, resellers have begun to
realize the economic value of reducing the number of SKUs they carry and are
increasingly relying upon the Company for direct order fulfillment. The Company
believes that this trend of "de-stocking" by resellers will continue.
United Stationers is an integral part of the supply chain for resellers.
Additionally, manufacturers value the Company as both a cost-effective
distribution channel and as a sales outlet that provides broad geographic
exposure for their products. United Stationers also facilitates the introduction
of new products by manufacturers through the use of the Company's widely
distributed marketing materials. By serving as a distribution channel for
manufacturers, the Company assumes credit risk and cost-effectively breaks down
bulk shipments into individual orders for overnight delivery, allowing
manufacturers to realize efficiencies in order administration, warehousing and
freight costs. Manufacturers also rely on the Company to reach smaller resellers
who are not large enough to purchase directly due to their small order sizes and
the related high delivery costs.
COMPETITIVE STRENGTHS
During the last several years, the Company has strengthened its competitive
position in the business products industry through the following:
SIGNIFICANT SCALE. As the largest broad line business products wholesaler
in North America, the Company qualifies for substantial volume allowances and
can realize significant economies of scale. In addition, the Company's size and
nationwide service and distribution capabilities enable it to: (i) service the
demands of large national, regional, local and individual reseller accounts by
offering products from
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over 500 manufacturers; (ii) seek cost-effective sourcing of products both in
North America and internationally; and (iii) mitigate the effect of local or
regional economic downturns.
COST EFFECTIVE OPERATIONS. The Company seeks cost reductions at both the
corporate and operating levels in order to improve its efficiency. Examples of
such cost reduction efforts include: (i) reduced merchandise procurement and
handling costs through higher manufacturers' incentives and better terms; (ii)
continued efforts to increase inventory efficiency without lowering order fill
rates; (iii) reduced payroll and benefits costs through improved labor
allocation and higher productivity; (iv) reduced freight costs through ongoing
refinements to delivery systems; (v) increased sourcing of certain products from
lower cost sources; (vi) streamlined work practices and procedures; and (vii)
increased leveraging of fixed costs over an increasing sales base.
BROAD PRODUCT SELECTION. Stocking over 35,000 SKUs, the Company offers the
broadest selection of business products in the industry, providing resellers
with one-stop shopping for their business products needs. The Company's size
allows it to maintain a broad product selection, thereby enabling its customers
to hold less inventory while still providing end users with a high level of
service.
HIGH LEVEL OF CUSTOMER SERVICE. The Company believes that a key component
of its success has been its focus on customer service and support. Customer
service includes: ease of ordering, rapid access to information, high order fill
rates, on-time accurate shipments and value-added management and marketing
assistance. The Company's integrated computer information system serves an
important role in providing a high level of customer service, as it allows the
Company to provide resellers with the ability to manage electronically critical
business functions, including order entry, purchasing, pricing, accounts
receivable, accounts payable and inventory control. This integrated computer
system also is designed, in part, to enable the Company to monitor five key
measures of customer satisfaction: order fill rate, order accuracy, inventory
accuracy, on-time delivery and accessibility of the Company's personnel to
customers. The Company also supports resellers' marketing efforts by designing
informative, user-friendly catalogs and other marketing materials.
The Company continues to introduce additional services, such as its "wrap
and label" program that offers resellers the option to receive prepackaged
orders customized (and labeled with the reseller's name) to meet the
specifications of particular end users. The Company can also drop ship orders
directly to end users on behalf of resellers. These services allow resellers to
lower their inventory investment and minimize handling costs.
BUSINESS STRATEGY
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution, the
Company believes its role as a wholesaler will continue to expand and that it
can achieve above industry-average growth rates by:
CAPTURING A GREATER SHARE OF EXISTING CUSTOMERS' PURCHASES. The Company
believes that it has the opportunity to capture a portion of the sales of
business products currently sold directly by manufacturers to resellers without
wholesaler involvement (currently only approximately 20% of manufacturers'
shipments of business products move through wholesalers). The Company believes
that as resellers intensify their focus on asset management, return on
investment and inventory efficiency, they will continue de-stocking and
increasingly rely on United Stationers' products and services to meet end-user
requirements for a high order fill rate for a broad product assortment available
on an overnight basis.
EXPANDING ITS CUSTOMER BASE. The Company plans to continue to expand its
customer base by: (i) maintaining and building its business with commercial
dealers and contract stationers; (ii) developing additional programs for
marketing and buying groups; (iii) continuing to focus on complementary markets,
including specialty dealers; and (iv) expanding geographically, both within the
United States and, potentially, internationally.
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OFFERING A BROADER LINE OF PRODUCTS AND SERVICES. The Company's product
line expansion plans include developing its newer product categories, such as
office furniture, information technology products and peripherals, facilities
management supplies and janitorial and sanitation supplies and potentially
offering new products or services. The Company also plans to continue to expand
its line of private brand products.
CAPITALIZING ON CROSS-SELLING OPPORTUNITIES. The Company believes that its
various products and services are complementary and that there are significant
opportunities to cross-sell to existing customers. By implementing this
strategy, management believes the Company can enhance sales as resellers
purchase a broader selection of products offered by the Company, thereby
reducing end-user procurement costs and enhancing reseller profitability.
INCREASING TECHNOLOGICAL CAPABILITIES AND UTILIZING ELECTRONIC
COMMERCE. The Company intends to continue to invest in information systems
enhancements and customer interfaces that management believes will allow it to
capture a growing percentage of its customers' business. In addition, as the
Internet becomes increasingly important as a marketing channel, the Company is
positioned to participate in this trend with direct, on-line access by its
resellers to its 25,000 SKU general line catalog.
MAKING STRATEGIC ACQUISITIONS. The Company believes it can enhance its
growth by continuing to make strategic acquisitions, such as the acquisition of
Lagasse Bros., Inc. ("Lagasse") in 1996, which substantially increased the
Company's position in the janitorial and sanitation supplies product category.
In addition, the Company believes that the Azerty Acquisition (as defined) will
expand its product offerings and make the Company one of the largest
distributors of computer consumable supplies in the United States. The Company
intends to continue, from time to time, to pursue acquisitions that expand its
customer base, increase its geographic reach and/or broaden its product
offering.
4
<PAGE>
RECENT TRANSACTIONS
JUNE EQUITY OFFERING
In June 1998, United expects to complete an offering of 2,005,507 shares of
Common Stock (the "June Equity Offering"), consisting of 1,500,000 primary
shares sold by United, and 505,507 secondary shares sold by certain selling
stockholders. The aggregate net proceeds to United of approximately $77.1
million will be contributed to USSC and used to repay a portion of indebtedness
under the Tranche A Term Loan Facility which will cause a permanent reduction of
the amount borrowable thereunder.
United will not receive any of the proceeds from the sale of the 505,507
shares of Common Stock offered by the selling stockholders, other than an
aggregate of approximately $6.4 million payable by the selling stockholders upon
exercise of employee stock options in connection with the June Equity Offering,
which will be applied to the repayment of indebtedness under the New Credit
Facilities (as defined).
AZERTY ACQUISITION
On April 3, 1998, the Company completed the acquisition of all of the
capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive
ID Wholesale Inc., and AP Support Services Incorporated (the "Azerty
Acquisition"), which together conducted substantially all of the United States
and Mexican operations of the Office Products Division of Abitibi-Consolidated
Inc. (collectively, the "Azerty Business"). The aggregate purchase price paid by
the Company for the Azerty Acquisition was approximately $115.2 million
(including fees and expenses), subject to adjustment based upon the final net
tangible assets of the Azerty Business as of the closing of the acquisition. The
Azerty Business is primarily a specialty wholesaler of computer consumables,
peripherals and accessories in the United States and Mexico. It is currently
anticipated that the Company's existing Micro United division will be integrated
with the Azerty Business. For the fiscal year ended December 31, 1997, the
Azerty Business had combined net sales and EBITDA of $355.4 million and $12.6
million, respectively. See "Recent Transactions--Azerty Acquisition."
The purchase price for the Azerty Acquisition was funded from borrowings
under the Company's New Credit Facilities (as defined). See "--Senior Credit
Facilities Refinancing--The New Credit Facilities."
SENIOR CREDIT FACILITIES REFINANCING
THE NEW CREDIT FACILITIES
On April 3, 1998, in order to fund the purchase price of the Azerty
Acquisition, refinance borrowings under the Company's existing senior secured
credit facilities (the "Existing Credit Facilities"), and pay related fees and
expenses in connection therewith, the Company amended and restated its existing
credit agreement (as amended and restated, the "New Credit Agreement") governing
its senior secured credit facilities (the "New Credit Facilities"). The New
Credit Facilities consist of a $250.0 million six year revolving credit facility
(the "Revolving Credit Facility"), a $150.0 million six year tranche A term loan
facility (the "Tranche A Term Loan Facility"), and a $100.0 million six and
three-quarter year tranche B term loan facility (the "Tranche B Term Loan
Facility"). The net proceeds of the Original Offering were used to repay a
substantial portion of indebtedness outstanding under the Tranche B Term Loan
Facility and the remainder of such facility was repaid with proceeds from the
sale of certain receivables. As a result of the early retirement of the Existing
Credit Facilities, approximately $9.5 million ($5.7 million net of tax benefit
of $3.8 million) of unamortized financing fees will be expensed as a non-cash
extraordinary charge during the second quarter of 1998. See "Use of Proceeds,"
"Recent Transactions--New Credit Facilities" and "Description of Certain
Indebtedness--New Credit Facilities."
5
<PAGE>
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into a $163.0 million 364-day liquidity facility
(the "Receivables Securitization Program"), pursuant to which the Company sells
all of its U.S. dollar trade receivables (the "Eligible Receivables") (except
for certain excluded receivables) to a wholly-owned offshore, special purpose
limited liability company intended to be bankruptcy-remote (the "Receivables
Company"). The Receivables Company then transfers the Eligible Receivables to a
third-party, multi-seller (the "Third Party Seller") asset-backed commercial
paper program. The Third-Party Seller's purchases of the Eligible Receivables
are supported by a facility between the Third-Party Seller and banks with
ratings of A-1/P-1 or higher. The Company received approximately $160.0 million
in proceeds from the initial sale of Eligible Receivables on April 3, 1998. The
proceeds to the Company from the Receivables Securitization Program were used to
reduce borrowings under the Revolving Credit Facility and repay a portion of the
Tranche B Term Loan Facility. The Unaudited Consolidated Pro Forma Financial
Statements included in this Prospectus reflect $150.0 million in proceeds from
the sale of Eligible Receivables under the Receivables Securitization Program,
as this amount was deemed to more fairly represent the average amount of
receivables that would have been sold in 1997. Management of United believes
that the Unaudited Consolidated Pro Forma Financial Statements included herein
represent a fair presentation of how the historical financial statements of
United might have been affected if the transaction described therein had been
consummated at the beginning of the periods presented. See "Unaudited
Consolidated Pro Forma Financial Statements." See "Recent
Transactions--Receivables Securitization Program."
The refinancing of the Company's Existing Credit Facility pursuant to the
New Credit Facilities and the Receivables Securitization Program is collectively
referred to in this Prospectus as the "Senior Credit Facilities Refinancing."
COMPUTER SERVICES CONTRACT WRITE-OFF
During the second quarter of 1998, the Company will write off (the "Computer
Services Contract Write-Off") the remaining term of a contract for the provision
of computer services (as amended, the "Computer Services Contract"), which is
scheduled to expire in July 2002. Management has recently determined that the
Computer Services Contract has no future value to the Company. As a result of
the Computer Services Contract Write-Off, the Company will take a $13.9 million
non-recurring pre-tax charge ($8.3 million net of tax benefit of $5.6 million)
to write-off the remaining payments and related prepaid expense under the
Computer Services Contract. The Company anticipates that the savings from this
write-off will be approximately $3.2 million annually. See "Recent
Transactions--Computer Services Contract Write-Off" and "Unaudited Consolidated
Pro Forma Financial Statements."
OCTOBER EQUITY OFFERING
On October 10, 1997, United completed an offering of 2.0 million primary
shares of its common stock, $0.10 par value ("Common Stock"), and a 3.4 million
share secondary offering of Common Stock by certain selling stockholders
(collectively, the "October Equity Offering"). The shares of Common Stock sold
in the October Equity Offering were priced at $38.00 per share, before
underwriting discounts and commissions of $1.90 per share. The aggregate net
proceeds to United of $72.2 million (before deducting expenses) and proceeds of
$0.1 million resulting from the exercise of 1,119,038 warrants to purchase
Common Stock sold in the October Equity Offering were contributed to the Company
and used to (i) repurchase $50.0 million principal amount of the Company's
existing 12 3/4% Senior Subordinated Notes due 2005 (the "12 3/4% Notes") and
pay the redemption premium thereof of approximately $6.4 million, (ii) pay fees
related to the October Equity Offering, and (iii) reduce indebtedness under its
existing senior secured term loan facilities by $15.5 million. The repayment of
indebtedness from the proceeds of the October Equity Offering resulted in an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of $3.9
million).
------------------------
The principal executive offices of the Company are located at 2200 East Golf
Road, Des Plaines, Illinois 60016-1267 and its telephone number at such location
is (847) 699-5000.
6
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer applies to $100.0 million aggregate principal amount of
the Old Notes. The form and terms of the New Notes are the same as the form and
terms of the Old Notes except that (i) interest on the New Notes shall accrue
from the date of issuance of the Old Notes, and (ii) the New Notes are being
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer. The New Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Indenture pursuant to which
the Old Notes were issued. The Old Notes and the New Notes are sometimes
referred to collectively herein as the "Notes." See "Description of the New
Notes."
<TABLE>
<S> <C>
The Exchange Offer................ $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of Old Notes. As of the
date hereof, Old Notes representing $100.0 million
aggregate principal amount are outstanding. The terms of
the New Notes and the Old Notes are substantially
identical in all material respects, except that the New
Notes will be freely transferable by the holders thereof
except as otherwise provided herein. See "Description of
the New Notes."
Based on an interpretation by the Commission's staff set
forth in no-action letters issued to third parties
unrelated to the Company and the Guarantors, the Company
and the Guarantors believe that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, sold and otherwise
transferred by any registered person receiving the New
Notes, whether or not that person is the registered
holder (other than any such holder or such other person
that is an "affiliate" of the Company or the Guarantors
within the meaning of Rule 405 under the Securities Act
or a broker dealer who purchases such New Notes directly
from the Company to resell pursuant to Rule 144A or any
other available exception under the Securities Act or a
person participating in the distribution of the New
Notes), without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that (i) the New Notes are acquired in the
ordinary course of business of that holder or such other
person, (ii) neither the holder nor such other person is
engaging in or intends to engage in a distribution of
the New Notes, and (iii) neither the holder nor such
other person has an arrangement or understanding with
any person to participate in the distribution of the New
Notes. See "The Exchange Offer-- Purpose and Effect."
Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where those Old Notes
were acquired by the broker-dealer as a result of its
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of these New Notes. See "Plan
of Distribution."
Registration Rights Agreement..... The Old Notes were sold by the Company on April 15,
1998, in a private placement in reliance on Section 4(2)
of the Securities Act and immediately resold by the
initial purchasers thereof in reliance on Rule 144A
under the Securities Act. In connection
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
with the sale, the Company and the Guarantors entered
into an Exchange and Registration Rights Agreement with
the initial purchasers of the Old Notes (the
"Registration Rights Agreement") requiring the Company
and the Guarantors to make the Exchange Offer. See "The
Exchange Offer--Purpose and Effect."
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, , 1998, or such later date and time
to which it is extended by the Company and the
Guarantors.
Withdrawal........................ The tender of the Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. Any Old
Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or
termination of the Exchange Offer.
Interest on the New Notes and Old
Notes........................... Interest on each New Note will accrue from the date of
issuance of the Old Note for which the New Note is
exchanged or from the date of the last periodic payment
of interest on such Old Note, whichever is later. No
additional interest will be paid on Old Notes tendered
and accept for exchange.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer--Certain Conditions to
Exchange Offer."
Procedures for Tendering Old
Notes........................... Each holder of the Old Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a copy thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver the Letter of Transmittal, or the
copy, together with the Old Notes and any other required
documentation, to the Exchange Agent (as defined) at the
address set forth herein. Persons holding the Old Notes
through the Depository Trust Company ("DTC") and wishing
to accept the Exchange Offer must do so pursuant to the
DTC's Automated Tender Offer Program, by which each
tendering participant will agree to be bound by the
Letter of Transmittal. By executing or agreeing to be
bound by the Letter of Transmittal, each holder will
represent to the Company and the Guarantors that, among
other things, (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course
of business of the person receiving such New Notes,
whether or not such person is the registered holder of
the Old Notes, (ii) neither the holder nor any such
other person is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the holder
nor any such other person has an arrangement or
understanding with any person to participate in the
distribution of such New Notes, and (iv) neither the
holder nor any such other person is an
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
"affiliate," as defined under Rule 405 promulgated under
the Securities Act, of the Company or the Guarantors.
Pursuant to the Registration Rights Agreement, the
Company and the Guarantors are required to file a
"shelf" registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in respect
of the Old Notes if (i) because of any change in law or
applicable interpretations thereof by the staff of the
Commission, the Company determines that it is not
permitted to effect the Exchange Offer as contemplated
hereby, (ii) validly tendered Old Notes are not
exchanged for New Notes within 200 business days after
the issue date of the Old Notes (the "Issue Date"),
(iii) any Initial Purchaser so requests with respect to
Old Notes not eligible to be exchanged for New Notes in
the Exchange Offer and held by it following the
consummation of the Exchange Offer, (iv) any applicable
law or interpretations do not permit any holder to
participate in the Exchange Offer, or (v) any holder
that participates in the Exchange Offer does not receive
freely transferable New Notes in exchange for tendered
Old Notes (the obligation to comply with a prospectus
delivery requirement being understood not to constitute
a restriction on transferability). See "The Exchange
Offer--Procedures for Tendering."
Acceptance of Old Notes and
Delivery of New Notes........... The Company will accept for exchange any and all Old
Notes which are properly tendered (and not withdrawn) in
the Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Exchange Agent.................... The Bank of New York is serving as Exchange Agent (the
"Exchange Agent") in connection with the Exchange Offer.
Federal Income Tax
Considerations.................. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal Income Tax
Considerations."
Effect of Not Tendering........... Old Notes that are not tendered or that are tendered but
not accepted will, following the completion of the
Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. The Company will
have no further obligation to provide for the
registration under the Securities Act of such Old Notes
(except as described in "The Exchange Offer").
</TABLE>
9
<PAGE>
THE NEW NOTES
<TABLE>
<S> <C>
Issuer............................ United Stationers Supply Co.
Securities Offered................ $100.0 million aggregate principal amount of 8 3/8%
Senior Subordinated Notes due 2008.
Maturity.......................... April 15, 2008.
Interest Payment Dates............ April 15 and October 15 of each year, commencing on
October 15, 1998.
Sinking Fund...................... None.
Optional Redemption............... Except as described below, the Company may not redeem
the New Notes prior to April 15, 2003. On or after such
date, the Company may redeem the New Notes, in whole or
in part, at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time and
from time to time prior to April 15, 2001, the Company
may redeem, subject to certain requirements, up to 35%
of the aggregate principal amount of the New Notes with
the net proceeds from one or more Public Equity
Offerings, at a redemption price equal to 108.375% of
the principal amount to be redeemed, together with
accrued and unpaid interest and Additional Amounts, if
any, to the date of redemption, provided that at least
65% of the aggregate principal amount of the New Notes
remains outstanding immediately after each such
redemption. See "Description of the New Notes--Optional
Redemption."
Change of Control................. Upon a Change of Control, the Company will be required
to make an offer to repurchase the New Notes at a price
equal to 101% of principal amount thereof, together with
accrued and unpaid interest and Additional Amounts, if
any, to the date of repurchase. See "Description of the
New Notes--Certain Covenants--Purchase of Notes upon a
Change of Control."
Guarantees........................ The New Notes will be guaranteed (the "Guarantees"),
jointly and severally on a senior subordinated basis, by
United and all of the Company's direct and indirect
domestic Subsidiaries (as defined) on the Issue Date,
and by each direct and indirect domestic Subsidiary of
the Company which incurs any Indebtedness (excluding any
Securitization Subsidiary that has entered into or
established a Permitted Receivables Securitization
Program and any Unrestricted Subsidiaries) created or
acquired thereafter (collectively, the "Guarantors").
The Receivables Company will not guarantee the New
Notes, as it is a foreign subsidiary. The Guarantees
will be general unsecured senior subordinated
obligations of the Guarantors. The Guarantors are also
guaranteeing all obligations of the Company under the
New Credit Facilities, and each of such Guarantors has
granted a security interest in all or substantially all
its assets to secure its guarantee obligations under the
New Credit Facilities. The obligations of each Guarantor
under its Guarantee will be subordinated in right of
payment to the prior
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
payment in full of all Guarantor Senior Indebtedness (as
defined) of such Guarantor to substantially the same
extent as the New Notes are subordinated to all existing
and future Senior Indebtedness of the Company. See
"Description of the New Notes--Guarantees."
Ranking........................... The New Notes will be unsecured and will be subordinated
in right of payment to all existing and future Senior
Indebtedness of the Company. The New Notes will rank
PARI PASSU in right of payment with the 12 3/4% Notes
and any future senior subordinated Indebtedness of the
Company, and will rank senior to all Subordinated
Indebtedness of the Company. As of March 31, 1998, after
giving pro forma effect to the Senior Credit Facilities
Refinancing, the Azerty Acquisition, the Original
Offering (including the application of net proceeds
thereof), and the June Equity Offering (including the
application of net proceeds therefrom), the aggregate
principal amount of the Company's outstanding Senior
Indebtedness would have been approximately $162.7
million (excluding unused commitments), the Company
would have had no senior subordinated Indebtedness
outstanding other than the $100.0 million in principal
amount of 12 3/4% Notes and the New Notes, and the
Company would have had $78.4 million in Subordinated
Indebtedness consisting of intercompany indebtedness
payable to United. See "Description of the New
Notes--General" and "--Subordination."
Restrictive Covenants............. The Indenture will limit, among other things, (i) the
incurrence of additional Indebtedness by the Company and
its Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of the
Company and its Restricted Subsidiaries and the
redemption of certain subordinated obligations of the
Company and its Restricted Subsidiaries, (iii)
investments, (iv) sales of assets and Restricted
Subsidiary stock, (v) transactions with affiliates, and
(vi) consolidations, mergers and transfers of all or
substantially all of the Company's assets. The Indenture
will also prohibit certain restrictions on distributions
from Restricted Subsidiaries. However, all of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of the New Notes--Certain Covenants."
Use of Proceeds................... There will be no cash proceeds to the Company from the
Exchange Offer. The Company used the proceeds from the
Original Offering (i) to repay a substantial portion of
indebtedness of the Company outstanding under the
Tranche B Term Loan Facility, and (ii) to pay related
fees and expenses of the Original Offering.
</TABLE>
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" beginning on page 16 for risks involved
with an investment in the New Notes.
11
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA DATA
On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares
of pre-Merger United common stock pursuant to a tender offer (the "Tender
Offer"). Immediately thereafter, Associated merged with and into United, and
ASI, a wholly owned subsidiary of Associated, merged with and into USSC, a
wholly owned subsidiary of United. Although United was the surviving corporation
in the Merger, the transaction was treated as a reverse acquisition for
accounting purposes, with Associated deemed the acquiring corporation.
Therefore, the historical income statement and other data for the year ended
December 31, 1995 reflect the financial information of Associated only for the
three months ended March 30, 1995, and the results of the post-Merger United for
the nine months ended December 31, 1995.
Set forth below are (i) summary historical financial data, (ii) summary 1995
supplemental pro forma data, (iii) summary pro forma data reflecting the Senior
Credit Facilities Refinancing, the Azerty Acquisition, the Original Offering
(and the application of the net proceeds to the Company therefrom), and the June
Equity Offering (and the application of the net proceeds to United therefrom),
(iv) summary 1997 supplemental pro forma data reflecting the October Equity
Offering (and the application of the net proceeds to the Company therefrom), the
termination of certain management advisory service agreements effected in
October 1997 (see note 13 to the Consolidated Financial Statements of United
included elsewhere herein) (the "Management Agreements Termination"), the
redemption of all of United's outstanding shares of Series A Preferred Stock,
$0.01 par value ("Series A Preferred Stock"), and Series C Preferred Stock,
$0.01 par value ("Series C Preferred Stock" and, collectively with the Series A
Preferred Stock, the "Preferred Stock"), for approximately $21.3 million, which
was effected in September 1997 (the "Preferred Stock Redemption" and,
collectively with the October Equity Offering and the Management Agreements
Termination, the "1997 Financing Transactions"), the cost savings associated
with, the Computer Services Contract Write-Off, the Senior Credit Facilities
Refinancing, the Azerty Acquisition, the Original Offering (and the application
of the net proceeds to the Company therefrom) and the June Equity Offering (and
the application of the net proceeds to United therefrom) and (v) summary
supplemental pro forma data for the three months ended March 31, 1998 reflecting
the cost savings associated with the Computer Services Contract Write-Off,
Senior Credit Facilities Refinancing, the Azerty Acquisition, the Original
Offering (and the application of the net proceeds to the Company therefrom) and
the June Equity Offering (and the application of the net proceeds to United
therefrom). The summary 1995 supplemental pro forma data, the pro forma data and
the supplemental pro forma data are intended for informational purposes only and
are not necessarily indicative of either financial position or results of
operations in the future, or those that would have occurred had the events
described below occurred on the indicated dates as described elsewhere herein.
The following information should be read in conjunction with, and is qualified
in its entirety by, "Selected Consolidated Financial Data," "Unaudited
Consolidated Pro Forma Financial Statements," and related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of United, together with
the related notes thereto, included herein.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
PRO FORMA
1995 YEAR ENDED YEAR ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
UNITED SUPPLEMENTAL --------------------------- ----------------
HISTORICAL PRO FORMA(1) 1996 1997 1997(2)
-------------- ------------ ---------- --------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................... $ 1,751,462 $2,201,860 $2,298,170 $ 2,558,135 $2,913,558
Cost of goods sold.......................... 1,446,949 1,820,590 1,907,209 2,112,204 2,435,364
-------------- ------------ ---------- --------------- ----------------
Gross profit................................ 304,513 381,270 390,961 445,931 478,194
Operating expenses:
Warehousing, marketing and administrative
expenses................................ 237,197 299,861(5) 277,957 311,002 333,601
Restructuring charge(6)................... 9,759 -- -- -- --
Non-recurring charges(7).................. -- -- -- 64,698 64,698
-------------- ------------ ---------- --------------- ----------------
Total operating expenses.................... 246,956 299,861 277,957 375,700 398,299
-------------- ------------ ---------- --------------- ----------------
Income from operations...................... 57,557 $ 81,409 113,004 70,231 79,895
------------
------------
Interest expense............................ 46,186 57,456 53,511 41,656
Other expense............................... -- -- -- 9,251(8)
-------------- ---------- --------------- ----------------
Income before income taxes and extraordinary
item...................................... 11,371 55,548 16,720 28,988
Income taxes................................ 5,128 23,555 8,532 14,161
-------------- ---------- --------------- ----------------
Income before extraordinary item............ 6,243 31,993 8,188 14,827
Extraordinary item.......................... (1,449)(9) -- (5,884)(10) (5,884)(10)
-------------- ---------- --------------- ----------------
Net income.................................. 4,794 31,993 2,304 8,943
Preferred stock dividends issued and
accrued................................... 1,998 1,744 1,528 1,528
-------------- ---------- --------------- ----------------
Net income attributable to common
stockholders.............................. $ 2,796 $ 30,249 $ 776 $ 7,415
-------------- ---------- --------------- ----------------
-------------- ---------- --------------- ----------------
Net income per common share--
assuming dilution:
Income before extraordinary item.......... $ 0.33 $ 2.03 $ 0.43 $ 0.79
Extraordinary item........................ (0.11) -- (0.38) (0.35)
-------------- ---------- --------------- ----------------
Net income................................ $ 0.22 $ 2.03 $ 0.05 $ 0.44
-------------- ---------- --------------- ----------------
-------------- ---------- --------------- ----------------
Weighted average shares and assumed
conversions (in thousands).............. 12,809 14,923 15,380 16,950
-------------- ---------- --------------- ----------------
-------------- ---------- --------------- ----------------
<CAPTION>
PRO FORMA SUPPLEMENTAL
SUPPLEMENTAL THREE PRO FORMA
PRO FORMA MONTHS THREE MONTHS
YEAR ENDED THREE MONTHS ENDED ENDED MARCH ENDED MARCH
DECEMBER 31, MARCH 31, 31, 31,
-------------- ------------------ ----------- -------------
1997(3) 1997 1998 1998(2) 1998(4)
-------------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................... $2,913,558 $635,021 $712,517 $812,240 $812,240
Cost of goods sold.......................... 2,435,364 526,279 589,455 680,505 680,505
-------------- -------- -------- ----------- -------------
Gross profit................................ 478,194 108,742 123,062 131,735 131,735
Operating expenses:
Warehousing, marketing and administrative
expenses................................ 329,653 76,704 85,037 91,312 90,510
Restructuring charge(6)................... -- -- -- -- --
Non-recurring charges(7).................. -- -- -- -- --
-------------- -------- -------- ----------- -------------
Total operating expenses.................... 329,653 76,704 85,037 91,312 90,510
-------------- -------- -------- ----------- -------------
Income from operations...................... 148,541 32,038 38,025 40,423 41,225
Interest expense............................ 36,560 14,661 11,826 9,134 9,134
Other expense............................... 9,251(8) -- -- 2,313(8) 2,313(8)
-------------- -------- -------- ----------- -------------
Income before income taxes and extraordinary
item...................................... 102,730 17,377 26,199 28,976 29,778
Income taxes................................ 43,805 7,368 11,108 12,403 12,725
-------------- -------- -------- ----------- -------------
Income before extraordinary item............ 58,925 10,009 15,091 16,573 17,053
Extraordinary item.......................... -- -- -- -- --
-------------- -------- -------- ----------- -------------
Net income.................................. 58,925 10,009 15,091 16,573 17,053
Preferred stock dividends issued and
accrued................................... -- 455 -- -- --
-------------- -------- -------- ----------- -------------
Net income attributable to common
stockholders.............................. $ 58,925 $ 9,554 $ 15,091 $ 16,573 $ 17,053
-------------- -------- -------- ----------- -------------
-------------- -------- -------- ----------- -------------
Net income per common share--
assuming dilution:
Income before extraordinary item.......... $ 3.19 $ 0.65 $ 0.88 $ 0.89 $ 0.91
Extraordinary item........................ -- -- -- -- --
-------------- -------- -------- ----------- -------------
Net income................................ $ 3.19 $ 0.65 $ 0.88 $ 0.89 $ 0.91
-------------- -------- -------- ----------- -------------
-------------- -------- -------- ----------- -------------
Weighted average shares and assumed
conversions (in thousands).............. 18,500 14,608 17,098 18,646 18,646
-------------- -------- -------- ----------- -------------
-------------- -------- -------- ----------- -------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------- SUPPLEMENTAL THREE
PRO FORMA PRO FORMA MONTHS
1995 YEAR ENDED YEAR ENDED YEAR ENDED ENDED
-------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
UNITED SUPPLEMENTAL ---------------------- -------------- -------------- ---------
HISTORICAL PRO FORMA(1) 1996 1997 1997(2) 1997(3) 1997
---------- -------------- ---------- ---------- -------------- -------------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(11)........................ $ 81,241 $ 111,880 $ 139,046 $ 96,272 $ 108,903 $ 177,549 $ 38,573
Adjusted EBITDA(12)............... 91,000 111,880 139,046 160,970 173,601 177,549 38,573
EBITDA margin(13)................. 4.6% 5.1% 6.1% 3.8% 3.7% 6.1% 6.1%
Adjusted EBITDA margin............ 5.2% 5.1% 6.1% 6.3% 6.0% 6.1% 6.1%
Depreciation and amortization..... $ 23,684 $ 26,042 $ 26,041 $ 29,008 $ 29,008 6,535
Capital expenditures, net......... 8,017 (2,886) 12,991 13,733 13,733 1,612
Ratio of net debt to EBITDA....... 6.6x 4.2x 5.5x -- -- 3.5x
Ratio of net debt to Adjusted
EBITDA.......................... 5.9x 4.2x 3.3x -- -- 3.5x
Ratio of EBITDA to interest
expense......................... 1.8x 2.4x 1.8x 2.6x 4.9x 2.6x
Ratio of Adjusted EBITDA to
interest expense................ 2.0x 2.4x 3.0x 4.2x 4.9x 2.6x
OTHER DATA BEFORE CHARGES(14):
Income from operations............ $ 67,316 $ 113,004 $ 134,929 $ 144,593 $ 148,541 $ 32,038
Net income attributable to common
stockholders.................... 10,081 30,249 45,364 51,988 58,925 9,554
Net income per common share
assuming dilution............... 0.79 2.03 2.95 3.07 3.19 0.65
<CAPTION>
PRO FORMA SUPPLEMENTAL
THREE PRO FORMA
MONTHS THREE MONTHS
ENDED MARCH ENDED MARCH
31, 31,
----------- --------------
1998 1998(2) 1998(4)
--------- ----------- --------------
<S> <C> <C> <C>
OTHER DATA:
EBITDA(11)........................ $ 45,458 $ 48,634 $ 49,436
Adjusted EBITDA(12)............... 45,458 48,634 49,436
EBITDA margin(13)................. 6.4% 6.0% 6.1%
Adjusted EBITDA margin............ 6.4% 6.0% 6.1%
Depreciation and amortization..... 7,433 8,211 8,211
Capital expenditures, net......... 3,975 4,252 4,252
Ratio of net debt to EBITDA....... 2.6x 1.8x 1.8x
Ratio of net debt to Adjusted
EBITDA.......................... 2.6x 1.8x 1.8x
Ratio of EBITDA to interest
expense......................... 3.8x 5.3x 5.4x
Ratio of Adjusted EBITDA to
interest expense................ 3.8x 5.3x 5.4x
OTHER DATA BEFORE CHARGES(14):
Income from operations............ $ 38,025 $ 40,423 $ 41,225
Net income attributable to common
stockholders.................... 15,091 16,573 17,053
Net income per common share
assuming dilution............... 0.88 0.89 0.91
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
HISTORICAL PRO FORMA(2)
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 11,504 $ 11,504
Working capital..................................................................... 431,384 327,374
Total assets........................................................................ 1,087,692 1,093,357
Total debt(15)...................................................................... 475,201 362,669
Total stockholders' equity.......................................................... 236,629 309,834
</TABLE>
- ------------------
(1) Supplemental pro forma data for the year ended December 31, 1995 are based
on the audited consolidated financial statements of United for the fiscal
year ended December 31, 1995 (which includes the results of operations of
Associated for twelve months but excludes pre-Merger United for the three
months ended March 30, 1995) and the unaudited consolidated financial
statements of pre-Merger United for the three-month period ended March 30,
1995 giving effect to (i) increased depreciation expense of $1.3 million
resulting from the write-up of certain fixed assets to fair value, (ii)
additional incremental goodwill amortization, (iii) elimination of
nonrecurring compensation expense of $1.5 million relating to certain
employee stock options recognized as a result of the Merger and (iv) the
elimination of $37.6 million in costs described in (4) below. This
information is presented to facilitate a better understanding of the
combined operations prior to the Merger.
(2) See "Unaudited Consolidated Pro Forma Financial Statements" for a
discussion of the adjustments used in preparation of this data which
reflects the Senior Credit Facilities Refinancing, the Azerty Acquisition,
the Original Offering and the June Equity Offering.
(3) See the "Unaudited Consolidated Supplemental Pro Forma Income Statement"
for a discussion of the adjustments used in preparation of this data which
reflects the 1997 Financing Transactions, the Senior Credit Facilities
Refinancing, the Azerty Acquisition, the Original Offering and the June
Equity Offering.
(4) See "Unaudited Consolidated Pro Forma Financial Statements" for a
discussion of the adjustments used in preparation of this data which
reflects the Senior Credit Facilities Refinancing, the Azerty Acquisition,
the Original Offering, the June 1998 Equity Offering and the Computer
Services Contract Write-Off.
(5) Supplemental pro forma operating expenses for the year ended December 31,
1995 exclude the following items: (i) a restructuring charge of $9.8
million related to the Merger which was recorded by United during the year
ended December 31, 1995; and (ii) Merger-related costs of $27.8 million
recorded by pre-Merger United during the three months ended March 30, 1995.
(6) Restructuring charge is related to United's consolidation plan in
connection with the Merger.
(7) United recognized a non-recurring non-cash charge of $59.4 million ($35.5
million net of tax benefit of $23.9 million) and a non-recurring cash
charge of $5.3 million ($3.2 million net of tax benefit of $2.1 million)
related to the vesting of certain stock options (the "Merger Incentive
Options") and the Management Agreements Termination, respectively.
(8) Costs related to the sale of certain accounts receivable.
(9) Loss on early retirement of debt of $2.4 million ($1.4 million net of tax
benefit of $1.0 million).
(10) Loss on early retirement of debt of $9.8 million ($5.9 million net of tax
benefit of $3.9 million).
(11) "EBITDA" refers to earnings before interest, income taxes, depreciation
and amortization, and costs associated with the sale of certain accounts
receivable. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt and is also one
of the financial measures by which certain covenants under the Company's
New Credit Agreement are calculated. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity. Also, the
EBITDA definition used herein may not be comparable to similarly titled
measures reported by other companies.
(12) "Adjusted EBITDA" is defined as in note 11 above except for the add back
of restructuring and non-recurring charges discussed in notes 6 and 7
above and the extraordinary items discussed in notes 9 and 10 above.
(13) EBITDA margin represents EBITDA as a percentage of net sales.
(14) Charges refers to the restructuring and non-recurring charges discussed in
notes 6 and 7 above and the extraordinary items discussed in notes 9 and
10 above.
(15) Includes current maturities.
15
<PAGE>
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS IN CONNECTION WITH
AN INVESTMENT IN THE NEW NOTES IN ADDITION TO THE OTHER INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS MAY CONTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "ANTICIPATE," "BELIEVE,"
"ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING THOSE REGARDING THE COMPANY'S FINANCIAL
POSITION, BUSINESS STRATEGY, PROJECTED COSTS, AND PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS. THE FOLLOWING
MATTERS AND CERTAIN OTHER FACTORS NOTED THROUGHOUT THIS PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO ANY SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-
LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS
AND 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.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "The Exchange Offer--Purpose and
Effect." Based on interpretations by the staff of the SEC, as set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders, other than broker-dealers, have no arrangement or understanding with
any person to participate in the distribution of such New Notes. However, the
SEC has not considered the Exchange Offer in the context of a no-action letter
and there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding to participate in a distribution of New Notes.
If any Holder is an affiliate of the Company or the Guarantors or is engaged in
or intends to engage in or has any arrangement or understanding with respect to
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) may not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer must acknowledge that such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus,
16
<PAGE>
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. The Company and the Guarantors have agreed, pursuant to
the Registration Rights Agreement, subject to certain limitations specified
therein, to register or qualify the New Notes for offer or sale under the
securities laws of such jurisdiction as any holder reasonably requests in
writing. Unless a holder so requests, the Company does not currently intend to
register or qualify the sale of the New Notes in any such jurisdictions. See
"The Exchange Offer."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company has significant debt and debt service obligations. As of March
31, 1998, after giving effect to the Senior Credit Facilities Refinancing, the
Azerty Acquisition, the Original Offering (including application of the net
proceeds therefrom) and the June Equity Offering (including the application of
net proceeds therefrom), the Company would have had outstanding long-term
indebtedness (including current maturities) of approximately $362.7 million
(excluding unused commitments) and total stockholders' equity of $309.8 million.
See "Capitalization."
The degree to which the Company is leveraged could have important
consequences, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
potential acquisition opportunities, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness; (iii) the Company may be more vulnerable to economic
downturns, may be limited in its ability to withstand competitive pressures and
may have reduced flexibility in responding to changing business and economic
conditions; and (iv) fluctuations in market interest rates will affect the cost
of the Company's borrowings to the extent not covered by interest rate hedge
agreements because interest under the New Credit Facilities is payable at
variable rates. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
The Company's ability to service its indebtedness will be dependent on its
future performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. The Company believes that, based upon current levels of operations, it
should be able to meet its debt service obligations when due. If, however, the
Company were unable to service its indebtedness, it would be forced to pursue
one or more alternative strategies such as selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all, or that asset sales, restructuring or refinancing would be
permitted under the Indenture, the New Credit Agreement or the indenture
governing the Company's 12 3/4% Notes (as amended and supplemented from time to
time, the "12 3/4% Notes Indenture"). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
SUBORDINATION
The indebtedness evidenced by the New Notes and the Guarantees (including
principal, premium, if any, and interest) will be subordinated in right of
payment to present and future Senior Indebtedness of the Company and Senior
Guarantor Indebtedness of each Guarantor. In the event of the dissolution or
17
<PAGE>
liquidation of United or the Company, or in the case of certain events of
default with respect to the New Notes or such Senior Indebtedness or Senior
Guarantor Indebtedness, certain creditors of the Company holding Senior
Indebtedness or of any Guarantor holding Senior Guarantor Indebtedness will be
entitled to be paid in full before any payment is made to holders of the Notes
or the Guarantees. Senior Indebtedness and Senior Guarantor Indebtedness would
currently include, among other things, the debt incurred under the New Credit
Facilities and, in the case of Senior Indebtedness, the Company's current and
future obligations under capitalized leases. The New Notes and the Guarantees
will be general unsecured obligations of the Company and the Guarantors,
respectively, and will also be subordinated in right of payment to all existing
and future secured Indebtedness of the Company and the Guarantors, respectively,
as well as to any future and existing Indebtedness of the Company's foreign
subsidiaries (none of which will be Guarantors under the Indenture). After
giving pro forma effect to the Senior Credit Facilities Refinancing, the Azerty
Acquisition, the Original Offering (including application of the net proceeds
therefrom), and the June Equity Offering (including the application of the net
proceeds therefrom), as if such transactions had occurred on March 31, 1998,
there would have been approximately $162.7 million of Senior Indebtedness of the
Company and approximately $162.7 million of Senior Guarantor Indebtedness of the
Guarantors outstanding on such date, substantially all of which represents
Indebtedness or guarantees of Indebtedness under the New Credit Facilities which
would have been secured by substantially all of the assets of the Company and
the Guarantors, respectively; in addition, after taking into account
approximately $36.5 million of outstanding letters of credit, there would have
been approximately $63.5 million available to be drawn by the Company as secured
Senior Indebtedness under the Revolving Credit Facility, which amount would have
been secured Senior Guarantor Indebtedness of the Guarantors. See "Unaudited
Consolidated Pro Forma Financial Statements." The Indenture does not prohibit or
limit the designation of Indebtedness otherwise permitted to be incurred as
Senior Indebtedness or Senior Guarantor Indebtedness. See "Description of the
New Notes--Subordination."
LIMITED PRACTICAL VALUE OF GUARANTEE BY UNITED
United will unconditionally guarantee, on a senior subordinated basis, all
payments of principal, premium, if any, interest and Additional Amounts, if any,
on the New Notes. However, since at present United's only significant asset is
the capital stock of the Company (and such asset will be pledged to the lenders
under the New Credit Facilities), if the Company should be unable to meet its
payment obligations with respect to the New Notes, it is unlikely that United
would be able to do so.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture, the New Credit Agreement, and the 12 3/4% Notes Indenture
contain or will contain numerous restrictive covenants that limit the discretion
of management with respect to certain business matters. These covenants place
significant restrictions on, among other things, the ability of the Company to
incur additional indebtedness, to create liens or other encumbrances, to pay
dividends or make other payments in respect of its capital stock or Subordinated
Indebtedness, to engage in transactions with affiliates, to make certain
payments, investments, loans and guarantees and to sell or otherwise dispose of
assets and merge or consolidate with another entity. The New Credit Agreement
also contains a number of financial covenants that require the Company to meet
certain financial ratios and tests. A failure to comply with the obligations in
the Indenture, the New Credit Agreement or the 12 3/4% Notes Indenture could
result in an event of default under the Indenture, the New Credit Agreement or
the 12 3/4% Notes Indenture, which, if not cured or waived, could permit
acceleration of the indebtedness thereunder and acceleration of indebtedness
under other instruments that may contain cross-acceleration or cross-default
provisions, any of which could have a material adverse effect on the financial
condition of the Company. The New Credit Agreement restricts the prepayment,
purchase, redemption, defeasance or other payment of any of the principal of the
Notes or the 12 3/4% Notes so long as any loans
18
<PAGE>
remain outstanding under the New Credit Agreement. See "Description of the New
Notes--Certain Covenants" and "Description of Certain Indebtedness."
COMPETITION
The Company operates in a highly competitive environment. The Company
competes with business products manufacturers and other national, regional and
specialty wholesalers of business products, office furniture, computer products,
janitorial and sanitation supplies and related items. Some of these competitors
are larger than the Company and have greater financial and other resources
available to them than does the Company, and there can be no assurance that the
Company can continue to compete successfully with such competitors. Increased
competition in the business products industry, together with increased
advertising, has heightened price awareness among end users. Such heightened
price awareness has led to margin pressure on business products. In the event
that such a trend continues, the Company's profit margins could be adversely
affected. Further, the Company could be adversely affected by the loss of a
major customer. See "Business--Competition."
CONSOLIDATION
Consolidation continues throughout all levels of the business products
industry. Consolidation of commercial dealers and contract stationers has
resulted in (i) an increased ability of those resellers to buy goods directly
from manufacturers on their own or through their participation in buying groups,
(ii) the ability of larger resellers who grow primarily through acquisitions to
qualify for larger volume rebates than the acquired companies would have
qualified for on a stand-alone basis, and (iii) fewer independent resellers to
purchase from wholesalers. In addition, over the last decade, office products
superstores (which largely buy directly from manufacturers) have entered
virtually every major metropolitan market. Continuing consolidation could
adversely affect the Company's financial results. See "Business--The Business
Products Industry."
INTEGRATION OF ACQUISITIONS
As a result of the Azerty Acquisition and the Company's strategy of pursuing
strategic acquisitions, the Company's management will be required to manage
substantially larger operations than has historically been the case. With the
Azerty Acquisition, the Company's future operations in the computer supplies and
related products area and earnings from such operations will be largely
dependent upon the Company's ability to integrate the operations of the
Company's existing Micro United division within the Azerty Business. The Company
must, among other things, integrate management and employee personnel and
combine certain administrative, sales and information technology procedures. The
integration of the Azerty Business involves numerous risks, including the
potential loss of key employees and customers. There can be no assurance that
the Company will successfully integrate the Micro United business and the Azerty
Business, and a failure to do so could have a material adverse effect on the
Company's results of operations and financial condition. Additionally, the need
to focus management's attention on the integration of the Azerty Business may
limit the ability of the Company to successfully pursue acquisitions or other
opportunities related to its business for a period of time.
CHANGING END-USER DEMANDS AND SEASONALITY
The Company's sales and profitability are largely dependent on its ability
to continually enhance its product offerings in order to meet changing end-user
demands. End-users traditional demands for business products have changed over
the last several years as a result of, among other things, the widespread use of
computers and other technological advances (resulting in the reduction in use of
traditional office supplies), efforts by various businesses to establish
"paperless" work environments, increased recycling efforts and a trend toward
non-traditional offices (such as home offices). The Company's ability to
continually monitor and react to such trends and changes in end-user demands
will
19
<PAGE>
be necessary to avoid adverse effects on its sales and profitability. In
addition, the Company's financial results could be adversely affected if and to
the extent that end-user demand for a broad product selection or the need for
overnight delivery were to diminish substantially or end-user demand for a
higher proportion of low margin products were to increase substantially.
Although the Company's sales are relatively level throughout the year, the
Company's sales vary to the extent of seasonal differences in the buying
patterns of end users who purchase office products. In particular, the Company's
sales are generally higher than average during the month of January when many
businesses begin operating under new annual budgets. Any impact upon sales
during this peak season could have a disproportionate effect on the Company's
results of operations for the full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Seasonality."
DEPENDENCE ON KEY SUPPLIERS
Although the Company regularly carries products and accessories supplied by
more than 550 business products manufacturers, approximately 27.6% of the
Company's total purchases (on a pro forma basis) during the year ended December
31, 1997 were derived from products purchased from the Company's three largest
suppliers. The Company's purchasing agreements with such suppliers are generally
terminable at any time or on short notice, with or without cause, and, while the
Company considers its relationships with its suppliers to be good, there can be
no assurance that any or all of such relationships will not be terminated or
that such relationship will continue as presently in effect. Termination of such
relationships or changes by its suppliers in their policies regarding wholesale
distributors or volume discount schedules or other marketing programs applicable
to the Company may have a material adverse effect on the Company's business.
IMPACT OF CHANGING MANUFACTURERS' PRICES
The Company maintains substantial inventories to accommodate the prompt
service and delivery requirements of its customers. Accordingly, the Company
purchases its products on a regular basis in an effort to maintain its inventory
at levels that it believes to be sufficient to satisfy the anticipated needs of
its customers based upon historic buying practices and market conditions.
Although the Company has historically been able to pass through manufacturers'
price increases to its customers on a timely basis, competitive conditions will
influence how much of future price increases can be passed on to the Company's
customers. Conversely, when manufacturers' prices decline, lower sales prices
could result in lower margins as the Company sells existing inventory. Changes
in the prices paid by the Company for its products therefore could have a
material effect on the Company's net sales, gross margins and net income, and
the timing of such changes throughout the year could materially impact quarterly
results.
EFFECT OF CHANGES IN THE ECONOMY
Demand for business products is affected by, among other things, white
collar employment levels. Changes in the economy resulting in decreased white
collar employment levels may therefore adversely affect the Company's operations
and profitability. In addition, pricing and, to an extent, profitability of the
Company's product offerings generally decrease under deflationary economic
conditions. Deflationary swings in the economy may therefore adversely affect
the Company's profitability.
POTENTIAL SERVICE INTERRUPTIONS
Substantially all of the Company's shipping, warehouse and maintenance
employees at certain of the Company's facilities in Chicago, Detroit,
Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City are covered
by various collective bargaining agreements that expire at various times during
the next three years. Although the Company considers its relations with
employees to be good, a prolonged
20
<PAGE>
labor dispute could have a material adverse effect on the Company's business
(including its ability to deliver its products in a timely manner) as well as
the Company's results of operations and financial condition. The Company has not
experienced any work stoppages during the past five years.
The Company's ability to receive and deliver products is largely dependent
on the availability of trucking and package delivery services utilized by
manufacturers and the Company. Therefore, the occurrence of a strike or other
work stoppage by any such service provider could materially affect the Company's
sales and profitability.
DEPENDENCE ON TECHNOLOGY; YEAR 2000 MODIFICATIONS
The Company believes that the successful operation of its business depends
to a large extent on its computerized inventory management, order processing and
distribution systems. The Company may, from time to time, experience delays,
complications or expenses in integrating and operating these systems, any of
which could have a material adverse effect upon the Company's results of
operations and financial condition. While the Company believes that its computer
systems will be adequate for its future needs, such systems may require
modification, improvement or replacement as the Company grows or as technologies
make these systems obsolete. For example, the Company is currently taking steps
to make all necessary modifications to its systems for the year 2000. In 1997,
the Company incurred approximately $1.4 million of expenses related to this
issue, and expects to incur an additional $2.6 to $3.3 million of such expenses
during the next two years. Any such modifications, improvements or replacements
may require substantial additional expenditures to design and implement and may
require interruptions in operations during periods of implementation, any of
which could have a material adverse effect on the Company's results of
operations and financial condition. Further, since approximately 90% of the
Company's orders are received electronically, any disruption of a significant
reseller's computer systems could have an adverse impact on the Company's sales.
The Company's service levels also would be affected in the event of an
interruption in operation of its telecommunications network on a company-wide
scale for an extended period of time, although the Company has developed
contingency plans to limit its exposure to such risks.
DEPENDENCE ON KEY PERSONNEL
The Company's success relies on the efforts and abilities of its executive
officers and certain other key employees, particularly Mr. Frederick B. Hegi,
Jr., the Company's non-executive Chairman of the Board, Mr. Randall W.
Larrimore, President and Chief Executive Officer, Mr. Daniel H. Bushell, an
Executive Vice President and the Chief Financial Officer of the Company, and Mr.
Michael D. Rowsey and Mr. Steven R. Schwarz, each an Executive Vice President of
the Company. The loss of any of these individuals could have a material adverse
effect on the Company. The Company has entered into employment agreements with
the executive officers listed above. The Company currently does not have any
"key man" life insurance for its key personnel. See "Management."
INFLUENCE OF CERTAIN STOCKHOLDERS
As of the date of this Prospectus, Wingate Partners, L.P. ("Wingate
Partners") and Wingate Partners II, L.P. ("Wingate II" and, collectively with
Wingate Partners "Wingate"), Cumberland Capital Corporation ("Cumberland") and
its affiliates, and Mr. Daniel J. Good and his affiliates will beneficially own
approximately 19.8%, 2.1% and 2.7%, respectively, of the outstanding shares of
Common Stock. Two of the current nine directors of United are affiliates of
Wingate Partners or Wingate II. In addition, Mr. Gary G. Miller, who is the
President and a stockholder of Cumberland, and Mr. Good each serve as directors
of United. Consequently, such persons and their affiliates will continue to have
significant influence over the policies of United and the Company and any
matters submitted to a stockholder vote. See "Management--Directors and
Executive Officers," "Certain Transactions" and "Security Ownership of Certain
Beneficial Owners."
21
<PAGE>
LIMITATIONS ON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Notes (which could include Additional
Notes, to the extent any are issued) and the 12 3/4% Notes at a price equal to
101% of the principal amount thereof, together with accrued and unpaid interest,
if any, to the date of repurchase. If a Change of Control were to occur, there
can be no assurance that the Company would have sufficient funds to pay the
purchase price for all of the Notes and the 12 3/4% Notes that the Company might
be required to purchase. Certain events involving a Change of Control may result
in an event of default under the New Credit Facilities or other indebtedness of
the Company that may be incurred in the future. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes and
the 12 3/4% Notes, the Company could seek the consent of its lenders to purchase
the Notes and the 12 3/4% Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such consent or
repay such borrowings, the Company would remain prohibited from purchasing the
Notes and the 12 3/4% Notes. In such case, the Company's failure to purchase
tendered Notes and 12 3/4% Notes would constitute an Event of Default under the
Indenture and the 12 3/4% Notes Indenture, respectively. If, as a result
thereof, a default occurs with respect to any Indebtedness, the New Credit
Agreement, the Notes and the 12 3/4% Notes would require payment in full of the
New Credit Facilities before repurchase of the New Notes and the 12 3/4% Notes.
See "Description of Certain Indebtedness," "Description of the New
Notes--Subordination" and "--Certain Covenants--Purchase of Notes upon a Change
of Control."
FRAUDULENT CONVEYANCE CONSIDERATIONS
A substantial portion of the proceeds of the Original Offering were used to
refinance indebtedness under the New Credit Facilities. Accordingly, the
obligations of the Company under the Notes may be subject to review under
relevant federal and state fraudulent conveyance statutes ("fraudulent
conveyance statutes") in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of the
Company. If a court were to find under relevant fraudulent conveyance statutes
that, at the time the Notes were issued, (a) the Company issued the Notes with
the intent of hindering, delaying or defrauding current or future creditors or
(b)(i) the Company received less than reasonably equivalent value or fair
consideration for issuing the Notes (including, to the extent the proceeds from
the Notes are used to refinance any indebtedness of the Company or any of its
subsidiaries, by virtue of an invalidation as a fraudulent conveyance of the
incurrence of such indebtedness) and (ii)(A) was insolvent or was rendered
insolvent by reason of such issuance and/or such related transactions, (B) was
engaged, or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, (C) intended to incur, or believed that
it would incur, obligations beyond its ability pay as such obligations matured
(as all of the foregoing terms are defined in or interpreted under such
fraudulent conveyance statutes) or (D) was a defendant in an action for money
damages, or had a judgment for money damages docketed against it (if, in either
case, after final judgment, the judgment was unsatisfied), such court could
subordinate the Notes to presently existing and future indebtedness of the
Company and take other action detrimental to the holders of the Notes,
including, under certain circumstances, invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or state law that is being applied in any such
proceeding. Generally, however, the Company would be considered insolvent if, at
the time it incurs the obligations constituting the Notes, either (i) the fair
market value (or fair saleable value) of its assets is less than the amount
required to pay the probable liability on its total existing indebtedness and
liabilities (including contingent liabilities) as they become absolute and
mature or (ii) it is incurring obligations beyond its ability to pay as such
obligations mature.
In addition, the Guarantees may be subject to review under fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit on behalf of other creditors of any of the
Guarantors. In such a case, the analysis set forth above would generally apply,
22
<PAGE>
except that that the Guarantees could also be subject to the claim that, since
the Guarantees were incurred for the benefit of the Company (and only indirectly
for the benefit of the Guarantors), they were incurred for less than reasonably
equivalent value or fair consideration. A court could therefore subordinate the
Guarantees to the other obligations of the Guarantors, or take other action
detrimental to holders of the Notes, including, under certain circumstances,
invalidating the Guarantees.
The Boards of Directors and management of the Company, United and the other
Guarantors believe that at the time of issuance of the Notes and the Guarantees,
respectively, the Company, United and the other Guarantors (i) will be (a)
neither insolvent nor rendered insolvent thereby, (b) in possession of
sufficient capital to meet their obligations as the same mature or become due
and to operate their businesses effectively and (c) incurring obligations within
their ability to pay as the same mature or become due and (ii) will have
sufficient assets to satisfy any probable money judgment against them in any
pending action. In reaching the foregoing conclusions, such Boards of Directors
and management have relied upon their analysis of internal cash flow projections
and estimated values of assets and liabilities of the Company, United and the
other Guarantors. There can be no assurance, however, that such analyses will
prove to be correct or that a court passing on such questions would reach the
same conclusions.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The New
Notes constitute a new class of securities with no established trading market.
The Old Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") Market. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the remaining untendered Old Notes could be adversely affected. There is no
existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of holders of the New Notes to sell their New Notes or the price at which such
holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Each Initial Purchaser has advised the Company that it
currently intends to make a market in the New Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. Therefore, there can be no
assurance as to the liquidity of any trading market for the New Notes or that an
active public market for the New Notes will develop. The Company does not intend
to apply for listing or quotation of the New Notes on any securities exchange or
stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on Holders of the New Notes.
23
<PAGE>
RECENT TRANSACTIONS
JUNE EQUITY OFFERING
In June 1998, United expects to complete an offering of 2,005,507 shares of
Common Stock (the "June Equity Offering"), consisting of 1,500,000 primary
shares sold by United, and 505,507 secondary shares sold by certain selling
stockholders. The aggregate net proceeds to United of approximately $77.1
million will be contributed to USSC and used to repay a portion of indebtedness
under the Tranche A Term Loan Facility which will cause a permanent reduction of
the amount borrowable thereunder.
United will not receive any of the proceeds from the sale of the 505,507
shares of Common Stock offered by the selling stockholders, other than an
aggregate of approximately $6.4 million payable by the selling stockholders upon
exercise of employee stock options in connection with the June Equity Offering,
which will be applied to the repayment of indebtedness under the New Credit
Facilities.
AZERTY ACQUISITION
On April 3, 1998, the Company completed the acquisition of all of the
capital stock of Azerty Incorporated ("Azerty"), Azerty de Mexico, S.A. de C.V.
("Azerty Mexico"), Positive ID Wholesale Inc. ("Positive ID"), and AP Support
Services Incorporated ("AP Support Services"), which conducted 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 Acquisition was approximately $115.2 million (including fees and
expenses), subject to adjustment based upon the net tangible assets of the
Azerty Business as of the closing of the acquisition. For the fiscal year ended
December 31, 1997, the Azerty Business had combined net sales and EBITDA of
$355.4 million and $12.6 million, respectively.
AZERTY
Azerty was founded in 1983 and is a leading wholesale distributor of
computer consumables, peripherals and accessories in the United States. Azerty
serves over 12,000 major customers in the United States which consist primarily
of information product dealers and value-added resellers. Azerty distributes a
broad range of products consisting of printers, printer supplies, magnetic and
optical data storage media, workstation accessories, fax machines and basic
office products essentials. Azerty provides a high level of customer service,
including high order fill rates, late order cut-off times and guaranteed
next-day delivery via UPS for products under 100 pounds.
Azerty sells through marketing employees who utilize advanced data
management and telesales capabilities that enable highly customized and
segmented marketing, whereby customers' calls are automatically routed to sales
representatives familiar with their accounts. In addition, Azerty runs catalog
marketing programs, collecting co-op allowances from vendors to produce product
catalogs for their customers. Azerty also has established a new world wide web
site on the Internet which allows on-line inventory availability, pricing and
UPS order tracking, as well as vendor and product information, applications for
new accounts and general company information.
Azerty currently operates through three distribution facilities (with an
additional facility in Miami, Florida expected to open in Spring 1998) that
stock over 7,200 SKUs. Azerty's primary competitors are Daisytek International,
Ingram Micro, Tech Data and Merisel. For the fiscal year ended December 31,
1997, Azerty accounted for approximately 88% and 98% of the net sales and
EBITDA, respectively, of the combined Azerty Business.
AZERTY MEXICO
Azerty Mexico was founded in 1995 to distribute computer consumables,
peripherals and accessories under the Azerty name in Mexico. Azerty Mexico
operates through a single distribution facility located in Mexico City, Mexico.
24
<PAGE>
POSITIVE ID
Positive ID is a wholesale distributor of bar code scanning products.
Founded in 1996, Positive ID has attempted to capitalize on an emerging
opportunity for wholesale distribution of products using the bar code scanning
technology that has been created by the increasing use of such technology by
small and medium-sized companies, as well as new applications in the medical and
insurance industries. Positive ID offers approximately 2,000 SKUs primarily to
information products dealers and value-added resellers and distributes products
consisting of scanners, printers, consumables, data collection terminals and
software through its distribution facility located in Tonawanda, New York.
AP SUPPORT SERVICES
Formed in 1996, AP Support Services is a third-party provider that offers
telemarketing, direct response marketing, logistics and data management services
to companies that are outsourcing such non-core activities. AP Support Services
offers a unique combination of sophisticated telemarketing support and the
ability to physically handle product. The strategy of AP Support Services is to
differentiate itself as a third-party provider by offering vendors a broad range
of services from marketing through product delivery and invoicing.
NEW CREDIT FACILITIES
On April 3, 1998, the Company entered into the New Credit Facilities
concurrently with the closing of the Azerty Acquisition in order to fund the
purchase price of the Azerty Acquisition, refinance borrowings under the
Existing Credit Facilities, and pay related fees and expenses in connection
therewith. The New Credit Facilities consist of a $250.0 million Revolving
Credit Facility, a $150.0 million Tranche A Term Loan Facility, and a $100.0
million Tranche B Term Loan Facility. The net proceeds of the Original Offering
were used to repay a substantial portion of indebtedness then outstanding under
the Tranche B Term Loan Facility and the remainder of such facility was repaid
with proceeds from the sale of certain receivables. See "Use of Proceeds." Upon
consummation of the Original Offering (including the application of net proceeds
therefrom), approximately $16.0 million (excluding approximately $36.5 million
of outstanding letters of credit under the Revolving Credit Facility) was
outstanding under the Revolving Credit Facility.
For a description of the terms of the New Credit Facilities, see
"Description of Certain Indebtedness--New Credit Facilities."
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into the $163.0 million 364-day Receivables
Securitization Program pursuant to which the Company sells its Eligible
Receivables (except for certain excluded receivables) to the Receivables
Company, a wholly-owned offshore, special purpose limited liability company
intended to be bankruptcy-remote. The Receivables Company then transfers the
Eligible Receivables to a third-party, multi-seller asset-backed commercial
paper program. The Third-Party Seller's purchases of the Eligible Receivables
are supported by a facility between the Third-Party Seller and banks with
ratings of A-1/P-1 or higher. The sale of trade receivables includes not only
those Eligible Receivables that were existing on the closing date of the
Receivables Securitization Program, but also Eligible Receivables created
thereafter. The Chase Manhattan Bank ("Chase") acts as funding agent and,
together with other commercial banks rated at least A-1/P-1, provides standby
liquidity funding to support the purchase of the receivables by the Receivables
Company. The proceeds from the Receivables Securitization Program were used to
reduce borrowings under the Company's Revolving Credit Facility. The Receivables
Company retains an interest in the Eligible Receivables transferred to the third
party. The Receivables Securitization Program carries an effective interest rate
of LIBOR plus 0.37%. As a result of the Receivables Securitization Program,
balance sheet assets of the Company of approximately $160.0 million, consisting
of accounts receivable, have been sold to the Receivables Company and do not
secure the
25
<PAGE>
Company's obligations under the New Credit Facilities. The Unaudited
Consolidated Pro Forma Financial Statements included in this Prospectus reflect
$150.0 million in proceeds from the sale of Eligible Receivables under the
Receivables Securitization Program, as this amount was deemed to more fairly
represent the average amount of receivables that would have been sold in 1997.
Management of United believes that the Unaudited Consolidated Pro Forma
Financial Statements included herein represent a fair presentation of how the
historical financial statements of United might have been affected if the
transaction described therein had been consummated at the beginning of the
periods presented. See "Unaudited Consolidated Pro Forma Financial Statements."
COMPUTER SERVICES CONTRACT WRITE-OFF
As a condition to the spinoff of ASI from the Wholesale Division of Boise
Cascade Office Products Corporation in January 1992, ASI entered into the
Computer Services Contract with a third-party service provider to perform
certain computer services.
Upon completion of the systems integration between USSC and ASI, increasing
differences in the operating processes and technical environment between the
Company and the third-party service provider became evident. The Computer
Services Contract was modified to allow the Company, at its discretion, not to
perform any processing at the third-party service provider's facilities.
Accordingly, related fees were reduced. Payments made to the third-party service
provider subsequent to this latest renegotiation were effectively for disaster
recovery purposes only. The Company has recently consolidated its disaster
recovery services under an agreement with another third-party service provider.
In May 1998, the Company completed an assessment of the future utility of the
Computer Services Contract. Based upon such assessment, the Company has
determined that it is no longer feasible to use the prior third-party service
provider for disaster recovery purposes.
During the second quarter of 1998, the Company will write-off the remaining
term of the Computer Services Contract. Accordingly, $2.6 million of prepaid
expense related to the Computer Services Contract has been eliminated and $2.6
million and $8.7 million of current and long-term payments, respectively, have
been added to the supplemental pro forma March 31, 1998 balance sheet to reflect
a non-recurring $13.9 million pre-tax charge to write off the remainder of the
Computer Services Contract. A related deferred tax asset of $5.6 million will
also be recorded. This $8.3 million charge, net of tax benefit of $5.6 million,
shown as a reduction to supplemental pro forma retained earnings at March 31,
1998, has been excluded from supplemental pro forma income statement purposes as
it is non-recurring in nature.
For supplemental pro forma income statement purposes, the three months ended
March 31, 1998 and the twelve months ended December 31, 1997 reflect $0.8
million and $3.2 million in cost savings, respectively, related to the Computer
Services Contract had such agreement been written off prior to each period
presented.
OCTOBER EQUITY OFFERING
On October 10, 1997, United completed an offering of 2.0 million primary
shares of its common stock, $0.10 par value ("Common Stock"), and a 3.4 million
share secondary offering of Common Stock by certain selling stockholders
(collectively, the "October Equity Offering"). The shares of Common Stock sold
in the October Equity Offering were priced at $38.00 per share, before
underwriting discounts and commissions of $1.90 per share. The aggregate net
proceeds to United of $72.2 million (before deducting expenses) and proceeds of
$0.1 million resulting from the exercise of 1,119,038 warrants to purchase
Common Stock sold in the October Equity Offering were contributed to the Company
and used to (i) repurchase $50.0 million principal amount of the Company's
existing 12 3/4% Senior Subordinated Notes due 2005 (the "12 3/4% Notes") and
pay the redemption premium thereof of approximately $6.4 million, (ii) pay fees
related to the October Equity Offering, and (iii) reduce indebtedness under its
existing senior secured term loan facilities by $15.5 million. The repayment of
indebtedness from the proceeds of the October Equity Offering resulted in an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of $3.9
million).
26
<PAGE>
USE OF PROCEEDS
The Company and the Guarantors will not receive any proceeds from the
exchange of New Notes for Old Notes pursuant to the Exchange Offer. The proceeds
from the Original Offering were used by the Company to (i) repay a substantial
portion of the indebtedness of the Company outstanding under the Tranche B Term
Loan Facility and (ii) pay fees and expenses related to the Original Offering.
The remainder of the Tranche B Term Loan Facility was repaid with proceeds from
the sale of certain receivables.
The Tranche B Term Loan Facility bore interest at the prime rate plus 0.75%
or, at the Company's option, LIBOR plus 2.00%. The Tranche B Term Loan Facility
was payable in 27 quarterly installments, and was scheduled to mature on or
about December 31, 2004.
CAPITALIZATION
The following table sets forth the unaudited capitalization of United as of
March 31, 1998 on a historical basis and on an as adjusted basis giving effect
to (i) the Senior Credit Facilities Refinancing, (ii) the Azerty Acquisition,
(iii) the Original Offering (including application of the net proceeds
therefrom) and (iv) the June Equity Offering (including application of the net
proceeds therefrom). The table set forth below should be read in conjunction
with the Unaudited Consolidated Pro Forma Financial Statements and the
Consolidated Financial Statements of United, together with the related notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
HISTORICAL AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 11,504 $ 11,504
----------- ------------
----------- ------------
Current portion of long-term debt...................................................... $ 19,551 $ 10,649
Long-term debt:
Revolving credit facility............................................................ 224,000 57,225(1)
Term loan facilities................................................................. 100,020 62,917
12 3/4% Notes........................................................................ 100,000 100,000
Notes................................................................................ -- 100,000
Other long-term debt................................................................. 31,630 31,878
----------- ------------
Total long-term debt............................................................... 455,650 352,020
Total stockholders' equity(2).......................................................... 236,629 309,834
----------- ------------
Total capitalization (including current portion of long-term debt)................. $ 711,830 $ 672,503
----------- ------------
----------- ------------
</TABLE>
- --------------
(1) The Revolving Credit Facility under the New Credit Agreement provides for
borrowings of up to $250.0 million. See "Description of Certain
Indebtedness--New Credit Facilities."
(2) Public market capitalization of United's equity as of June 10, 1998 was
$881.0 million.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
UNITED
Set forth below and on the following pages are selected historical
consolidated financial data for United. Although United was the surviving
corporation in the Merger, the transaction was treated as a reverse acquisition
for accounting purposes, with Associated as the acquiring corporation.
Therefore, the income statement and operating and other data for the year ended
December 31, 1995 reflect the financial information of Associated only for the
three months ended March 30, 1995 and the results of post-Merger United for the
nine months ended December 31, 1995. The balance sheet data at December 31, 1995
reflects the consolidated balances of post-Merger United, including various
Merger-related adjustments.
The selected consolidated financial data set forth below for the fiscal
years ended December 31, 1993 and 1994 have been derived from the audited
consolidated financial statements of Associated. The selected consolidated
financial data of United for the fiscal years ended December 31, 1995 (which for
income statement and operating and other data includes Associated only for the
three months ended March 30, 1995 and the results of post-Merger United for the
nine months ended December 31, 1995), 1996 and 1997 have been derived from the
consolidated financial statements of United, which have been audited by Ernst &
Young LLP, independent auditors. Income statement data for all periods presented
reflect a reclassification of delivery and occupancy costs to cost of goods sold
from operating expenses. The data for the three months ended March 31, 1997 and
1998 are derived from unaudited condensed consolidated financial statements and
in the opinion of management reflect all adjustments considered necessary for
the fair presentation of such data. Results for the three months ended March 31,
1998 are not necessarily indicative of results that may be achieved for a full
twelve-month period. All selected consolidated financial data set forth below
should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Historical Results of Operations" and "--Liquidity and Capital
Resources" and the Consolidated Financial Statements of United, together with
the related notes thereto, included elsewhere herein.
28
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................. $ 455,731 $ 470,185 $1,751,462 $2,298,170 $2,558,135 $ 635,021 $ 712,517
Cost of goods sold......... 375,226 382,299 1,446,949 1,907,209 2,112,204 526,279 589,455
--------- --------- ---------- ---------- ---------- ---------- ----------
Gross profit............... 80,505 87,886 304,513 390,961 445,931 108,742 123,062
--------- --------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Warehousing, marketing
and administrative
expenses............... 69,527 69,765 246,956(1) 277,957 311,002 76,704 85,037
Non-recurring
charges(2)............. -- -- -- -- 64,698 -- --
--------- --------- ---------- ---------- ---------- ---------- ----------
Total operating expenses... 69,527 69,765 246,956 277,957 375,700 76,704 85,037
--------- --------- ---------- ---------- ---------- ---------- ----------
Income from operations..... 10,978 18,121 57,557 113,004 70,231 32,038 38,025
Interest expense........... 7,235 7,725 46,186 57,456 53,511 14,661 11,826
--------- --------- ---------- ---------- ---------- ---------- ----------
Income before income taxes
and extraordinary item... 3,743 10,396 11,371 55,548 16,720 17,377 26,199
Income taxes............... 781 3,993 5,128 23,555 8,532 7,368 11,108
--------- --------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary
item..................... 2,962 6,403 6,243 31,993 8,188 10,009 15,091
Extraordinary item(3)...... -- -- (1,449) -- (5,884) -- --
--------- --------- ---------- ---------- ---------- ---------- ----------
Net income................. 2,962 6,403 4,794 31,993 2,304 10,009 15,091
Preferred stock
dividends................ 2,047 2,193 1,998 1,744 1,528 455 --
--------- --------- ---------- ---------- ---------- ---------- ----------
Net income attributable to
common stockholders...... $ 915 $ 4,210 $ 2,796 $ 30,249 $ 776 $ 9,554 15,091
--------- --------- ---------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ---------- ----------
Net income per common
share--
assuming dilution:
Income before
extraordinary item..... $ 0.11 $ 0.51 $ 0.33 $ 2.03 $ 0.43 $ 0.65 $ 0.88
Extraordinary item....... -- -- (0.11) -- (0.38) -- --
--------- --------- ---------- ---------- ---------- ---------- ----------
Net income............... $ 0.11 $ 0.51 $ 0.22 $ 2.03 $ 0.05 $ 0.65 $ 0.88
--------- --------- ---------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ---------- ----------
Weighted average shares
and assumed conversions
(in thousands)......... 8,071 8,309 12,809 14,923 15,380 14,608 17,098
OTHER DATA:
EBITDA(4).................. $ 16,481 $ 23,505 $ 81,241 $ 139,046 $ 96,272 $ 38,573 $ 45,458
Adjusted EBITDA(5)......... 16,481 23,505 91,000 139,046 160,970 38,573 45,458
EBITDA margin(6)........... 3.6% 5.0% 4.6% 6.1% 3.8% 6.1% 6.4%
Adjusted EBITDA margin..... 3.6% 5.0% 5.2% 6.1% 6.3% 6.1% 6.4%
Depreciation and
amortization............. $ 5,503 $ 5,384 $ 23,684 $ 26,042 $ 26,041 $ 6,535 $ 7,433
Capital expenditures,
net...................... 3,273 554 8,017 (2,886 (7) 12,991 1,612 3,975
Ratio of EBITDA to interest
expense.................. 2.3x 3.0x 1.8x 2.4x 1.8x 2.6x 3.8x
Ratio of Adjusted EBITDA to
interest expense......... 2.3x 3.0x 2.0x 2.4x 3.0x 2.6x 3.8x
Ratio of net debt to
EBITDA................... 4.6x 2.5x 6.6x 4.2x 5.5x 3.0x 2.6x
Ratio of net debt to
Adjusted EBITDA.......... 4.6x 2.5x 5.9x 4.2x 3.3x 3.0x 2.6x
Ratio of earnings to fixed
charges(8)............... 1.5x 2.2x 1.2x 1.9x 2.4x 2.1x 2.9x
OPERATING RESULTS BEFORE
CHARGES(9)(10):
Income from operations..... $ 10,978 $ 18,121 $ 67,316 $ 113,004 $ 134,929 $ 32,038 $ 38,025
Net income attributable to
common stockholders...... 915 4,210 10,081 30,249 45,364 9,544 15,091
Net income per common
share--assuming
dilution................. 0.11 0.51 0.79 2.03 2.95 0.65 0.88
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS
ENDED MARCH 31,
----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.. $ 991 $ 1,849 $ 11,660 $ 10,619 $ 12,367 $ 17,584 $ 11,504
Working capital............ 57,302 56,454 355,465 404,973 451,449 403,269 431,324
Total assets............... 190,979 192,479 1,001,383 1,109,867 1,148,021 1,065,172 1,087,692
Total debt and capital
lease obligation(11)..... 86,350 64,623 551,990 600,002 537,135 559,119 475,201
Redeemable preferred
stock.................... 20,996 23,189 18,041 19,785 -- 20,240 --
Redeemable warrants........ 1,435 1,650 39,692 23,812 -- 24,807 --
Total stockholders'
equity................... 11,422 24,775 30,024 75,820 223,308 84,369 236,629
</TABLE>
- ------------------
(1) For the year ended December 31, 1995, includes restructuring charge of $9.8
million related to United's consolidation plan in conjunction with the
Merger.
(2) In the fourth quarter of 1997, United recognized a non-recurring non-cash
charge of $59.4 million ($35.5 million net of tax benefit of $23.9 million)
and a non-recurring cash charge of $5.3 million ($3.2 million net of tax
benefit of $2.1 million) relating to the vesting of the Merger Incentive
Options and Management Agreements Termination, respectively.
(3) Loss on early retirement of debt of $2.4 million ($1.4 million net of tax
benefit of $1.0 million) in 1995 and $9.8 million ($5.9 million net of tax
benefit of $3.9 million) in 1997.
(4) "EBITDA" refers to earnings before interest, income taxes, depreciation and
amortization, and costs associated with the sale of certain accounts
receivable. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt and is also one
of the financial measures by which certain covenants under the Company's
New Credit Agreement are calculated. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity. Also, the EBITDA
definition used herein may not be comparable to similarly titled measures
reported by other companies.
(5) "Adjusted EBITDA" is defined as in note 4 above except for the add back of
restructuring and non-recurring charges discussed in notes 1 and 2 above
and the extraordinary items discussed in note 3 above.
(6) EBITDA margin represents EBITDA as a percentage of net sales.
(7) Includes $11.1 million of proceeds from the sale of property and plant
equipment.
(8) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and extraordinary item plus
fixed charges. Fixed charges consist of interest expense, including
amortization of discount and financing costs and one-third of operating
rental expense which management believes is representative of the interest
component of rent expense. In addition, the ratio of earnings to fixed
charges for 1997 excludes the non-recurring charges discussed in note 2
above.
(9) In the fourth quarter of 1997, United recognized a non-recurring non-cash
charge of $59.4 million ($35.5 million net of tax benefit of $23.9 million)
and a non-recurring cash charge of $5.3 million ($3.2 million net of tax
benefit of $2.1 million) related to the vesting of the Merger Incentive
Options and the Management Agreements Termination, respectively. In
addition, during the fourth quarter of 1997, United recorded an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of $3.9
million) related to the early retirement of debt.
(10) During 1995, United recorded a restructuring charge of $9.8 million ($5.9
million net of tax benefit of $3.9 million) and an extraordinary loss of
$2.4 million ($1.4 million net of tax benefit of $1.0 million) related to
early retirement of debt.
(11) Includes current maturities.
30
<PAGE>
PRE-MERGER UNITED
The selected consolidated financial data of pre-Merger United (a predecessor
of post-Merger United) set forth below for the seven months ended March 30, 1995
(at which time pre-Merger United and Associated merged to create United) have
been derived from the Consolidated Financial Statements of pre-Merger United
which have been audited by Ernst & Young LLP, independent auditors. The selected
financial data at and for the seven-month period ended March 31, 1994 are
unaudited and in the opinion of management reflects all adjustments considered
necessary for a fair presentation of such data. The selected consolidated
financial data of pre-Merger United for each of the two fiscal years ended
August 31, 1993 and 1994 have been derived from the audited consolidated
financial statements of pre-Merger United.
<TABLE>
<CAPTION>
PRE-MERGER UNITED
----------------------------------------------------
SEVEN MONTHS ENDED
YEARS ENDED AUGUST 31, ------------------------
-------------------------- MARCH 31, MARCH 30,
1993 1994 1994 1995
------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................................... $ 1,470,115 $ 1,473,024 $ 871,585 $ 980,575
Cost of sales................................................ 1,197,664 1,220,245 717,546 814,780
------------ ------------ ----------- -----------
Gross profit on sales........................................ 272,451 252,779 154,039 165,795
Operating expenses........................................... 226,337 216,485 128,594 133,098
Merger-related costs(1)...................................... -- -- -- 27,780
------------ ------------ ----------- -----------
Income from operations....................................... 46,114 36,294 25,445 4,917
Interest expense, net........................................ 9,550 10,461 5,837 7,500
Other income, net............................................ 355 225 117 41
------------ ------------ ----------- -----------
Income (loss) before income taxes............................ 36,919 26,058 19,725 (2,542)
Income taxes................................................. 15,559 10,309 8,185 4,692
------------ ------------ ----------- -----------
Net income (loss)............................................ $ 21,360 $ 15,749 $ 11,540 $ (7,234)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net income (loss) per common share--assuming dilution........ $ 1.15 $ 0.85 $ 0.62 $ (0.39)
Cash dividends declared per share............................ 0.40 0.40 0.30 0.30
OPERATING AND OTHER DATA:
EBITDA(2).................................................... $ 67,712 $ 57,755 $ 37,665 $ 17,553
EBITDA margin(3)............................................. 4.6% 3.9% 4.3% 1.8%
Depreciation and amortization................................ $ 21,243 $ 21,236 $ 12,103 $ 12,595
Net capital expenditures..................................... 29,958 10,499 4,287 7,764
Ratio of earnings to fixed charges(4)........................ 4.0x 3.0x 3.8x 3.5x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.............................................. $ 216,074 $ 239,827 $ 297,099 $ 257,600
Total assets................................................. 634,786 618,550 608,728 711,839
Total debt and capital lease(5).............................. 150,251 155,803 227,626 233,406
Stockholders' investment..................................... 237,697 246,010 243,636 233,125
</TABLE>
- ----------------
(1) In connection with the Merger, pre-Merger United incurred approximately
$27.8 million of Merger-related costs, consisting of severance payments
under employment contracts ($9.6 million); insurance benefits under
employment contracts ($7.4 million); legal, accounting and other
professional services fees ($5.2 million); retirement of stock options ($3.0
million); and fees for letters of credit related to employment contracts and
other costs ($2.6 million).
(2) For purposes of this table only, EBITDA is defined as earnings before
interest, taxes, depreciation and amortization and is presented because it
is commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a company's
ability to service and incur debt. EBITDA should not be considered in
isolation from, or as a substitute for, net income, cash flows from
operating activities or other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles or
as a measure of profitability or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income before income taxes and extraordinary item plus fixed
charges. Fixed charges consist of interest expense, including amortization
of discount and financing costs and one-third of operating rental expense
which management believes is representative of the interest component of
rent expense. In addition, the ratio of earnings to fixed charges for 1995
excludes the Merger-related costs discussed in note 1 above.
(5) Total debt and capital lease include current maturities.
31
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Consolidated Pro Forma Financial Statements are
based on the historical financial statements of United. The pro forma balance
sheet is presented giving effect to (i) the Senior Credit Facilities
Refinancing, (ii) the Azerty Acquisition, (iii) the Original Offering (including
the application of net proceeds to United therefrom), and (iv) the June Equity
Offering (including the application of net proceeds to the Company therefrom),
all as more fully described in the notes to Unaudited Consolidated Pro Forma
Financial Statements below, as if all such transactions were effected on March
31, 1998. The pro forma income statements give effect to (i) the Senior Credit
Facilities Refinancing, (ii) the Azerty Acquisition, (iii) the Original Offering
(including the application of net proceeds to the Company therefrom) and (iv)
the June Equity Offering (including the application of net proceeds to United
therefrom), all as more fully described in the notes to Unaudited Consolidated
Pro Forma Financial Statements below, as if all such transactions were effected
as of January 1, 1997. The supplemental pro forma balance sheet is presented
giving effect to (i) the Senior Credit Facilities Refinancing, (ii) the Azerty
Acquisition, (iii) the Original Offering (including the application of net
proceeds to the Company therefrom), (iv) the June Equity Offering (including the
application of net proceeds to United therefrom) and (v) the Computer Services
Contract Write-off, as if all such transactions occurred on March 31, 1998. The
1997 supplemental pro forma income statement is presented giving effect to (i)
the October Equity Offering (including the application of net proceeds to United
therefrom), (ii) the Preferred Stock Redemption, (iii) the Management Agreements
Termination, (collectively the "Financing Transactions") (iv) the Computer
Services Contract Write-Off, (v) the Senior Credit Facilities Refinancing, (vi)
the Azerty Acquisition, (vii) the Original Offering (including the application
of net proceeds to the Company therefrom) and (viii) the June Equity Offering
(including the application of net proceeds to United therefrom), as if all such
transactions occurred on January 1, 1997. The supplemental pro forma income
statement for the three months ended March 31, 1998 is presented giving effect
to (i) the Computer Services Contract Write-Off, (ii) the Senior Credit
Facilities Refinancing, (iii) the Azerty Acquisition, (iv) the Original Offering
(including the application of net proceeds to the Company therefrom) and (v) the
June Equity Offering (including the application of net proceeds to United
therefrom), as if all such transactions occurred on January 1, 1997.
The pro forma income statements exclude the extraordinary non-recurring
charge of approximately $9.3 million ($5.5 million net of tax benefit of $3.8
million) related to the write-off of unamortized financing fees in conjunction
with the Senior Credit Facilities Refinancing. For pro forma balance sheet
purposes, this extraordinary non-recurring charge has been reflected as a
reduction of retained earnings.
In addition to the above described extraordinary non-recurring charge of
$9.3 million, the 1997 Unaudited Consolidated Supplemental Pro Forma Income
Statement also excludes the following: (i) an extraordinary non-recurring charge
of $9.8 million ($5.9 million net of tax benefit of $3.9 million) on early
retirement of debt, (ii) a non-recurring non-cash charge of $59.4 million ($35.5
million net of tax benefit of $23.9 million) related to the vesting of the
Merger Incentive Options, and (iii) a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the Management
Agreements Termination, all of which are related to the 1997 Financing
Transactions. These additional non-recurring charges are reflected in the
historical balance sheet as of March 31, 1998.
The supplemental pro forma income statements also exclude the non-recurring
charge of approximately $13.9 million ($8.3 million net of tax benefit of $5.6
million) related to the Computer Servcies Contract Write-Off. For supplemental
pro forma balance sheet purposes, this non-recurring charge has been reflected
as a reduction of retained earnings.
The Unaudited Consolidated Pro Forma Financial Statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of United after the Senior
Credit Facilities Refinancing, the Azerty Acquisition, the Original Offering and
the June Equity Offering, or of the financial position or results of operations
of United that would have actually occurred had the Computer Services Contract
Write-Off, the 1997 Financing Transactions, the Senior Credit Facilities
Refinancing, the Azerty Acquisition, the Original Offering or the June Equity
Offering occurred January 1, 1997. The Unaudited Consolidated Pro Forma
Financial Statements and the accompanying notes should be read in conjunction
with, and are qualified in their entirety by, the Consolidated Financial
Statements of United, together with the related notes thereto, included
elsewhere herein.
32
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA
AND SUPPLEMENTAL PRO FORMA BALANCE SHEETS
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SENIOR CREDIT
FACILITIES AZERTY ORIGINAL
REFINANCING ACQUISITION OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
---------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 11,504 $ -- $ -- $ --
Accounts receivable............................. 282,237 (150,435)(a) 48,610(e) --
Inventories..................................... 484,911 -- 33,477(e) --
Other........................................... 15,754 -- 488(e) --
---------- --------------- ------------ --------------
Total current assets.......................... 794,406 (150,435) 82,575 --
Net property, plant and equipment................. 161,894 -- 5,847(e) --
Goodwill.......................................... 111,110 -- 72,129(e) --
Other............................................. 20,282 (6,944)(b) -- 2,800(f)
---------- --------------- ------------ --------------
Total assets.................................. $1,087,692 $(157,379) $160,551 $ 2,800
---------- --------------- ------------ --------------
---------- --------------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............... $ 19,551 $ (9,004)(c) $ 102(e) $ --
Accounts payable................................ 235,915 -- 40,288(e) --
Accrued expenses................................ 107,616 (3,931)(d) 4,704(e) (80)(f)
---------- --------------- ------------ --------------
Total current liabilities..................... 363,082 (12,935) 45,094 (80)
Deferred income taxes............................. 19,208 -- -- --
Long-term obligations:
Long-term debt.................................. 455,650 (138,596)(c) 115,457(e) 3,000(f)
Other long-term liabilities..................... 13,123 -- -- --
---------- --------------- ------------ --------------
Total long term obligations................... 468,773 (138,596) 115,457 3,000
---------- --------------- ------------ --------------
Stockholders' equity:
Common stock (voting)........................... 1,602 -- -- --
Capital in excess of par value.................. 211,261 -- -- --
Retained earnings............................... 23,766 (5,848)(d) -- (120)(f)
---------- --------------- ------------ --------------
Total stockholders' equity.................... 236,629 (5,848) -- (120)
---------- --------------- ------------ --------------
Total liabilities and stockholders' equity.... $1,087,692 $(157,379) $160,551 $ 2,800
---------- --------------- ------------ --------------
---------- --------------- ------------ --------------
<CAPTION>
COMPUTER
SERVICES
JUNE EQUITY CONTRACT
OFFERING WRITE-OFF SUPPLEMENTAL
ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
-------------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ -- $ 11,504 $ -- $ 11,504
Accounts receivable............................. -- 180,412 -- 180,412
Inventories..................................... -- 518,388 -- 518,388
Other........................................... -- 16,242 (2,639)(h) 13,603
-------------- ---------- -------------- ------------
Total current assets.......................... -- 726,546 (2,639) 723,907
Net property, plant and equipment................. -- 167,741 -- 167,741
Goodwill.......................................... -- 183,239 -- 183,239
Other............................................. (307)(g) 15,831 -- 15,831
-------------- ---------- -------------- ------------
Total assets.................................. $ (307) $1,093,357 $ (2,639) $1,090,718
-------------- ---------- -------------- ------------
-------------- ---------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............... $ -- $ 10,649 $ -- $ 10,649
Accounts payable................................ -- 276,203 -- 276,203
Accrued expenses................................ 4,011(g) 112,320 2,599(h) 114,919
-------------- ---------- -------------- ------------
Total current liabilities..................... 4,011 399,172 2,599 401,771
Deferred income taxes............................. -- 19,208 (5,589)(h) 13,619
Long-term obligations:
Long-term debt.................................. (83,491)(g) 352,020 -- 352,020
Other long-term liabilities..................... -- 13,123 8,665(h) 21,788
-------------- ---------- -------------- ------------
Total long term obligations................... (83,491) 365,143 8,665 373,808
-------------- ---------- -------------- ------------
Stockholders' equity:
Common stock (voting)........................... 191(g) 1,793 -- 1,793
Capital in excess of par value.................. 79,166(g) 290,427 -- 290,427
Retained earnings............................... (184)(g) 17,614 (8,314)(h) 9,300
-------------- ---------- -------------- ------------
Total stockholders' equity.................... 79,173 309,834 (8,314) 301,520
-------------- ---------- -------------- ------------
Total liabilities and stockholders' equity.... $ (307) $1,093,357 $ (2,639) $1,090,718
-------------- ---------- -------------- ------------
-------------- ---------- -------------- ------------
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
33
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA
AND SUPPLEMENTAL PRO FORMA INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SENIOR CREDIT
FACILITIES AZERTY ORIGINAL JUNE EQUITY
REFINANCING ACQUISITION OFFERING OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $2,558,135 $ -- $355,423(l) $ -- $ -- $2,913,558
Cost of goods sold.............................. 2,112,204 -- 323,160 -- -- 2,435,364
---------- ------------- ----------- ----------- ----------- ----------
Gross profit.................................... 445,931 -- 32,263(l) -- -- 478,194
Operating expense:
Warehousing, marketing and administrative
expenses...................................... 311,002 -- 22,599(m) -- -- 333,601
Non-recurring charges........................... 64,698 -- -- -- -- 64,698
---------- ------------- ----------- ----------- ----------- ----------
Total operating expenses........................ 375,700 -- 22,599 -- -- 398,299
---------- ------------- ----------- ----------- ----------- ----------
Income from operations.......................... 70,231 -- 9,664 -- -- 79,895
Interest expenses............................... 53,511 (15,872)(i) 8,775(n) 1,230(o) (5,988)(p) 41,656
Other expense................................... -- 9,251(j) -- -- -- 9,251
---------- ------------- ----------- ----------- ----------- ----------
Income before income taxes and extraordinary
item.......................................... 16,720 6,621 889 (1,230) 5,988 28,988
Income taxes.................................... 8,532 2,661(k) 1,055(k) (494)(k) 2,407(k) 14,161
---------- ------------- ----------- ----------- ----------- ----------
Income before extraordinary item................ 8,188 3,960 (166) (736) 3,581 14,827
Extraordinary item--loss on early retirement of
debt, net of tax benefit of $3,956............ (5,884) -- -- -- -- (5,884)
---------- ------------- ----------- ----------- ----------- ----------
Net income...................................... 2,304 3,960 (166) (736) 3,581 8,943
Preferred stock dividends issued and accrued.... 1,528 -- -- -- -- 1,528
---------- ------------- ----------- ----------- ----------- ----------
Net income attributable to common
stockholders.................................. $ 776 $ 3,960 $ (166) $ (736) $ 3,581 $ 7,415
---------- ------------- ----------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------- ----------
Net income per common share--basic:
Income before extraordinary item.............. $ 0.51 $ 0.89
Extraordinary item............................ (0.45) (0.39)
---------- ----------
Net income.................................... $ 0.06 $ 0.50
---------- ----------
---------- ----------
Weighted average shares (in thousands)........ 13,064 14,969
Net income per common share--assuming dilution:
Income before extraordinary item.............. $ 0.43 0.79
Extraordinary item............................ (0.38) (0.35)
---------- ----------
Net income.................................... $ 0.05 $ 0.44
---------- ----------
---------- ----------
Weighted average shares and assumed
conversions (in thousands).................. 15,380 16,950
OTHER DATA:
EBITDA.......................................... $ 96,272 $ 108,903
EBITDA margin................................... 3.8% 3.7%
OTHER DATA BEFORE CHARGES:
Income from operations.......................... $ 134,929 $ 144,593
Net income attributable to common
stockholders.................................. 45,364 51,988
Net income per common share assuming dilution... 2.95 3.07
EBITDA.......................................... 160,970 173,601
EBITDA margin................................... 6.3% 6.0%
<CAPTION>
COMPUTER
SERVICES 1997
CONTRACT FINANCING
WRITE-OFF TRANSACTIONS SUPPLEMENTAL
ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $ -- $ -- $2,913,558
Cost of goods sold.............................. -- -- 2,435,364
------------ ------------ ------------
Gross profit.................................... -- -- 478,194
Operating expense:
Warehousing, marketing and administrative
expenses...................................... (3,240)(q) (708)(r) 329,653
Non-recurring charges........................... -- (64,698)(r) --
------------ ------------ ------------
Total operating expenses........................ (3,240) (65,406) 329,653
------------ ------------ ------------
Income from operations.......................... 3,240 65,406 148,541
Interest expenses............................... -- (5,096)(s) 36,560
Other expense................................... -- -- 9,251
------------ ------------ ------------
Income before income taxes and extraordinary
item.......................................... 3,240 70,502 102,730
Income taxes.................................... 1,302(k) 28,342(k) 43,805
------------ ------------ ------------
Income before extraordinary item................ 1,938 42,160 58,925
Extraordinary item--loss on early retirement of
debt, net of tax benefit of $3,956............ -- 5,884(t) --
------------ ------------ ------------
Net income...................................... 1,938 48,044 58,925
Preferred stock dividends issued and accrued.... -- (1,528)(u) --
------------ ------------ ------------
Net income attributable to common
stockholders.................................. $ 1,938 $ 49,572 $ 58,925
------------ ------------ ------------
------------ ------------ ------------
Net income per common share--basic:
Income before extraordinary item.............. $ 3.57
Extraordinary item............................ --
------------
Net income.................................... $ 3.57
------------
------------
Weighted average shares (in thousands)........ 16,519
Net income per common share--assuming dilution:
Income before extraordinary item.............. $ 3.19
Extraordinary item............................ --
------------
Net income.................................... $ 3.19
------------
------------
Weighted average shares and assumed
conversions (in thousands).................. 18,500
OTHER DATA:
EBITDA.......................................... $ 177,549
EBITDA margin................................... 6.1%
OTHER DATA BEFORE CHARGES:
Income from operations.......................... $ 148,541
Net income attributable to common
stockholders.................................. 58,925
Net income per common share assuming dilution... 3.19
EBITDA.......................................... 177,549
EBITDA margin................................... 6.1%
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
34
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA
AND SUPPLEMENTAL PRO FORMA INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SENIOR CREDIT
FACILITIES AZERTY ORIGINAL JUNE EQUITY
REFINANCING ACQUISITION OFFERING OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $ 712,517 $ -- $ 99,723(l) $ -- $ -- $ 812,240
Cost of goods sold......................... 589,455 -- 91,050 -- -- 680,505
---------- ------------- ----------- ----------- ----------- ----------
Gross profit............................... 123,062 -- 8,673(l) -- -- 131,735
Operating expense:
Warehousing, marketing and administrative 85,037
expenses................................. -- 6,275(m) -- -- 91,312
Non-recurring charges...................... -- -- -- -- -- --
---------- ------------- ----------- ----------- ----------- ----------
Total operating expenses................... 85,037 -- 6,275 -- -- 91,312
---------- ------------- ----------- ----------- ----------- ----------
Income from operations..................... 38,025 -- 2,398 -- -- 40,423
Interest expense........................... 11,826 (3,700)(i) 2,218(n) 287(o) (1,497)(p) 9,134
Other expense.............................. -- 2,313 -- -- -- 2,313
---------- ------------- ----------- ----------- ----------- ----------
Income before income taxes and 26,199
extraordinary item....................... 1,387 180 (287) 1,497 28,976
Income taxes............................... 11,108 558(k) 250(k) (115)(k) 602(k) 12,403
---------- ------------- ----------- ----------- ----------- ----------
Income before extra item................... 15,091 829 (70) (172) 895 16,573
Extraordinary item......................... -- -- -- -- -- --
---------- ------------- ----------- ----------- ----------- ----------
Net income................................. 15,091 829 (70) (172) 895 16,573
Preferred dividends........................ -- -- -- -- -- --
---------- ------------- ----------- ----------- ----------- ----------
Net income attributable to common $ 15,091
stockholders............................. $ 829 $ (70) $ (172) $ 895 $ 16,573
---------- ------------- ----------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------- ----------
Net income per common share--basic......... $ 0.94 $ 0.93
---------- ----------
---------- ----------
Weighted average shares (in thousands)..... 15,995 17,900
Net income per common share-- assuming $ 0.88
dilution................................. $ 0.89
---------- ----------
---------- ----------
Weighted average shares and assumed 17,098
conversions (in thousands)............... 18,646
<CAPTION>
COMPUTER
SERVICES
CONTRACT
WRITE-OFF SUPPLEMENTAL
ADJUSTMENTS PRO FORMA
------------ ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $ -- $ 812,240
Cost of goods sold......................... -- 680,505
------------ ------------
Gross profit............................... -- 131,735
Operating expense:
Warehousing, marketing and administrative
expenses................................. (802)(q) 90,510
Non-recurring charges...................... -- --
------------ ------------
Total operating expenses................... (802) 90,510
------------ ------------
Income from operations..................... 802 41,225
Interest expense........................... -- 9,134
Other expense.............................. -- 2,313
------------ ------------
Income before income taxes and
extraordinary item....................... 802 29,778
Income taxes............................... 322(k) 12,725
------------ ------------
Income before extra item................... 480 17,053
Extraordinary item......................... -- --
------------ ------------
Net income................................. 480 17,053
Preferred dividends........................ -- --
------------ ------------
Net income attributable to common
stockholders............................. $ 480 $ 17,053
------------ ------------
------------ ------------
Net income per common share--basic......... $ 0.95
------------
------------
Weighted average shares (in thousands)..... 17,900
Net income per common share-- assuming
dilution................................. $ 0.91
------------
------------
Weighted average shares and assumed
conversions (in thousands)............... 18,646
</TABLE>
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
35
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The pro forma financial statements have been prepared giving effect to the
following:
(1) In June 1998, United expects to complete an offering of 2,005,507 shares of
Common Stock, consisting of 1,500,000 primary shares sold by United and
505,507 secondary shares sold by certain selling stockholders at an offering
price of $54.00 per share. The aggregate net proceeds to United of
approximately $77.1 million will be contributed to USSC and used to repay a
portion of indebtedness under the Tranche A Term Loan Facility which will
cause a permanent reduction of the amount borrowable thereunder.
United will not receive any of the proceeds from the sale of the 505,507
shares of Common Stock offered by the selling stockholders, other than an
aggregate of approximately $6.4 million payable by the selling stockholders
upon exercise of employee stock options in connection with the June Equity
Offering, which will be applied to the repayment of indebtedness under the
New Credit Facilities.
(2) The New Credit Facilities and Receivables Securitization Program replaced
all preexisting debt under the Existing Credit Agreement (which, as of
December 31, 1997 and March 31, 1998, consisted of $148.8 million and $119.0
million of term loan facilities and $256.0 million and $224.0 million in a
revolving credit facility, respectively). Accordingly, $9.3 million of
unamortized financing fees as of March 31, 1998 related to the credit
agreement governing the Existing Credit Facilities ($5.6 million net of tax
benefit of $3.7 million) were expensed as an extraordinary charge due to the
early retirement of such debt. As this extraordinary charge will be
non-recurring it is not considered for pro forma income statement purposes.
Proceeds from the receivables sold under the Receivables Securitization
Program of approximately $150.0 million and will be used to reduce
borrowings under the New Credit Facilities. The Company received
approximately $160.0 million in proceeds from the sale of certain Eligible
Receivables on April 3, 1998. These Unaudited Consolidated Pro Forma
Financial Statements reflect $150.0 million in proceeds from the sale of
certain Eligible Receivables under the Receivables Securitization Program as
this amount was deemed to more fairly represent the average amount of
receivables that would have been sold in 1997. The anticipated annual costs
related to the sale of certain accounts receivable is estimated to be $9.3
million and is shown in other expense.
(3) The Tranche B Term Loan Facility ($100.0 million) and a portion of the
Revolving Credit Facility under the New Credit Facilities ($15.1 million)
were used to purchase the Azerty Business and pay approximately $1.0 million
in acquisition fees and expenses.
(4) The total purchase price for the Azerty Business (including fees and
expenses) was approximately $115.2 million and has been preliminarily
allocated as follows:
<TABLE>
<S> <C>
Current assets................................................... $ 82,575
Property, plant and equipment.................................... 5,847
Goodwill......................................................... 72,129
Liabilities assumed.............................................. (45,342)
---------
Total purchase price........................................... $ 115,209
---------
---------
</TABLE>
36
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) The operating results for the year ended December 31, 1997 and for the three
months ended March 31, 1998 for the Azerty Business have been included as
follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
-------------- --------------
<S> <C> <C>
Net sales.................................................... $ 355,423 $ 99,723
Cost of goods sold........................................... 323,160 91,050
-------------- --------------
Gross Profit............................................... 32,263 8,673
Warehousing, marketing and administrative expenses(a)(b)..... 22,599 6,275
-------------- --------------
Earnings before interest and taxes........................... $ 9,664 $ 2,398
-------------- --------------
-------------- --------------
- --------------
</TABLE>
(a) Includes $1.8 million of annual goodwill amortization based on
$72.1 million of goodwill as computed above amortized over 40
years.
(b) Excludes special bonuses paid by Abitibi-Consolidated Inc.,
amounting to approximately $3.5 million, to senior Azerty
Business executives related to the Azerty Acquisition; such
bonuses do not represent continuing obligations of the Azerty
Business. Also excludes approximately $1.5 million of annual
goodwill amortization related to the purchase cost paid by
Abitibi-Consolidated, Inc. for the Azerty Business; such goodwill
is eliminated under purchase accounting as applied to the Azerty
Acquisition.
(6) Pro forma interest expense has been calculated based upon pro forma debt
levels and the applicable interest rates. The Existing Credit Facilities'
term loan facilities and revolving credit facility were assumed to bear
interest at their respective current rates of 7.71% and 7.67%, respectively,
for the year ended December 31, 1997 and 7.71% and 7.67%, respectively, for
the three months ended March 31, 1998. The Revolving Credit Facility, the
Tranche A Term Loan Facility and the Tranche B Term Loan Facility under the
New Credit Facilities were assumed to bear interest at rates of 7.45%, 7.15%
and 7.65%, respectively, for the year ended December 31, 1997 and 7.45%,
7.15% and 7.65%, respectively, for the three months ended March 31, 1998,
based on current LIBOR/prime rates and spread terms. A variation of 0.125%
in effective interest rates used for pro forma purposes has a $0.5 million
impact for the year ended December 31, 1997 and a $0.1 million impact for
the three months ended March 31, 1998 on pro forma interest expense.
(7) Income taxes have been provided for all adjustments at an assumed rate of
40.2%. Goodwill resulting from the Azerty Acquisition will not be tax
deductible and as such is not tax affected.
37
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The December 31, 1997 supplemental pro forma income statement reflecting the
1997 Financing Transactions and the Computer Services Contract Write-Off has
been prepared giving effect to all the assumptions made in the pro forma income
statement and the following:
(1) The Computer Services Contract Write-Off results in a $13.9 million
non-recurring charge ($8.3 million net of tax benefit of $5.6 million) and
$3.2 million in annual cost savings.
(2) The October Equity Offering and the resulting proceeds thereof were
contributed to the Company and used to redeem $50.0 million of the Company's
12 3/4% Notes, pay the redemption premium of $6.4 million thereon, and pay
down $15.5 million of indebtedness under the Existing Credit Facilities. The
resulting extraordinary loss of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) on early retirement of debt was eliminated for pro
forma purposes.
(3) The October Equity Offering also resulted in the recognition of a pre-tax
non-recurring non-cash charge of $59.4 million ($35.5 million net of tax
benefit of $23.9 million) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting of
the Merger Incentive Options and the Management Agreements Termination,
respectively. These non-recurring charges have been eliminated for pro forma
purposes. Approximately $0.7 million in management advisory service
agreement fees were paid prior to the Management Agreements Termination.
Accordingly, these fees which were charged to 1997 operating expenses have
been eliminated for pro forma purposes.
(4) On September 2, 1997, United completed the redemption of all outstanding
shares of its Series A and Series C Preferred Stock for an aggregate
redemption price of approximately $21.3 million. Accordingly, the $1.5
million of Preferred Stock dividends issued and accrued for the year ended
December 31, 1997 has been eliminated for pro forma purposes.
The supplemental pro forma income statement for the three months ended March
31, 1998 has been prepared giving effect to all assumptions made in the pro
forma income statement and the adjustment for the Computer Services Contract
Write-Off described above. Approximately $2.6 million in prepaid expense related
to the Computer Services Contract has been eliminated for supplemental pro forma
balance sheet purposes and $2.6 million and $8.7 million of current and
long-term payments have been added to current and long-term liabilities,
respectively, as a result of the Computer Services Contract Write-Off.
Pro forma adjustments have been made to the pro forma and supplemental pro
forma balance sheets to reflect the following effects of the Senior Credit
Facilities Refinancing, the Azerty Acquisition, the Original Offering, the June
Equity Offering, and the Computer Services Contract Write-off:
<TABLE>
<C> <S> <C>
(a) Reflects the sale of accounts receivable related to the Receivables
Securitization Program.
(b) Write-off of capitalized financing costs associated with the $ (9,344)
retirement of the Existing Credit Facilities' revolving credit
facility, tranche A and tranche B term loans.......................
Capitalize financing costs related to the New Credit Facilities.... 2,400
---------
$ (6,944)
---------
---------
</TABLE>
38
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(c) Reflects retirement of debt under the Existing Credit Facilities and the
issuance of new debt under the New Credit Facilities:
<TABLE>
<S> <C>
Retirement of existing tranche A term loan...................... $ (18,337)
Retirement of existing tranche B term loan...................... (667)
Tranche A Term Loan Facility.................................... 10,000
---------
Adjustment to current maturities of long-term debt(1)......... $ (9,004)
---------
---------
Retirement of existing tranche A term loan...................... $ (58,345)
Retirement of existing tranche B term loan...................... (41,675)
Retirement of existing revolving credit facility................ (224,000)
Tranche A Term Loan Facility.................................... 140,000
Revolving Credit Facility....................................... 45,424
---------
Adjustment to long-term debt(1)............................... $(138,596)
---------
---------
- --------------
</TABLE>
(1) Totals $147.6 million and combined with the $2.4 million of
financing costs related to the New Credit Facilities (see Note b)
reflects the use of proceeds from the Receivables Securitization
Program.
(d) Adjustment to current income tax liability for the tax effect and to
retained earnings for the net effect of the write-off of the capitalized
financing costs and the initial costs related to the sale of certain
accounts receivable.
(e) Reflects the use of $100.0 million of the Tranche B Term Loan Facility
and $15.2 million of the Revolving Credit Facility under the New Credit
Facilities to purchase the Azerty Business. The Company has also assumed
$0.3 million of debt from the Azerty Business. The assets and liabilities
of the Azerty Business (including fees and expenses) are preliminarily
allocated as follows:
<TABLE>
<S> <C>
Current assets................................................... $ 82,575
Property, plant and equipment.................................... 5,847
Goodwill......................................................... 72,129
Liabilities assumed.............................................. (45,342)
---------
Purchase price................................................. $ 115,209
---------
---------
</TABLE>
(f) Reflects net proceeds of $97.0 million from the Original Offering
($100.0 million net of approximately $3.0 million in financing costs)
plus an additional $3.0 million in borrowings under the Revolving Credit
Facility used to pay down the indebtedness outstanding under the Tranche
B Term Loan Facility, and as a result $0.2 million ($0.12 million net of
tax benefit of $0.08 million) in financing fees associated with the
Tranche B Term Loan Facility was expensed as an extraordinary loss due to
the early retirement of debt (which loss is excluded for pro forma income
statement purposes as it is non-recurring).
39
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(g) The pro forma adjustments related to the June Equity Offering consist of
the following:
<TABLE>
<S> <C>
Adjustment to other assets:
Write-off of capitalized financing costs associated with the
reduction of the Tranche A Term Loan Facility............... $ (307)
---------
---------
Adjustments to accrued expenses:
Tax benefit related to options exercised...................... $ (3,235)
Tax benefit related to write-off of capitalized financing
costs associated with the reduction of the Tranche A Term
Loan Facility............................................... (123)
Employee withholding tax liability associated with options
exercised................................................... 7,369
---------
Increase in accrued expenses.................................... $ 4,011
---------
---------
Adjustments to long-term obligations:
Proceeds from the exercise of stock options................... $ (6,408)
Proceeds from the issuance of Common Stock by United in
conjunction with the Offering (net of underwriting discounts
and commissions and expenses)............................... (77,083)
---------
Decrease in long-term obligations............................... $ (83,491)
---------
---------
Adjustments to stockholders' equity:
Common Stock:
Issuance of shares of Common Stock by United in conjunction
with the Offering......................................... $ 150
Issuance of shares of Common Stock by United in conjunction
with the exercise of stock options........................ 41
---------
Increase in Common Stock.................................... $ 191
---------
---------
Capital in excess of par value:
Issuance of shares of Common Stock by United in conjunction
with the Offering (net of underwriting discounts and
commissions and expenses)................................. $ 76,933
Issuance of shares of Common Stock by United in conjunction
with the exercise of stock options........................ 2,233
---------
Increase in capital in excess of par value.................. $ 79,166
---------
---------
Retained earnings:
Write-off of capitalized financing costs associated with the
reduction of the Tranche A Term Loan Facility, net of tax
benefit................................................... (184)
---------
---------
Increase in stockholders' equity................................ $ 79,173
---------
---------
</TABLE>
(h) The supplemental pro forma adjustments for the Computer Services
Contract Write-Off consist of the following:
(1) Reduction in other current assets of $2,639 reflecting the write-off
of the prepaid expense related to the Computer Services Contract
Write-Off.
40
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) Increase in accrued expenses of $2,599 reflecting the current portion
of the remaining payments on the Computer Services Contract.
(3) Reduction in deferred income taxes of $5,589 reflecting the future
tax benefit of the Computer Services Contract Write-Off.
(4) Increase in long-term liabilities of $8,665 reflecting the long-term
portion of the remaining payments on the Computer Services Contract.
(5) Reduction in retained earnings of $8,314 reflecting the after tax
impact of the Computer Services Contract Write-Off.
Pro forma adjustments have been made to the pro forma and supplemental pro
forma income statements to reflect the following effects of the Senior Credit
Facilities Refinancing, the Azerty Acquisition, the Original Offering, the June
Equity Offering, the Computer Services Contract Write-Off and the 1997 Financing
Transactions:
(i) The pro forma adjustments to interest expense related to the Senior
Credit Facilities Refinancing consist of the following:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
-------------- --------------
<S> <C> <C>
Elimination of interest related to Existing Credit Facilities:
Revolving credit facility....................................... $ (12,540) $ (3,896)
Tranche A term loan............................................. (9,412) (1,812)
Tranche B term loan............................................. (4,794) (1,048)
Elimination of amortization of deferred financing costs on
retired debt.................................................. (3,027) (717)
-------------- -------
Decrease in interest expense...................................... (29,773) (7,473)
-------------- -------
Interest on new indebtedness (New Credit Facilities):
Revolving Credit Facility....................................... 3,133 954
Tranche A Term Loan Facility.................................... 10,368 2,719
Amortization of deferred financing costs on the New Credit
Facilities(1)................................................. 400 100
-------------- -------
Increase in interest expense.................................... 13,901 3,773
-------------- -------
Net decrease in interest expense.................................. $ (15,872) $ (3,700)
-------------- -------
-------------- -------
- --------------
</TABLE>
(1) Debt issuance costs are amortized over the life of the related
new debt, 6 years.
(j) Reflects the costs related to the sale of certain accounts receivable
under the Receivables Securitization Program.
(k) Income taxes have been provided for all adjustments at an assumed rate
of 40.2%. Goodwill resulting from the Azerty Acquisition will not be tax
deductable and as such is not tax affected.
(l) Reflects the historical Azerty Business net sales and gross profit.
41
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(m) Reflects the Azerty Business historical operating expenses for the year
ended December 31, 1997, as adjusted (see page 37 note (5)), and the
three months ended March 31, 1998 for the Azerty Business plus $1.8
million and $0.4 million, respectively, of goodwill amortization related
to the Azerty Acquisition.
(n) The pro forma adjustments to interest expense related to the Azerty
Acquisition consist of the following:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
-------------- ---------------
<S> <C> <C>
Interest on new indebtedness (New Credit Facilities):
Tranche B Term Loan Facility.................................... $ 7,650 $ 1,938
Revolving Credit Facility....................................... 1,125 280
------- -------
Increase in interest expense.................................. $ 8,775 $ 2,218
------- -------
------- -------
</TABLE>
(o) The pro forma adjustments to interest expense related to the Original
Offering consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE
DECEMBER 31, MONTHS ENDED
1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Elimination of interest related to New Credit Facilities:
Tranche B Term Loan Facility.................................... $ (7,650) $ (1,938)
------- -------
Interest on new indebtedness (New Credit Facilities and the 8 3/8%
Notes):
Revolving Credit Facility....................................... 205 56
Original Offering............................................... 8,375 2,094
Amortization of deferred financing costs on 8 3/8% Notes(1)..... 300 75
------- -------
Increase in interest expense.................................... 8,880 2,225
------- -------
Net increase in interest expense.............................. $ 1,230 $ 287
------- -------
------- -------
- --------------
</TABLE>
(1) Debt issuance costs are amortized over the life of the related
new debt, 10 years.
42
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(p) The pro forma adjustments to interest expense related to the June Equity
Offering consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE
DECEMBER 31, MONTHS ENDED
1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Elimination of interest expense related to the reduction of
Tranche A Term Loan Facility with the proceeds from the June
Equity Offering................................................. $ (5,511) $ (1,378)
Elimination of interest expense related to the reduction of the
Revolving Credit Facility with the proceeds realized from the
exercise of stock options....................................... (477) (119)
------- -------
Net decrease in interest expense.................................. $ (5,988) $ (1,497)
------- -------
------- -------
</TABLE>
Additional pro forma adjustments have been made in the supplemental pro
forma income statement to give effect to the following:
(q) Reflects the cost savings associated with the Computer Services Contract
Write-Off.
(r) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million ($3.2
million net of tax benefit of $2.1 million) related to the vesting of the
Merger Incentive Options and the Management Agreements Termination,
respectively. In addition, approximately $0.7 million in management
advisory service fees were paid in 1997 prior to the Management
Agreements Termination. These charges and expenses are excluded for pro
forma income statement purposes as they are non-recurring.
(s) The pro forma adjustments to interest expense related to the 1997
Financing Transactions consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
<S> <C>
Addition (Elimination) of interest related to:
Existing Credit Facilities.................................................. $ 701
12 3/4% Notes............................................................... (5,467)
Elimination of amortization of deferred financing costs on retired debt..... (330)
-------
Decrease in interest expense.................................................. $ (5,096)
-------
-------
</TABLE>
(t) In the fourth quarter of 1997, United recorded an extraordinary loss of
$9.8 million ($5.9 million net of tax benefit of $3.9 million) related to
early retirement of debt. This non-recurring charge is excluded for pro
forma purposes.
(u) On September 2, 1997, United completed the redemption of all outstanding
shares of its Series A and Series C Preferred Stock for an aggregate
redemption price of approximately $21.3 million. Accordingly, no
Preferred Stock dividends would be paid or accrued on a pro forma basis.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of United and related notes appearing elsewhere in this
Prospectus.
Certain information set forth in this discussion includes forward-looking
statements regarding United's future results of operations. United is confident
that its expectations are based on reasonable assumptions given its knowledge of
its operations and business. However, there can be no assurance that United's
actual results will not differ materially from its expectations. The matters
referred to in forward-looking statements may be affected by the risks and
uncertainties involved in United's business including, among others, competition
with business products manufacturers and other wholesalers, consolidation of the
business products industry, the ability to maintain gross profit margins, the
ability to reduce operating expenses as a percent of net sales, changing
end-user demands, changes in manufacturers' pricing, service interruptions and
availability of liquidity and capital resources.
OVERVIEW
On October 10, 1997, United completed the October Equity Offering. The
shares of Common Stock sold by United in the October Equity Offering were priced
at $38.00 per share, before underwriting discounts and a commission of $1.90 per
share. The aggregate net proceeds from this October Equity Offering of $72.2
million (before deducting expenses) and proceeds of $0.1 million resulting from
the conversion of 1,119,038 warrants into Common Stock were contributed to USSC
and used to (i) redeem $50.0 million of 12 3/4% Notes and pay the redemption
premium thereon of $6.4 million, (ii) pay fees related to the October Equity
Offering, and (iii) reduce the indebtedness under the Existing Credit
Facilities' term loan facilities by $15.5 million. The repayment of indebtedness
resulted in an extraordinary loss of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) and caused a permanent reduction of the amount
borrowable under the Existing Credit Facilities.
On March 30, 1995, Associated merged with and into United. Although United
was the surviving corporation in the Merger, the transaction was treated as a
reverse acquisition for accounting purposes, with Associated as the acquiring
corporation. Therefore, the results of operations for the year ended December
31, 1995 reflect the financial information of Associated only for the three
months ended March 30, 1995 and the results of United for the nine months ended
December 31, 1995. As a result of the Merger, the results of operations of
United for the year ended December 31, 1995 are not comparable to those of
previous and subsequent periods.
To facilitate a meaningful comparison of the years ended December 31, 1996
and 1995, a supplemental discussion and analysis is included and based on the
supplemental pro forma results of operations for United for the year ended
December 31, 1995. The supplemental pro forma results of operations do not
purport to be indicative of the results that would have been obtained had such
transactions been completed for the periods presented or that may be obtained in
the future.
GENERAL INFORMATION
EMPLOYEE STOCK OPTIONS. United's Management Equity Plan allows the Board of
Directors of United to designate, and the directors have designated the
Performance Incentive Compensation Committee as the option committee to
administer the Management Equity Plan. The Management Equity Plan provides for
the issuance of options to purchase shares of Common Stock to key officers and
management employees of United, either as incentive stock options or as
non-qualified stock options.
Effective November 1997, United's stockholders approved an amendment to the
Management Equity Plan which provided for the issuance of approximately 1.5
million additional options to key
44
<PAGE>
management employees and directors of United. During 1997, approximately 0.3
million options were granted to management employees and directors at fair
market value. In 1998 to date, United has granted 464,575 options to management
employees and directors at fair market value.
In September 1995, United's Board of Directors approved an amendment to the
Management Equity Plan which provided for the issuance of Merger Incentive
Options to key management employees of United exercisable for up to 2.2 million
additional shares of its Common Stock. Subsequently, approximately 2.2 million
options were granted during 1995 and 1996 to management employees. Some of the
options were granted at an option price below market value and the option price
of certain options increased by $0.625 on a quarterly basis from April 1, 1996
through October 1, 1997.
These Merger Incentive Options were granted in order to provide incentives
to management with respect to the successful development of ASI and the
integration of ASI with United. All Merger Incentive Options were vested and
became exercisable with the completion of the October Equity Offering in October
1997. All Common Stock issued upon the exercise of Merger Incentive Options is
subject to a six month holding period which expired on April 10, 1998. In the
fourth quarter of 1997, United was required to recognize compensation expense
based upon the difference between the fair market value of the Common Stock and
the exercise prices of Merger Incentive Options. Based on the closing stock
price on October 10, 1997 of $39.125 and options outstanding as of October 10,
1997, United recognized a non-recurring non-cash charge of $59.4 million ($35.5
million net of tax benefit of $23.9 million).
RESTRUCTURING CHARGE. The historical results for the twelve months ended
December 31, 1995 include a restructuring charge of $9.8 million ($5.9 million
net of tax benefit of $3.9 million). The restructuring charge included severance
costs totaling $1.8 million. The Company's Merger consolidation plan specified
that 330 distribution, sales and corporate positions, 180 of which related to
pre-Merger Associated, were to be eliminated substantially within one year
following the Merger. The Company achieved its target, with the related
termination costs of approximately $1.8 million charged against the reserve. The
restructuring charge also included distribution center closing costs totaling
$6.7 million and stockkeeping unit reduction costs totaling $1.3 million. The
consolidation plan called for the closing of eight redundant distribution
centers, six of which related to pre-Merger Associated, and the elimination of
overlapping inventory items from the Company's catalogs substantially within the
one-year period following the Merger. Estimated distribution center closing
costs included (i) the net occupancy costs of leased facilities after they are
vacated until expiration of leases and (ii) the losses on the sale of owned
facilities and the facilities' furniture, fixtures and equipment. Estimated
stockkeeping unit reduction costs included losses on the sale of inventory items
which have been discontinued solely as a result of the Merger. As of December
31, 1997, five of the six redundant pre-Merger Associated distribution centers
had been closed with $5.5 million charged against the reserve and $2.0 million
related to stockkeeping unit reduction costs had also been charged against the
reserve. As of December 31, 1997, the Company's consolidation plan had been
substantially completed. Seven of the eight redundant distribution centers had
been closed. Management believes the restructuring reserve balance at December
31, 1997 of $0.3 million is adequate to cover the remaining estimated
expenditures related to Merger integration and transition costs. See Note 5 to
the Consolidated Financial Statements of United included elsewhere herein.
ACTUAL AND SUPPLEMENTAL PRO FORMA RESULTS OF OPERATIONS
The following table of summary actual and supplemental pro forma results of
operations (see Note 5 to the Consolidated Financial Statements of United
included elsewhere herein) is intended for informational purposes only and is
not necessarily indicative of either financial position or results of operations
in the future, or that would have occurred had the events described in the
second paragraph under "--Overview" occurred on January 1, 1995. The following
information should be read in conjunction
45
<PAGE>
with, and is qualified in its entirety by, the historical Consolidated Financial
Statements of United, including the related notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------- -------------------------------
SUPPLEMENTAL
PRO FORMA
1995 1996 1997 1997 1998
--------------------- --------------------- --------------------- -------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $2,201,860 100.0% $2,298,170 100.0% $2,558,135 100.0% $ 635,021 100.0% $ 712,517
Gross profit.......... 381,270 17.3 390,961 17.0 445,931 17.4 108,742 17.1 123,062
Operating expenses.... 299,861 13.6 277,957 12.1 311,002 12.2 76,704 12.1 85,037
Non-recurring
charges............. -- -- -- -- 64,698 2.5 -- -- --
---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
Income from
operations.......... $ 81,409 3.7% $ 113,004 4.9% $ 70,231 2.7% $ 32,038 5.0% $ 38,025
---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
---------- --------- ---------- --------- ---------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
Net sales............. 100.0%
Gross profit.......... 17.2
Operating expenses.... 11.9
Non-recurring
charges............. --
---------
Income from
operations.......... 5.3%
---------
---------
</TABLE>
COMPARISON OF ACTUAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET SALES. Net sales were $712.5 million in the first quarter of 1998, a
12.2% increase over net sales of $635.0 million in the first quarter of 1997.
However, the first quarter of 1998 benefited from the timing of the Easter
holiday that occurred in the first quarter of 1997. Excluding this effect, sales
would have increased approximately 11%. The Company experienced sales strength
in all geographic regions and across all product categories.
GROSS PROFIT. Gross profit as a percent of net sales of 17.2% in the first
quarter of 1998 was up from 17.1% in the comparable period of 1997.
OPERATING EXPENSES. Operating expenses as a percent of net sales decreased
to 11.9% in the first quarter of 1998 from 12.1% in the first quarter of 1997.
The reduction in operating expenses as a percent of net sales is primarily due
to the leveraging of fixed expenses on a higher sales base.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 5.3% in the first quarter of 1998 from 5.0% in the first quarter of
1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 1.7% in
the first quarter of 1998, compared with 2.3% in the comparable period in 1997.
In addition to the impact of leveraging such expense against a higher sales
base, this reduction also reflects the prepayment of $50.0 million of the
12 3/4% Notes and $15.5 million of term loans during the fourth quarter of 1997
with a portion of the proceeds from the October Equity Offering.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes as a percent of net sales was 3.6% in the first quarter of 1998, compared
with 2.7% in the first quarter of 1997.
NET INCOME. Net income before preferred stock dividends was $15.1 million
in the first quarter of 1998, compared with $10.0 million in the first quarter
of 1997.
COMPARISON OF ACTUAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Net sales increased 11.8%, on equivalent workdays, to $2.6
billion for 1997 compared with $2.3 billion for 1996. This increase represents
strength in all geographic regions. Also, the Company's janitorial and
sanitation products, office furniture and traditional office supplies
experienced strong growth throughout the year.
Net sales for 1997 include ten months of incremental sales related to the
October 1996 acquisition of Lagasse. Excluding the Lagasse acquisition, sales
growth for 1997 was 8.8%.
46
<PAGE>
GROSS PROFIT. Gross profit as a percent of net sales increased to 17.4% in
1997 from 17.0% in 1996. This increase reflects higher vendor rebates obtained
by meeting higher purchase volume hurdles. In addition, the Company continued to
see a shift in product mix toward higher margin items. Lower margin computer
hardware declined as a percent of total sales.
OPERATING EXPENSES. Operating expenses as a percent of net sales, before
non-recurring charges, remained nearly flat at 12.2% in 1997 compared with 12.1%
in 1996. Non-recurring charges recorded in the fourth quarter of 1997 were $59.4
million (non-cash) and $5.3 million (cash) related to the vesting of the Merger
Incentive Options and the Management Agreements Termination, respectively.
During 1997, the Company accelerated certain discretionary expenditures that
represent investments in the future, specifically, preparation for the Year 2000
computer system issues and investments related to strategic planning. In
addition, the Company continues to improve warehouse and systems efficiencies to
produce high levels of customer and consumer satisfaction. Operating expenses as
a percent of net sales, including the aforementioned non-recurring charges, was
14.7% in 1997.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales,
before non-recurring charges, increased to 5.2% from 4.9% in 1996. Including
non-recurring charges, income from operations as a percent of net sales was 2.7%
in 1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.1%
compared with 2.5% in 1996. This reduction reflects the continued leveraging of
fixed interest costs against higher sales.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes and extraordinary item as a percent of net sales, excluding the impact of
non-recurring charges, increased to 3.1% from 2.4% in 1996. Including
non-recurring charges, income before income taxes and extraordinary item as a
percent of net sales was 0.6% in 1997.
NET INCOME. Net income in 1997 includes an extraordinary item, loss on the
early retirement of debt of $9.8 million ($5.9 million net of tax benefit of
$3.9 million) or 0.2% of net sales. Net income as a percent of net sales,
excluding the impact of non-recurring charges and early retirement of debt,
increased to 1.8% in 1997 from 1.4% in 1996. Including non-recurring charges and
extraordinary item, net income as a percent of net sales was 0.1% in 1997.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are
recorded throughout the year including inventory shrinkage, required LIFO
reserve, manufacturers' allowances, advertising costs and various expense items.
During the fourth quarter of 1997, the Company recorded a favorable net income
adjustment of approximately $2.9 million relating to the refinement of estimates
recorded in the prior three quarters.
In the fourth quarter of 1997, United recognized the following charges (i)
pre-tax non-recurring charges of $59.4 million (non-cash) and $5.3 million
(cash) related to the vesting of the Merger Incentive Options and the Management
Agreements Termination (see Notes 10 and 13 to the Consolidated Financial
Statements of United included elsewhere herein), respectively, and (ii) an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of $3.9
million) related to the early retirement of debt (see Note 6 to the Consolidated
Financial Statements of United included elsewhere herein).
COMPARISON OF ACTUAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased 31.2% to $2.3 billion for 1996 from $1.8
billion for 1995. This increase was primarily the result of the Merger for a
full twelve months in 1996. Sales in 1995 include only nine months of the
Company's sales.
47
<PAGE>
GROSS PROFIT. Gross profit as a percent of net sales declined to 17.0% in
1996 from 17.4% in 1995. This decrease reflected a shift in product mix, the
continuing consolidation of the Company's dealer base and deflation across the
Company's product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales
to 12.1% in 1996, compared with 14.1% in 1995. The results for 1995 include the
impact of a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million). The decline in the operating expense ratio before the
restructuring charge (12.1% in 1996 versus 13.5% in 1995) was primarily due to
the realization of merger synergies, cost containment, productivity improvements
and leveraging of fixed expenses.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.3% in 1995.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.5% in
1996, compared with 2.6% in 1995. This reduction reflects the leveraging of
fixed interest costs against higher sales, partially offset by funding required
to acquire Lagasse (see Note 1 to the Consolidated Financial Statements of
United, included elsewhere herein).
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes and extraordinary item as a percent of net sales increased to 2.4% in 1996
from 0.7% in 1995.
NET INCOME. Net income as a percent of net sales increased to 1.4% in 1996
from 0.3% in 1995 resulting from the aforementioned reasons. Net income in 1995
includes an extraordinary item, loss on the early retirement of debt related to
the Merger of $2.4 million ($1.4 million net of tax benefit of $1.0 million) or
0.1% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are
recorded throughout the year including inventory shrinkage, required LIFO
reserve, manufacturers' allowances, advertising costs and various expense items.
During the fourth quarter of 1996, the Company recorded approximately $3.0
million of additional net income relating to the refinement of estimates
recorded in the prior three quarters.
COMPARISON OF ACTUAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
SUPPLEMENTAL PRO FORMA RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 4.4% to $2.3 billion for 1996 from $2.2
billion for 1995. This increase is primarily the result of higher unit sales in
all product categories. In addition, the Micro United division continued to
report strong growth resulting from the underlying strength in the marketplace.
The Company's year-long focus on improving the consistency and reliability of
its service led to increased sales and higher customer and consumer
satisfaction.
GROSS PROFIT. Gross profit as a percent of net sales declined to 17.0% in
1996 from 17.3% in 1995. This decrease reflected a shift in product mix, the
continuing consolidation of the Company's dealer base and deflation across the
Company's product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales
to 12.1% in 1996, compared with 13.6% in 1995. This decrease is primarily due to
the realization of merger synergies, cost containment, productivity improvements
and leveraging of fixed expenses.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.7% in 1995.
48
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $119.0 million of term
loan borrowings (the "Term Loan Facilities"), and $224.0 million of borrowings
under a $325.0 revolving loan facility under the Existing Credit Facilities. In
addition, the Company has $100.0 million of 12 3/4% Notes due 2005, $29.8
million of industrial revenue bonds and a $2.0 million mortgage.
The term loan facilities under the Existing Credit Facilities consisted of a
$76.7 million tranche A term loan facility and a $42.3 million tranche B term
loan facility. On March 31, 1998, principal payments of $15.8 million and $8.7
million were paid from Excess Cash Flow (as defined in the Credit Agreement) for
the tranche A and tranche B facilities, respectively.
The Credit Agreement contained representations and warranties, affirmative
and negative covenants and events of default customary for financings of this
type. As of March 31, 1998, the Company was in compliance with all covenants
contained in the Credit Agreement.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the New Credit
Facilities, will be sufficient to meet the short-term (less than twelve months)
and long-term operating and capital needs of the Company as well as to service
its debt in accordance with its terms. There is, however, no assurance that this
will be accomplished.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC, and
bank borrowings by USSC. The New Credit Agreement, the 8 3/8% Notes Indenture
and the 12 3/4% Notes Indenture contain restrictions on the ability of USSC to
transfer cash to United.
The statements of cash flows for the Company for the periods indicated is
summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.................... $ 26,329 $ 1,609 $ 41,768 $ 48,928 $ 67,500
Net cash used in investing
activities.................... (266,291) (49,871) (12,991) (1,612) (3,975)
Net cash provided by (used in)
financing activities.......... 249,773 47,221 (27,029) (40,351) (64,388)
</TABLE>
COMPARISON OF ACTUAL CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
Net cash provided by operating activities during the first three months of
1998 increased to $67.5 million from $48.9 million in the comparable prior-year
period. This increase was due to higher net income, a decrease in accounts
receivable and a decrease in inventory, partially offset by a decrease in
accrued liabilities.
Net cash used in investing activities during the first three months of 1998
was $4.0 million compared with $1.6 million used in the first three months of
1997. The increase in cash used was due solely to an increase in capital
investments during 1998.
Net cash used in financing activities during the first three months of 1998
was $64.4 million compared with $40.4 million for the first three months of
1997. This increase was due primarily to the reduction of debt due to lower
working capital requirements.
49
<PAGE>
COMPARISON OF ACTUAL CASH FLOWS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND
1996
Net cash provided by operating activities for 1997 increased to $41.8
million from $1.6 million in 1996. This change was due to slower inventory
growth of $23.0 million, higher net income (before non-recurring charge) and an
increase in accrued liabilities of $35.2 million partially offset by a $21.4
million decline in deferred tax expense and a $38.0 million decline in accounts
payable. Net cash provided by operating activities for 1996 declined to $1.6
million from $26.3 million in 1995. This reduction was due to an increased
investment in inventory and a decrease in accrued liabilities offset by higher
net income and an increase in accounts payable.
Net cash used in investing activities during 1997 was $13.0 million compared
with $49.9 million in 1996. The decrease was due to the acquisition of Lagasse
on October 31, 1996 offset by the collection of $11.1 million in 1996 from the
successful sale of closed facilities and related equipment. The decrease in net
cash used in investing activities of $49.9 million in 1996 from $266.3 million
in 1995 was primarily the result of the Merger.
Net cash used in financing activities in 1997 was $27.0 million compared
with net cash provided of $47.2 million in 1996. The decrease was due to a $50.0
million partial redemption of the 12 3/4% Notes, a reduction of indebtedness
under the term loan facilities related to the Existing Credit Facilities of
$15.5 million, redemption of the Preferred Stock of $21.2 million and a $8.5
million payment related to employee income tax withholding for stock option
exercises offset by proceeds of $72.2 million (before deducting expenses)
related to the issuance of 2.0 million shares of Common Stock in the October
Equity Offering and additional borrowings under the revolver of $49.0 million
during 1997 compared with additional borrowings of $22.0 million in 1996. Net
cash provided by financing activities in 1996 was $47.2 million compared with
$249.8 million in 1995. The decrease was due to the financing of the Merger in
1995 offset by additional borrowings to finance the purchase of Lagasse.
NEW CREDIT FACILITIES
On April 3, 1998, the Company entered into the New Credit Agreement with
United as guarantor, The Chase Manhattan Bank, as agent, and a group of banks
and financial institutions (including Chase, the "Senior Lenders"). The
following is a summary of the principal terms of the New Credit Agreement which
summary does not purport to be complete and is subject, and is qualified in its
entirety by reference, to all the provisions of the New Credit Agreement, as it
may be further amended from time to time, a copy of which is available upon
request to the Company.
The New Credit Agreement provides for the funding of the Azerty Acquisition,
the refinancing of certain existing indebtedness and for other general corporate
purposes of the Company and its subsidiaries. The New Credit Facilities under
the New Credit Agreement consist of $150.0 million of borrowings pursuant to the
Tranche A Term Loan Facility and commitments of up to $250.0 million of
revolving loan borrowings pursuant to the Revolving Credit Facility (including a
sublimit of $90.0 million under the Revolving Credit Facility for letters of
credit). A portion of the Revolving Credit Facility is allocated for swingline
loans. The New Credit Facilities also included borrowings of $100.0 million
under the Tranche B Term Loan Facility. A substantial portion of the Tranche B
Term Loan Facility was repaid with the net proceeds from the Notes Offering. The
remainder of the Tranche B Term Loan Facility was permanently repaid with
proceeds from the sale of certain receivables under the Receivables
Securitization Program.
The loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility generally bear interest as determined within a set range with the rate
based on the ratio of total debt (which excludes the face amount of any undrawn
letters of credit) of United and its subsidiaries to EBITDA (as defined in the
New Credit Agreement). The Tranche A Term Loan Facility and the Revolving Credit
Facility bear interest, at the option of the Company and based upon financial
performance, at the base rate (i.e., the higher of
50
<PAGE>
the prime rate or federal funds plus 0.50%) plus 0% to 0.75% or London Interbank
Offered Rate ("LIBOR") plus 1.00% to 2.00%.
As of the date of this filing, the outstanding principal balance of the
Tranche A Term Loan Facility consists of $150.0 million and matures on or about
March 31, 2004, and no amount of the Tranche B Term Loan Facility remained
outstanding, which had been scheduled to mature on or about December 31, 2004.
The term loans under the Tranche A Term Loan Facility are repayable in
consecutive quarterly installments commencing on or about June 30, 1998, the
first four of which are each in the amount of $2.5 million, the next four of
which are each in the amount of $3.75 million, the next four of which are each
in the amount of $6.25 million, the next four of which are each in the amount of
$7.5 million and the last eight of which are each in the amount of $8.75
million.
Loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility may be prepaid at any time, and are subject to certain mandatory
prepayments out of (i) net proceeds received from the issuance of equity by
United or any of its subsidiaries subject to certain exceptions provided in the
New Credit Agreement, (ii) net proceeds from certain asset sales in excess of
$15.0 million, (iii) 50% of the Company's Excess Cash Flow (as defined in the
New Credit Agreement) minus any optional prepayments made on the Term Loans for
any fiscal year (commencing with the fiscal year ending December 31, 1998), but
only if the Debt to Cash Flow Ratio (as defined in the New Credit Agreement) as
of the last day of the fiscal year is greater than 3.75 to 1, (iv) net proceeds
received from casualty events subject to certain exceptions provided within the
New Credit Agreement and (v) net proceeds received from certain debt issuances.
Prepayments under the Tranche A Term Loan Facility will be applied pro rata to
the remaining installments due under the Tranche A Term Loan Facility and, next,
to the permanent reduction of commitments (and the payment of loans outstanding)
under the Revolving Credit Facility. Net proceeds of this Offering will be used
to repay a portion of the indebtedness under the Tranche A Term Loan Facility.
See "Use of Proceeds."
The Tranche A Term Loan Facility and the Revolving Credit Facility are
guaranteed, on a joint and several basis, by the Company and certain of the
direct and indirect domestic subsidiaries of USSC.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
secured by perfected first priority pledges of the stock of the USSC, all of the
stock of the domestic direct and indirect subsidiaries of United and certain of
the stock of all of the foreign direct and indirect subsidiaries (other than the
Receivables Company) of United and security interests in, and liens upon,
certain accounts receivable, inventory, contract rights and other personal and
certain real property of the USSC and its domestic subsidiaries. The New Credit
Agreement provides for the complete release, upon request by USSC, of the liens
upon achievement of an investment grade rating for the unsecured long-term debt
of United or USSC for any quarter and a complete release in the event the
Leverage Ratio (as defined in the New Credit Agreement) is less than or equal to
3 to 1. The Majority Lenders (as defined in the New Credit Agreement) may
request that the security interests be regranted if the Leverage Ratio for any
subsequent quarter exceeds 3 to 1. In addition, the New Credit Agreement does
not permit the Senior Lenders to secure a lien in connection with the sale of
specified receivables under the Receivables Securitization Program.
The New Credit Agreement contains certain restrictive covenants that, among
other things, limit the ability of United and its subsidiaries to dispose of
assets, incur indebtedness or liens, pay dividends or make other payments in
respect of capital stock or subordinated indebtedness, make investments or other
acquisitions, engage in mergers or consolidations, engage in transactions with
affiliates and engage in any business other than specified businesses. In
addition, the New Credit Agreement requires United to comply with certain
financial ratios and tests, including ratios of total debt to EBITDA, cash flow
to fixed charges, and EBITDA to interest expense and a minimum net worth test.
51
<PAGE>
12 3/4% NOTES
The 12 3/4% Notes were originally issued on May 3, 1995 pursuant to the
12 3/4% Notes Indenture. As of the date hereof, the aggregate outstanding
principal amount of the 12 3/4% Notes was $100.0 million. The 12 3/4% Notes are
unsecured senior subordinated obligations of USSC, and payment of the 12 3/4%
Notes is fully and unconditionally guaranteed by the Company and USSC's domestic
"restricted" subsidiaries on a senior subordinated basis. The 12 3/4% Notes
mature on May 1, 2005, and bear interest at the rate of 12 3/4% per annum,
payable semi-annually on May 1 and November 1 of each year.
The 12 3/4% Notes Indenture governing the 12 3/4% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the making
of restricted payments, transactions with affiliates, the existence of liens,
disposition of proceeds of asset sales, the making of guarantees by restricted
subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of
certain payment restrictions on restricted subsidiaries and certain mergers and
sales of assets. See "Description of Certain Indebtedness--12 3/4% Notes."
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into the $163.0 million 364-day Receivables
Securitization Program pursuant to which the Company sells its Eligible
Receivables (except for certain excluded receivables) to the Receivables
Company, a wholly-owned offshore, special purpose limited liability company
intended to be bankruptcy-remote. The Receivables Company then transfers the
Eligible Receivables to a third-party, multi-seller asset-backed commercial
paper program. The Third-Party Seller's purchases of the Eligible Receivables
are supported by a facility between the Third-Party Seller and banks with
ratings of A-1/P-1 or higher. The sale of trade receivables includes not only
those Eligible Receivables that were existing on the closing date of the
Receivables Securitization Program, but also Eligible Receivables created
thereafter. The Company received approximately $160.0 million in proceeds from
the initial sale of Eligible Receivables on April 3, 1998.
The Chase Manhattan Bank acts as funding agent and, together with other
commercial banks rated at least A-1/P-1, provides standby liquidity funding to
support the purchase of the receivables by the Receivables Company. The proceeds
from the Receivables Securitization Program were used to reduce borrowings under
the Company's Revolving Credit Facility. The Receivables Company retains an
interest in the Eligible Receivables transferred to the third party. The
Receivables Securitization Program carries an effective interest rate of LIBOR
plus 0.37%. As a result of the Receivables Securitization Program, actual
balance sheet assets of the Company as of March 31, 1998 of approximately $160.0
million, consisting of accounts receivable, have been sold to the Receivables
Company and do not secure the Company's obligations under the New Credit
Facilities.
INFLATION/DEFLATION AND CHANGING PRICES
Inflation can have an impact on the Company's earnings. During inflationary
times, the Company generally seeks to increase prices to its customers creating
incremental gross profit resulting from the sale of inventory purchased at lower
prices. Alternatively, significant deflation may adversely affect the Company's
profitability.
YEAR 2000 MODIFICATIONS
The Company recognizes the potential business impacts related to the Year
2000 computer system issue. The issue is one where computer systems may
recognize the designation "00" as 1900 when it means 2000, resulting in system
failure or miscalculations. The Company began to address the Year 2000 issue in
1996, and continues to implement measures to ensure its business operations are
not disrupted. The Company's plan requires that all modifications necessary to
make its computer systems
52
<PAGE>
Year 2000 compliant must be completed during 1999. In 1997, the Company incurred
approximately $1.4 million of expenses related to this issue and expects to
incur an additional $2.6 million to $3.3 million of such expenses over the next
two years. For the three months ended March 31, 1998, the Company incurred $0.3
million of such expenses.
SEASONALITY
Although the Company's sales are generally level throughout the year, the
Company's sales vary to the extent of seasonal differences in the buying
patterns of end-users who purchase office products. In particular, the Company's
sales are generally higher than average during January when many businesses
begin operating under new annual budgets.
The Company experiences seasonality in terms of its working capital needs,
with highest requirements in December through February reflecting a build up in
inventory prior to and during the peak sales period. The Company believes that
its current availability under the Revolving Credit Facility is sufficient to
satisfy such seasonal capital needs for the foreseeable future. See "--Liquidity
and Capital Resources."
53
<PAGE>
BUSINESS
OVERVIEW
United Stationers is the largest broad line wholesale distributor of
business products in North America, with annual sales of more than twice its
next largest competitor. The Company offers more than 35,000 SKUs, including
traditional office products, office furniture, computer supplies, facilities
management supplies and janitorial and sanitation supplies. The Company's
customer base is comprised of more than 20,000 reseller customers, including
office products dealers, office furniture dealers, office products superstores,
mass merchandisers, computer products resellers, mail order companies, and
sanitary supply distributors. United Stationers serves its customers through an
integrated nationwide network of 41 business products distribution centers and
18 janitorial and sanitation distribution centers. In addition to its broad
product offering, the Company provides value-added marketing and logistics
services to both manufacturers and resellers. For the year ended December 31,
1997, the Company's net sales and EBITDA were $2.6 billion and $96.3 million
(after non-recurring charges of $64.7 million), respectively, and the Company's
supplemental pro forma net sales and EBITDA would have been $2.9 billion and
$177.5 million, respectively.
THE BUSINESS PRODUCTS INDUSTRY
The Company operates in a large and fragmented industry that has been
experiencing consolidation (with sales of more than $120 billion in
manufacturers' shipments in 1996 based on independent industry sources). The
business products industry consists of several different channels by which
business products are distributed from the manufacturer to the end user,
including resellers buying through wholesalers and resellers purchasing directly
from manufacturers. Consolidation has occurred in recent years throughout all
levels of the business products industry. As a result of this consolidation, the
distinct boundaries that once clearly defined distribution channels have become
blurred. Over the last decade, office products superstores (which largely buy
directly from manufacturers) have entered virtually every major metropolitan
market. Despite the industry consolidation, no single reseller accounted for
more than 6% of the Company's net sales in 1997. The business products industry
consists principally of wholesalers, business products dealers (including
commercial, contract and retail), office products superstores, computer
resellers, office furniture dealers, sanitary supply distributors, mail order
companies and mass merchandisers, each as described in greater detail below:
BUSINESS PRODUCTS WHOLESALERS. The wholesale segment of the business
products industry consists of national, specialty and regional wholesalers. The
Company competes with one other national business products wholesaler on the
basis of breadth and depth of product offering, price and the provision of
extensive marketing and distribution services for their reseller customers.
Specialty office products wholesalers focus on limited product lines such as
computer supplies, legal supplies, writing instruments, office furniture and
facilities management supplies. Regional office products wholesalers generally
offer a broad range of office products and marketing services on a smaller and
more limited scale and within a much more limited geographic area than national
office products wholesalers.
BUSINESS PRODUCTS DEALERS. Business products dealers include commercial
dealers, contract stationers (e.g., Boise Cascade Office Products, BT Office
Products International, Corporate Express, U.S. Office Products) and the
contract stationer divisions of national office product superstores (e.g.,
Staples and Office Depot) and retail dealers. The most significant reseller
channel for office products distribution continues to be commercial dealers and
contract stationers that serve medium and large-sized business customers through
the use of catalogs and sales forces. These resellers typically stock products
in distribution centers and deliver them to customers on a next-day basis
against orders received electronically, by telephone or fax, or taken by a
salesperson while calling on a customer. Major commercial dealers and contract
stationers purchase in large quantities directly from manufacturers and rely
upon wholesalers for safety stock and certain slower-moving generally higher
margin SKUs in order
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to provide product breadth and offer significant volume-related discounts and a
high level of service to their customers.
Retail office products dealers typically serve small and medium-sized
businesses, home offices and individuals. For many years, retail dealers
consisted principally of a large number of independent dealers, operating one or
a few relatively small stores in a single local area. During the last decade,
however, the office products retail market has undergone significant change,
including the elimination or consolidation of many retail dealers (including
most traditional stationery stores), as a result of the emergence and rapid
growth of discount office supply retailers, which are known as superstores. To
compete with the lower prices generally offered on commodity products by
superstores, many independent retail dealers have joined marketing or buying
groups to negotiate on a collective basis directly with manufacturers and
wholesalers, or have altered their business strategies to adapt to lower gross
margins and reduce their operating expenses.
OFFICE PRODUCTS SUPERSTORES. Office products superstores (e.g., Office
Depot, OfficeMax, Staples) employ a warehouse format, are typically open for
business seven days a week, stock a select number of items in inventory
(typically in the range of 5,000 to 7,000 products), purchase in volume,
typically take delivery at their stores directly from manufacturers and offer
many of their products at discounts from manufacturers' suggested list prices.
Virtually every major metropolitan area in the United States is now served by at
least one, and most by more than one, office products superstore. Office
products superstores may also purchase from wholesalers for "fill-in" needs and
to fill customer orders from special wholesaler catalogs made available to end
users in certain superstores when the superstore does not carry an item. This
allows the office products superstores to expand the range of products offered
without increasing their inventory levels.
COMPUTER RESELLERS. Because computers are now widely used in offices, more
business products are computer related and, therefore, are sold through computer
resellers (e.g., Computer Discount Warehouse, CompUSA). In addition, most
computer resellers now offer a limited selection of more traditional office
products.
OFFICE FURNITURE DEALERS. Office furniture is a major product category
within the business products industry. Although nearly all broad line office
products dealers sell office furniture, approximately 75% of all new office
furniture is sold through office furniture dealers.
SANITARY SUPPLY DISTRIBUTORS. This customer class is now included in the
business products industry as wholesalers have expanded their product offerings
to include janitorial and sanitation supplies.
MAIL ORDER COMPANIES. Mail order marketers of office products (e.g., Quill,
Reliable Office Products, Viking Office Products) typically serve small and
medium-sized business customers and home offices. While their procurement and
order fulfillment functions are similar to contract stationers, they rely
exclusively on catalogs and other database marketing programs, rather than
direct sales forces, to sell their product offerings. Their operations are based
upon large, proprietary customer data bases and sophisticated circulation
strategies drawn from end-user marketing programs. Mail order companies purchase
from both wholesalers and manufacturers.
MASS MERCHANDISERS. The mass market retailers (e.g., Kmart, Price/Costco,
Sears, Target, Wal-Mart Stores/Sam's Club) have recently taken a growing
interest in business products. Office supplies is one of many categories of
products typically available in these stores. Certain of these retailers rely on
wholesalers to fulfill a portion of their customers' orders.
COMPETITIVE STRENGTHS
During the last several years, the Company has strengthened its competitive
position in the business products industry through the following:
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SIGNIFICANT SCALE. As the largest broad line business products wholesaler
in North America, the Company qualifies for substantial volume allowances and
can realize significant economies of scale. In addition, the Company's size and
nationwide service and distribution capabilities enable it to: (i) service the
demands of large national, regional, local and individual reseller accounts by
offering products from over 550 manufacturers; (ii) seek cost-effective sourcing
of products both in North America and internationally; and (iii) mitigate the
effect of local or regional economic downturns.
COST EFFECTIVE OPERATIONS. The Company seeks cost reductions at both the
corporate and operating levels in order to improve its efficiency. Examples of
such cost reduction efforts include: (i) reduced merchandise procurement and
handling costs through higher manufacturers' incentives and better terms; (ii)
continued efforts to increase inventory efficiency without lowering order fill
rates; (iii) reduced payroll and benefits costs through improved labor
allocation and higher productivity; (iv) reduced freight costs through ongoing
refinements to delivery systems; (v) increased sourcing of certain products from
lower cost sources; (vi) streamlined work practices and procedures; and (vii)
increased leveraging of fixed costs over an increasing sales base.
BROAD PRODUCT SELECTION. Stocking over 35,000 SKUs, the Company offers the
broadest selection of business products in the industry, providing resellers
with one-stop shopping for their business products needs. The Company's size
allows it to maintain a broad product selection, thereby enabling its customers
to hold less inventory while still providing end users with a high level of
service.
HIGH LEVEL OF CUSTOMER SERVICE. The Company believes that a key component
of its success has been its focus on customer service and support. Customer
service includes: ease of ordering, rapid access to information, high order fill
rates, on-time accurate shipments and value-added management and marketing
assistance. The Company's integrated computer information system serves an
important role in providing a high level of customer service, as it allows the
Company to provide resellers with the ability to manage electronically critical
business functions, including order entry, purchasing, pricing, accounts
receivable, accounts payable and inventory control. This integrated computer
system also is designed, in part, to enable the Company to monitor five key
measures of customer satisfaction: order fill rate, order accuracy, inventory
accuracy, on-time delivery and accessibility of the Company's personnel to
customers. The Company also supports resellers' marketing efforts by designing
informative, user-friendly catalogs and other marketing materials.
The Company continues to introduce additional services, such as its "wrap
and label" program that offers resellers the option to receive prepackaged
orders customized (and labeled with the reseller's name) to meet the
specifications of particular end users. The Company can also drop ship orders
directly to end users on behalf of resellers. These services allow resellers to
lower their inventory investment and minimize handling costs.
BUSINESS STRATEGY
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution, the
Company believes its role as a wholesaler will continue to grow and that it can
achieve above industry average growth rates by:
CAPTURING A GREATER SHARE OF EXISTING CUSTOMERS' PURCHASES. The Company
believes that it has the opportunity to capture a portion of the sales of
business products currently sold directly by manufacturers to resellers and end
users without wholesaler involvement. The Company estimates that only
approximately 20% of business products sales are made through wholesale
distributors and that approximately 80% are made directly from manufacturers to
resellers. As resellers intensify their focus on asset management and return on
investment, the Company believes that they will increasingly rely on the
Company's value-added marketing and logistics services to meet end-user
requirements for a high and accurate order fill rate on an overnight basis. The
Company also believes that the focus by resellers
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on inventory efficiency leading to de-stocking will continue in the foreseeable
future, creating an opportunity to capture a greater percentage of the
resellers' purchases. Further, the Company believes that manufacturers support
this shift to wholesaler involvement for products that are ordered in less-than-
case quantities because of the relatively high handling costs of such orders.
EXPANDING ITS CUSTOMER BASE. The Company plans to continue to expand its
customer base by: (i) maintaining and building its business with commercial
dealers and contract stationers (including the contract stationer divisions of
national office products superstores) who, through consolidation, have continued
to increase in size; (ii) developing additional programs for marketing and
buying groups that represent groups of dealers; (iii) continuing to focus on
complementary markets, including specialty dealers (e.g., furniture, computer
and janitorial and sanitation supply distributors); and (iv) expanding
geographically and potentially into international markets.
OFFERING A BROADER LINE OF PRODUCTS AND SERVICES. While United Stationers
carries the broadest product line in the industry, it continues to enhance its
product and service offerings to meet changing end-user demands. The Company's
product line expansion plans include developing its newer product categories,
such as office furniture, computer supplies and peripherals, facilities
management supplies and janitorial and sanitation supplies and potentially
offering new products and services. The Company believes that these product
categories will allow it to make additional sales to existing reseller customers
and thereby strengthen its position with such resellers as a one-stop shopping
experience. Such products also allow the Company to enter into new distribution
channels and add new types of resellers beyond broad line office products
dealers, thereby expanding its customer base.
The Company also continues to expand its line of private brand products,
including approximately 1,200 products under the Universal brand name. Private
brand products represented approximately 9% of the Company's net sales in 1997.
The Company believes its private brand products offer significant benefits both
to resellers, by providing an alternative to brand name products that offers
similar quality at a moderate price, and to manufacturers, by enabling the
manufacturer to increase sales without diluting its brand name pricing
structure. To further develop the Universal brand, the Company operates a
trading office in Hong Kong to facilitate the global purchasing of products.
CAPITALIZING ON CROSS-SELLING OPPORTUNITIES. Historically, the Company has
marketed its business products and services primarily to office products
resellers, including commercial dealers, contract stationers, retail dealers and
office products superstores. As the Company has expanded into new product lines
(e.g., janitorial and sanitation supplies), its sales efforts have been focused
primarily on traditional distributors of these specialty products. Although the
Company will continue to utilize these marketing channels as its primary method
of product distribution, the Company believes that its various products and
services are complementary and that significant opportunities exist to
cross-sell to its existing customer base. It is the Company's goal to become
known among its customers not just as an office products distributor, but as a
distributor of a broad range of products and services for the office. Management
believes that by implementing this strategy, the Company can enhance sales to
its existing customer base as resellers purchase a broader selection of products
offered by the Company, thereby reducing procurement cost and enhancing reseller
profitability.
INCREASING TECHNOLOGICAL CAPABILITIES AND UTILIZING ELECTRONIC
COMMERCE. The Company intends to continue to invest in systems enhancements as
well as customer interfaces to make its systems more user friendly. Increased
electronic linkages for transactions with customers and suppliers enable both
the Company and its business partners to reduce their costs and execute
transactions faster and more accurately. In 1997, approximately 90% of the
Company's orders were received electronically. As the Company increases the
functionality of its proprietary systems, the Company believes it will be able
to garner a growing percentage of its customers' business.
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As the Internet becomes increasingly important as a marketing channel, the
Company is positioned to participate in this trend. The Company currently
provides resellers with access to its 25,000 SKU general line catalog online
through seamless links to its web site. This service allows resellers to place
orders electronically with the Company for overnight delivery as well as to
provide a hot link on their own web site to the Company's general line catalog
for use by end users.
MAKING STRATEGIC ACQUISITIONS. The Company believes it can enhance its
growth by continuing to make strategic acquisitions, such as the acquisition of
Lagasse in 1996, which substantially increased the Company's position in the
janitorial and sanitation supplies product category. In addition, the Company
believes that the Azerty Acquisition will expand its product offerings and make
the Company one of the largest distributors of computer consumable supplies in
the United States. The Company intends to continue, from time to time, to pursue
acquisitions that expand its customer base, increase its geographic reach and/or
broaden its product offering.
PRODUCTS
The Company's current product offerings, comprised of more than 35,000 SKUs,
may be divided into five primary categories:
TRADITIONAL OFFICE PRODUCTS. The Company's core business continues to be
traditional office products, which includes both brand-name products and the
Company's private brand products. Traditional office products include writing
instruments, paper products, organizers and calendars and various office
accessories. The Company's traditional office product offerings are quite deep,
including, for example, more than 1,000 different SKUs of ring binders and 800
types of file folders.
INFORMATION TECHNOLOGY PRODUCTS. The Company offers computer supplies,
peripherals and hardware with major brand names to computer resellers and office
products dealers. These products represented approximately 22% of the Company's
1997 net sales. With the Azerty Acquisition, this product category as a percent
of net sales is expected to increase significantly.
OFFICE FURNITURE. The Company's sale of office furniture such as leather
chairs, wooden and steel desks and computer furniture has enabled it to become
the nation's largest office furniture wholesaler, with the Company currently
offering nearly 4,000 furniture items from 50 different manufacturers. Office
furniture represented approximately 15% of the Company's 1997 net sales. The
Company's "Pro-Image" consulting program enables resellers with no previous
expertise to provide high-end furniture and office design services to end users.
The Company offers national delivery and product "set-up" capabilities to
support office products dealers as well as to attract new furniture dealers.
JANITORIAL AND SANITATION SUPPLIES. The Company's dedicated marketing
effort for janitorial and sanitation supplies was created in 1993 with the
development of United Facility Supply. In October 1996, the Company acquired
Lagasse, the largest pure wholesaler of janitorial and sanitation supplies in
North America. The Company currently distributes these products through 18
Lagasse distribution centers. Janitorial and sanitation supplies represented
approximately 5% of the Company's 1997 net sales.
OTHER PRODUCTS. The Company's newest product categories encompass
facilities management supplies, specialty mailroom and warehouse items, kitchen
and cafeteria items, first aid products and ergonomic products designed to
enhance worker productivity, comfort and safety. Another one of the Company's
niche markets is business presentation products, including audio visual
equipment, flip charts and dry erase boards. Additionally, the Company offers
its "Signature Image" program, which provides resellers with access into the
advertising specialties market (such as imprinted and logo items).
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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 550 manufacturers,
for many of whom the Company believes it is a significant customer. In 1997, no
supplier accounted for more than 17% of the Company's aggregate purchases. As a
centralized corporate function, the Company's merchandising department
interviews and selects suppliers and products for inclusion in the catalogs.
Selection is based upon end-user acceptance and demand for the product and the
manufacturer's total service, price and product quality offering.
CUSTOMERS
The Company sells principally to resellers of office products, consisting
primarily of commercial dealers and contract stationers, retail dealers,
superstores, mail order companies and mass merchandisers. In addition, the
Company sells to office furniture dealers, computer resellers and janitorial and
sanitary supply distributors. No single reseller accounted for more than 6% of
the Company's net sales in 1997.
Commercial dealers and contract stationers are the most significant reseller
channel for office products distribution and typically serve large businesses,
institutions and government agencies. Through industry consolidation, the number
of such dealers has decreased, with the remaining dealers growing larger. As a
result, net sales to these commercial dealers and contract stationers as a group
have grown rapidly.
The number of retail dealers has been declining for some time as the result
of individual retail dealers' inability to compete successfully with the growing
number of superstores and, more recently, as a result of dealerships being
acquired and brought under an umbrella of common ownership. To adapt to this
highly competitive environment, many retail dealers, commercial dealers and
contract stationers have joined marketing or buying groups in order to increase
purchasing leverage. The Company believes it is the leading wholesale source for
many of these groups, providing not only merchandise but also special programs
that enable these dealers to take advantage of their combined purchasing power.
While the Company maintains and builds its business with commercial dealers,
contract stationers (including the contract stationer divisions of national
office product superstores) and retail dealers, it also has relationships with
most major office products superstore chains. In addition, the Company supplies
inventory and other fulfillment services to the retail operations of certain
superstores, including their direct-to-business delivery programs and to
non-stocking resellers.
MARKETING AND CUSTOMER SUPPORT
The Company concentrates its marketing efforts on providing value-added
services to resellers. The Company distributes products that are generally
available at similar prices from multiple sources, and most of its customers
purchase their products from more than one source. As a result, the Company
seeks to differentiate itself from its competitors through a broader product
offering, a higher degree of product availability, a variety of high quality
customer services and prompt distribution capabilities. In addition to
emphasizing its broad product line, extensive inventory, computer integration
and national distribution capabilities, the Company's marketing programs have
relied upon two additional major components. First, the Company produces an
extensive array of catalogs for commercial dealers, contract stationers and
retail dealers that are usually custom imprinted with each reseller's name and
sold to these resellers who, in turn, distribute the catalogs to their
customers. Second, the Company provides its resellers with a variety of dealer
support and marketing services, including business management systems,
promotional programs and pricing services. These services are designed to aid
the reseller in differentiating itself from its competitors by addressing the
steps in the end-user's procurement process.
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Substantially all of the Company's 35,000 SKUs are sold through its
comprehensive general line catalogs, promotional pieces and specialty catalogs
for the office products, office furniture, facilities management supplies and
other specialty markets. The Company produces the following annual catalogs:
General Line Catalog; Office Furniture Catalog featuring furniture and
accessories; Universal Catalog promoting the Company's private-brand
merchandise; Computer Products Catalog offering hardware, supplies, accessories
and furniture; Facilities and Maintenance Supplies Catalog featuring janitorial,
maintenance, food service, warehouse, mailroom supplies and products and
supplies used for meetings and presentations; and the Lagasse Catalog offering
janitorial and sanitation supplies. In addition, the Company produces the
following quarterly promotional catalogs: Action 2000, featuring over 1,000
high-volume commodity items, and Computer Concepts, featuring computer supplies,
peripherals, accessories and furniture. The Company also produces separate
quarterly flyers covering general office supplies, office furniture and
Universal products. The majority of the expenses related to the production of
such catalogs is borne by the Company's suppliers. Because commercial dealers,
contract stationers and retail dealers typically distribute only one
wholesaler's catalogs in order to streamline and concentrate order entry, the
Company attempts to maximize the distribution of its catalogs by offering
advertising credits to resellers, which can be used to offset the cost of
catalogs. Also, the Company offers an electronic catalog available on CD-ROM and
through the Company's web site.
The Company also offers to its resellers a variety of electronic order entry
systems and business management and marketing programs that enhance the
resellers' ability to manage their businesses profitably. For instance, the
Company maintains electronic data interchange systems that link the Company to
selected resellers and interactive order systems that link the Company to
selected resellers and such resellers to the ultimate end user. In addition, the
Company's electronic order entry systems allow the reseller to forward its
customers' orders directly to the Company, resulting in the delivery of pre-sold
products to the reseller or directly to its customers. The Company estimates
that in 1997, it received approximately 80% of its orders electronically.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 150 salespersons.
The sales force is responsible for sales and service to resellers with which the
Company has an existing relationship, as well as for establishing new
relationships with additional resellers. The Company supplements the efforts of
its sales force through telemarketing.
PRODUCT DISTRIBUTION AND DELIVERY SYSTEMS
The Company has a network of 41 business products regional distribution
centers located in 37 metropolitan areas in 25 states in the United States, most
of which carry the Company's full line of inventory. The Company also maintains
18 Lagasse distribution centers that carry a full line of janitorial and
sanitation supplies. The Company supplements its regional distribution centers
with 24 local distribution points throughout the United States that serve as
reshipment points for orders filled at the regional distribution centers. As a
result of the Azerty Acquisition, the Company will have five additional
distribution centers used by the Azerty Business. 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,
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to reduce back orders and to minimize time spent searching for merchandise
substitutes, all of which contribute to the Company's high order fill rate and
efficient levels of inventory balances. See "Risk Factors--Potential Service
Interruptions."
Another service offered by the Company to resellers is its "wrap and label"
program, that offers resellers the option to receive prepackaged orders
customized to meet the specifications of particular end users. For example, when
a reseller receives orders from a number of separate end users, the Company can
group and wrap the items separately by end user so that the reseller need only
deliver the package. The "wrap and label" program is attractive to resellers
because it eliminates the need to break down case shipments and to repackage the
orders before delivering them to the end user. The Company also can ship orders
directly to end users on behalf of resellers.
TECHNOLOGY
The Company believes its management information systems, telecommunications
network and warehouse automation system, along with its participation in
electronic commerce are integral to the Company's success and have enabled the
Company to achieve one of the lowest cost structures and highest levels of
service in the industry.
The Company operates one of the few fully integrated management information
systems in the industry. Order entry, fulfillment and billing, along with
inventory replenishment and accounts payable disbursement, are all automated.
The Company's management information systems are designed to process over
600,000 customer orders per day, supporting relatively short order-to-delivery
time windows. Management believes speed and accuracy are important in the highly
competitive business products industry. Over 80% of the orders received from the
Company's customers are electronic orders and over 85% of the Company's purchase
orders to its 550 suppliers are transmitted electronically.
The Company also employs a sophisticated warehouse automation system. In
certain locations, computerized conveyor systems, carousels and bar-code
scanning are utilized to increase efficiency and quality. The Company
continuously enhances its warehousing operations through the use of technology
to meet the changing business environment and customer and consumer
requirements.
The Company believes electronic commerce conducted over the Internet will
grow in importance in the future and has invested in developing its own
interactive web site (www.unitedstationers.com), an Intranet and software
products available to its reseller customers. Electronic product catalogs are
available both over the Internet and in CD-ROM versions.
Management plans to continue to invest in technology to improve quality,
reliability and cost-effective operations. The Company believes its systems are
sufficient to meet its current needs and estimates it will spend approximately
$8 million in computer-related capital improvements in 1998.
COMPETITION
The Company competes with office products manufacturers and with other
national, regional and specialty wholesalers of office products, office
furniture, computers and related items. Competition between the Company and
manufacturers is based primarily upon net pricing, minimum order quantity and
product availability. Although manufacturers may provide lower prices to
resellers than the Company does, the Company's marketing and catalog programs,
combined with speed of delivery and its ability to offer resellers a broad line
of business products from multiple manufacturers on a "one-stop shop" basis and
with lower minimum order quantities, are important factors in enabling the
Company to compete effectively. Manufacturers typically sell their products
through a variety of distribution channels, including wholesalers and resellers.
See "--Marketing and Customer Support" and "--Product Distribution and Delivery
Systems."
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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 June 12, 1998, the Company employed approximately 5,900 persons.
The Company considers its relations with employees to be good. Approximately
1,000 of the shipping, warehouse and maintenance employees at certain of the
Chicago, Detroit, Philadelphia, Baltimore, Los Angeles, Minneapolis and New York
City facilities are covered by collective bargaining agreements. The agreements
expire at various times during the next three years. The Company has not
experienced any work stoppages during the past five years. See "Risk
Factors--Potential Service Interruptions."
LEGAL PROCEEDINGS
In May 1998, Azerty Mexico received an official notice and request for
documents from the Director General of Investigations of the Federal Competition
Commission of Mexico with respect to an investigation of the distribution
practices of one of Azerty Mexico's suppliers. At this time, the Company does
not believe that Azerty Mexico is a target of this investigation or that this
investigation will result in a material adverse effect upon the Company's
financial condition or results of operations taken as a whole.
Although the Company is also involved in legal proceedings arising in the
ordinary course of its business, the Company is not involved in any legal
proceeding that it believes will result, individually or in the aggregate, in a
material adverse effect upon the financial condition or results of operations of
the Company.
TRADEMARKS
The trade names United Stationers, Micro United, Universal, United Facility
Supply, Azerty and others, are actively used and are significant to the
Company's business. Certain of the Company's trademarks have been federally
registered with the United States Patent and Trademark Office.
PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
EXECUTIVE OFFICES. The Company owns its office facility in Des Plaines,
Illinois which has approximately 135,800 square feet of office and storage
space. In addition, the Company leases approximately 47,000 square feet of
office space located in Mount Prospect, Illinois. This lease expires in 1999,
with an option to renew for two consecutive three-year terms. Azerty owns its
corporate headquarters office facility in Orchard Park, New York, which has
approximately 28,000 square feet (19,000 square feet of which consists of
unutilized warehouse space).
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DISTRIBUTION CENTERS. The Company presently has more than 8.0 million
square feet of warehouse space in 41 business products distribution centers and
18 Lagasse distribution centers. The Company also operates 24 local distribution
points. The following table sets forth information regarding the principal
leased and owned distribution centers:
USSC AND LAGASSE FACILITIES:
<TABLE>
<CAPTION>
METROPOLITAN OWNED LEASED
STATE CITY AREA SERVED APPROX. SQUARE FEET
- ------------------------------------- --------------------- ------------------------- --------- ------------
<S> <C> <C> <C> <C>
Arizona.............................. Tempe Phoenix -- 110,000
California........................... Bell Los Angeles -- 24,960
City of Industry(1).. Los Angeles 344,487 125,000
Sacramento(1) Sacramento -- 119,260
Sacramento Sacramento -- 267,284
Union City San Francisco -- 25,986
Colorado............................. Denver Denver 104,244 --
Denver Denver -- 134,893
Florida.............................. Dania Miami -- 22,564
Jacksonville(1) Jacksonville 95,500 --
Tampa Tampa 128,000 --
Tampa Tampa -- 30,000
Ft. Lauderdale Miami -- 151,500
Georgia.............................. Atlanta Atlanta -- 54,400
Norcross Atlanta 372,000 --
Illinois............................. Carol Stream Chicago -- 139,444
Forest Park Chicago 222,280 81,000
Forest Park Chicago -- 34,600
Glendale Heights Chicago -- 50,533
Greenville St. Louis 210,000 --
Indiana.............................. Indianapolis Indianapolis 128,000 --
Indianapolis Indianapolis -- 34,039
Louisiana............................ Harahan New Orleans -- 104,885
Harahan(1) New Orleans -- 82,650
Maryland............................. Harmans Baltimore/Wash., D.C. 323,980 45,000
Massachusetts........................ Sharon Boston -- 40,000
Woburn Boston 309,000 --
Michigan............................. Livonia Detroit 229,700 33,500
Van Buren Detroit -- 52,924
Minnesota............................ Brooklyn Park Minneapolis/St. Paul 127,480 --
Eagan Minneapolis/St. Paul 210,468 --
Missouri............................. Kansas City Kansas City -- 95,205
New Jersey........................... Edison New York 257,579 133,177
Edison New York -- 44,855
Pennsauken Philadelphia 231,000 25,316
New York............................. Coxsackie Albany 256,000
North Carolina....................... Charlotte Charlotte -- 24,800
Charlotte Charlotte 104,000 55,663
Ohio................................. Cincinnati Cincinnati 108,778 --
Columbus Columbus -- 171,665
Twinsburg Cleveland 206,136 --
Valley View Cleveland -- 28,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN OWNED LEASED
STATE CITY AREA SERVED APPROX. SQUARE FEET
- ------------------------------------- --------------------- ------------------------- --------- ------------
<S> <C> <C> <C> <C>
Oklahoma............................. Tulsa Tulsa 52,600 22,500
Oregon............................... Portland Portland -- 91,603
Pennsylvania......................... Pittsburgh Pittsburgh -- 84,176
Tennessee............................ Memphis Memphis -- 78,286
Nashville Nashville -- 66,000
Nashville Nashville -- 59,250
Nashville(2) Nashville -- 191,250
Texas................................ Dallas(1) Dallas/Fort Worth 223,230 159,864
Dallas Dallas -- 72,000
Houston Houston -- 143,859
Houston Houston -- 24,600
Houston Houston -- 69,500
Lubbock Lubbock -- 58,725
San Antonio San Antonio -- 63,098
San Antonio San Antonio -- 31,750
Utah................................. Salt Lake City Salt Lake City -- 124,324
Washington........................... Kent Seattle -- 24,000
Tukwila Seattle -- 144,031
Wisconsin............................ Milwaukee Milwaukee 67,300 --
</TABLE>
- --------------
(1) A portion of such property is subleased to a third party.
(2) This new facility is expected to replace the other two existing Nashville
facilities before the end of 1998.
AZERTY BUSINESS LEASED FACILITIES:
<TABLE>
<CAPTION>
APPROXIMATE
STATE/COUNTRY CITY USE SQUARE FEET
- --------------------------------------------------------- ----------------- -------------------- -------------
<S> <C> <C> <C>
California............................................... Visalia Warehouse 30,000
Florida.................................................. Miami Warehouse 25,000
Call Center 3,200
Indiana.................................................. Fort Wayne Warehouse 75,000
Mexico................................................... Mexico City Office/Warehouse 12,800
Pennsylvania............................................. Chambersburg Warehouse 65,000
</TABLE>
Substantially all property rights of the Company are pledged to secure its
obligations under the New Credit Agreement. See "Description of Certain
Indebtedness--New Credit Facilities."
64
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information, as of June 12, 1998, with respect to
those individuals who are serving as members of the Boards of Directors of
United and the Company or as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Frederick B. Hegi, Jr.......................... 54 Chairman of the Board of United
Randall W. Larrimore........................... 51 Director of United and the Company; President and Chief
Executive Officer
Daniel H. Bushell.............................. 46 Director of the Company; Executive Vice President, Chief
Financial Officer and Assistant Secretary
Michael D. Rowsey.............................. 45 Director of United and the Company; Executive Vice
President
Steven R. Schwarz.............................. 44 Director of the Company; Executive Vice President
Kathleen S. Dvorak............................. 41 Vice President, Investor Relations
Mark J. Hampton................................ 44 Vice President, Marketing
R. Thomas Helton............................... 50 Vice President, Human Resources
James A. Pribel................................ 44 Treasurer and Secretary
Albert H. Shaw................................. 48 Vice President, Operations
Ergin Uskup.................................... 60 Vice President, Management Information Systems and Chief
Information Officer
Gary G. Miller................................. 48 Director of United
Daniel J. Good................................. 58 Director of United
James A. Johnson............................... 44 Director of United
Joel D. Spungin................................ 60 Director of United
Benson P. Shapiro.............................. 56 Director of United
Roy W. Haley................................... 51 Director of United
</TABLE>
Set forth below is a description of the backgrounds of the directors of
United and the Company and executive officers of the Company. There is no family
relationship between any director or executive officer of United or 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 Lone Star Technologies, Inc., a diversified company engaged in the
manufacture of tubular products; and Cattle Resources, Inc., a manufacturer of
animal feeds and operator of commercial cattle feedlots.
RANDALL W. LARRIMORE was elected to the Boards 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.,
65
<PAGE>
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.
DANIEL H. BUSHELL was elected to the Board of Directors of the Company and
became Executive Vice President and Chief Financial Officer of the Company upon
consummation of the Merger. Mr. Bushell has served as Assistant Secretary of the
Company since January 1996, and served as Secretary of the Company from June
1995 through such date. Mr. Bushell also served as Assistant Secretary of the
Company from the consummation of the Merger until June 1995. Prior thereto, Mr.
Bushell had been Chief Administrative and Chief Financial Officer of Associated
and ASI since January 1992. From 1978 to January 1992, Mr. Bushell served in
various capacities with ACE Hardware Corporation, most recently as Vice
President of Finance.
MICHAEL D. ROWSEY was elected to the Boards of Directors of United and the
Company upon consummation of the Merger and became Executive Vice President of
the Company upon consummation of the Merger with primary responsibility for
field operations. Prior to the Merger, Mr. Rowsey had been a director of
Associated since 1992 and President and Chief Operating Officer of Associated
since January 1992. From 1979 to January 1992, Mr. Rowsey served in various
capacities with Boise Cascade Office Products, most recently as the North
Regional Manager.
STEVEN R. SCHWARZ was elected to the Board of Directors of the Company and
became Executive Vice President of the Company upon consummation of the Merger
with primary responsibility for marketing and merchandising. Prior thereto, he
was Senior Vice President, Marketing of United since June 1992 and had
previously been Senior Vice President, General Manager, Micro United since 1990
and Vice President, General Manager, Micro United since September 1989. He had
held a staff position in the same capacity since February 1987.
KATHLEEN S. DVORAK became Vice President, Investor Relations of the Company
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.
MARK J. HAMPTON has served as Vice President of Marketing of the Company
since September 1994. Mr. Hampton began his United career in 1980 and held
various positions in the sales and marketing area. In 1991, Mr. Hampton left
United to pursue an opportunity to work in the dealer community and was the
primary architect in developing a successful national buying and marketing
group. After rejoining the Company in September 1992, he was made a Regional
Vice President in charge of the Midwest Region and then Vice President and
General Manager of Micro United.
R. THOMAS HELTON became Vice President of Human Resources of the Company 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 resources function. Most recently, he was
Vice President of Human Resources for Whirlpool Asia. From 1980 to 1986, Mr.
Helton was with Kaiser Aluminum and Chemical working in personnel and labor
relations.
JAMES A. PRIBEL became Treasurer of the Company upon consummation of the
Merger and Secretary in 1998. Prior thereto he was Treasurer of United since
1992. Mr. Pribel previously had been
66
<PAGE>
Assistant Treasurer of the Company since 1984 and had served in various
positions since joining the Company in 1978.
ALBERT H. SHAW became Vice President, Operations of the Company shortly
after consummation of the Merger. Prior thereto, he was Vice President, Midwest
Region of the Company since March 1994. He had been a Vice President of the
Company since 1992 and prior to that had served in various management positions
since joining the Company in 1974.
ERGIN USKUP became Vice President, Management Information Systems and Chief
Information Officer of the Company 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.
GARY G. MILLER was elected to the Board of Directors of United upon
consummation of the Merger. Mr. Miller served as Vice President and Secretary of
the Company from consummation of the Merger until June 27, 1995, and Assistant
Secretary of the Company from June 27, 1995 to May 8, 1996. Prior thereto, Mr.
Miller had been a director of Associated since 1992 and Vice President and
Secretary of Associated since January 1992. Mr. Miller also currently serves as
President of Cumberland, a private investment firm which is located in Fort
Worth, Texas. In addition, from 1977 to December 1993, Mr. Miller served as
Executive Vice President, Chief Financial Officer and a director of AFG
Industries, Inc., and its parent company, Clarity Holdings Corp. He is Chairman
of the Board of both CFData Corp., a nationwide provider of check collection and
check verification services, and Fore Star Golf, Inc., which was formed in 1993
to own and operate golf course facilities.
DANIEL J. GOOD was elected to the Board of Directors 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 for Shearson Lehman Bros. and President of A.G. Becker Paribas, Inc. Mr.
Good serves as a director of Supercuts, Inc.
JAMES A. JOHNSON was elected to the Board of Directors 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 Century Products Company, a manufacturer and
distributor of baby seats and other juvenile products.
JOEL D. SPUNGIN has served as a member of the Board of Directors 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.
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 research, writing
and consulting.
67
<PAGE>
ROY W. HALEY was elected to the Board of Directors of United in March 1998.
Mr. Haley currently serves as President and Chief Executive Officer of WESCO
Distribution, 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 the National Association of Wholesalers and The
National Association of Electrical Distribution Education Foundation.
COMPOSITION OF THE BOARD OF DIRECTORS
United's Restated Certificate of Incorporation (as amended from time to
time, the "Charter") provides that the Board of Directors of United shall be
divided into three classes, each class as nearly equal in number as possible,
and each term consisting of three years. The directors currently in each class
are as follows: Class I (having terms expiring in 1999)--Messrs. Good, Johnson
and Spungin; Class II (having terms expiring in 2000)--Messrs. Hegi, Miller and
Rowsey; and Class III (having terms expiring in 1998)--Messrs. Larrimore,
Shapiro and Haley. Directors of the Company are elected by United, the sole
stockholder of the Company.
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
In connection with the Associated Transaction, Associated entered into a
registration rights agreement (the "Stockholders' Registration Rights
Agreement") with Wingate Partners, Cumberland, ASI Partners, L.P., Good Capital
and certain other holders of Associated common stock (including Mr. Rowsey),
pursuant to which it granted to such stockholders certain rights with respect to
registration under the Securities Act of shares of Associated common stock held
by them. The Company assumed the obligation of Associated under the
Stockholders' Registration Rights Agreement in connection with the Merger, and
such agreement has been amended accordingly. Under the amended agreement, a
holder of 20% of the shares of Common Stock subject to the Stockholders'
Registration Rights Agreement can, in certain circumstances, require the Company
to effect up to three short-form and two long-form registrations of all or part
of such holder's shares of Common Stock. The Company is not required to honor
any request to register shares of Common Stock if the request is less than 300
days following the effective date of any previous registration statement filed
in connection with any such request.
MANAGEMENT AGREEMENTS
Pursuant to certain Investment Banking Fee and Management Agreements
(collectively, the "Management Agreements") assumed in the Merger, the Company
paid to each of Wingate Partners, Cumberland and Good Capital aggregate fees of
$2.3 million, $100,000, and $100,000, respectively, upon the consummation of the
Merger. In addition, the Company has paid annual fees for monitoring and
oversight services provided by such parties pursuant to the Management
Agreements as follows: (i) Wingate Partners received annual fees in the amount
of $603,000, $725,000 and $513,540 pursuant to its agreement in each of the
fiscal years ended 1995, 1996 and 1997, respectively; (ii) Cumberland received
annual fees in the amount of $129,000, $137,500 and $97,400 pursuant to its
agreement in each of the fiscal years ended 1995, 1996 and 1997, respectively;
and (iii) Good Capital received annual fees in the amount of $129,000, $137,500
and $97,400 pursuant to its Agreement in each of the fiscal years ended 1995,
1996 and 1997, respectively. In addition, pursuant to the Management Agreements,
each of Wingate Partners, Cumberland and Good Capital was entitled to
reimbursement for its reasonable out-of-pocket expenses and the Company agreed
to indemnify each of them and their respective affiliates for any losses in
connection with the provision of their services under the Management Agreements.
68
<PAGE>
In October 1997, the Management Agreements were terminated in exchange for
one-time payments of approximately $2.4 million, $400,000 and $400,000 to
Wingate Partners, Cumberland and Good Capital, respectively. Pursuant to the
terms of the termination of such Management Agreements, certain indemnity
obligations of the Company survived and remain in effect.
REDEMPTION OF SERIES A PREFERRED STOCK
As a result of United's redemption of all of its outstanding Series A
Preferred Stock effected on September 2, 1997, Wingate and ASI Partners, L.P.
(of which Cumberland serves as the general partner) received approximately $5.4
million and $2.1 million, respectively, in aggregate proceeds. In addition, Mr.
Rowsey, Executive Vice President and a director of United and the Company, and
Mr. Johnson, a director of United, received $92,166 and $25,854, respectively,
in aggregate proceeds from such redemption.
OPTION AND RESTRICTED STOCK AWARDS
Effective May 23, 1997, United granted to Mr. Larrimore, the Company's
President and Chief Executive Officer, options to purchase an aggregate of
250,000 shares of Common Stock at an exercise price of $21.625 per share, the
fair market value of the Common Stock on the date of such grant. The options
vest in five equal annual installments, beginning on the first anniversary of
the date of grant, and terminate on May 23, 2007 or earlier in the event of the
termination of Mr. Larrimore's employment.
In connection with the Associated transaction in 1992 and the Merger in
1995, United has granted Merger Incentive Options to acquire approximately 2.6
million shares of Common Stock to certain members of management at exercise
prices currently ranging from $1.45 to $16.875 per share. Of such Merger
Incentive Options, United has granted to Messrs. Rowsey and Bushell Merger
Incentive Options exercisable for an aggregate of (i) 94,506 and 89,199 shares,
respectively, at an exercise price of $1.45 per share; (ii) 15,000 and 15,000
shares, respectively, at an exercise price of $5.12 per share; and (iii) 105,000
and 105,000 shares, respectively, at an exercise price of $16.875 per share.
United has also granted Merger Incentive Options to Messrs. Schwarz and Uskup
exercisable for an aggregate of (i) 15,000 and 7,500 shares, respectively, at an
exercise price of $5.12 per share and (ii) 105,000 and 52,500 shares,
respectively, at an exercise price of $16.875 per share.
On January 28, 1998, Messrs. Larrimore, Rowsey, Bushell, Schwarz and Uskup
were each granted options for 35,000, 15,000, 15,000, 15,000 and 6,000,
respectively, at an exercise price of $46.75, under the Management Equity Plan.
All such options vest in 20% increments on each anniversary of the grant, except
that vesting may be accelerated on the third or fourth anniversary of the grant
if the stock price has increased by at least a 15% compounded annual growth
rate.
On May 13, 1998, following the consummation of the Azerty Acquisition,
United granted to key management employees of the Azerty Business options for
4,500 shares of Common Stock at an exercise price of $61.125 per share, under
the management Equity Plan. All such options vest in 20% increments on each
anniversary of the grant, except that vesting may be accelerated on the third or
fourth anniversary of the grant if the stock price has increased by at least a
15% compounded annual growth rate.
On November 29, 1995, United granted a restricted stock award of 9,678
shares of Common Stock to Joel D. Spungin, a director of United, in
consideration for his service on the Board of Directors in lieu of directors'
compensation for a three-year period. Additionally, United granted to Jeffrey K.
Hewson, a former director of United, options exercisable for an aggregate of
14,648 shares of Common Stock at an exercise price of $5.12 per share in
consideration for his service on the Board of Directors in lieu of directors'
compensation. Mr. Hewson exercised this option in September 1997.
69
<PAGE>
Effective January 1, 1996, United granted to Mr. Sturgess, the Company's
former Chairman, President and Chief Executive Officer, in consideration for
services rendered in such capacity (i) options exercisable for an aggregate of
240,000 shares of Common Stock at an exercise price of $16.875 per share and
(ii) options exercisable for an aggregate of 120,000 shares of Common Stock at
an exercise price of $5.12 per share. In November 1996, in connection with the
resignation of Mr. Sturgess as Chairman, President and Chief Executive Officer
of the Company, United and Mr. Sturgess entered into a termination agreement
whereby Mr. Sturgess retained options exercisable for an aggregate of 240,000
shares of Common Stock, at an exercise price of $16.875 per share with the terms
of such options being amended such that options exercisable for 160,000 of such
shares are currently exercisable and options exercisable for the remaining
80,000 of such shares would become exercisable upon the occurrence of certain
events by March 31, 1997. The contingent events mentioned above did not occur
within the prescribed period and, therefore, such options to purchase 80,000
shares of Common Stock have terminated.
In December 1996, the 1997 Special Bonus Plan (the "Special Bonus Plan") was
adopted. The special bonuses are payable to the participants in two equal annual
installments, beginning on the first anniversary of the date of a liquidity
event. The aggregate amount that may be awarded to the 177 current participants
in the Special Bonus Plan is approximately $2.0 million. Messrs. Rowsey, Bushell
and Schwarz each are eligible to receive, in the aggregate, up to $130,000 and
Mr. Uskup is eligible to receive, in the aggregate, up to $65,000 under the
Special Bonus Plan.
In July 1997, in connection with the negotiation of the executive vice
president employment agreements discussed below, United and each of Messrs.
Rowsey, Bushell and Schwarz entered into amendments to their respective stock
option agreements under United's Management Equity Plan. The amendments revised
the terms of exercisability of such options following a termination of such
employee without Cause or such employee's termination for Good Reason (each as
defined in such employee's respective employment agreement).
Effective November 1997, United amended its Management Equity Plan to
increase the number of options available for issuance thereunder by
approximately 1.5 million shares.
EMPLOYMENT AGREEMENTS
Randall W. Larrimore entered into an employment agreement with the Company
as of May 23, 1997 to serve as President and Chief Executive Officer. Pursuant
to the agreement, Mr. Larrimore's employment began on May 23, 1997 and continues
until Mr. Larrimore or the Company notifies the other party of a termination of
such employment. If Mr. Larrimore notifies the Company, the term of employment
is deemed to end 90 days after such notification, and if the Company notifies
Mr. Larrimore, the term of employment is deemed to end two years after such
notification. The term of employment may also be terminated earlier by either
Mr. Larrimore or the Company as described below. The agreement provides for an
annual base salary of at least $495,000, plus participation in all bonus, stock
option and other benefit plans generally available to executive officers of the
Company. In addition, Mr. Larrimore is entitled to reimbursement of premiums
paid on long-term disability insurance up to a specified amount. Finally, the
agreement also provides for a supplemental pension benefit that will provide Mr.
Larrimore with an amount equivalent to five additional credited years of service
under the Company's pension plan.
If Mr. Larrimore's employment is terminated by the Company (other than for
Cause, as defined in the agreement) without the specified notice, or by Mr.
Larrimore for Good Reason (as defined in the agreement), he generally will be
entitled to his salary and bonuses earned to the date of termination plus an
amount equal to two times his base pay plus bonuses, and his stock options will
continue to be or become exercisable during the 24 months following such
termination. If his employment terminates due to his death or disability, he
generally will receive an amount equal to his annual salary plus bonus, his
70
<PAGE>
unexercisable options will be forfeited, and his exercisable options will remain
exercisable for up to one year following such termination. If there is a Change
in Control (as defined in the agreement), all stock options held by Mr.
Larrimore will become exercisable. If Mr. Larrimore's employment is terminated
other than for Cause, Mr. Larrimore, his spouse, and his eligible dependents may
be allowed to participate in the Company's health plan for a specified period,
subject to certain limitations on nonemployee participation and subject to Mr.
Larrimore (or his spouse or dependents) paying for such coverage.
Effective as of June 1, 1997, the Company entered into new employment
agreements with Messrs. Bushell, Rowsey and Schwarz. Pursuant to such
agreements, the term of employment began on June 1, 1997 and continues until the
executive or the Company notifies the other party. If the executive notifies the
Company, the term of employment ends 90 days after such notification, and if the
Company notifies the executive, the term of employment ends at the later of (i)
June 1, 2000 or (ii) two years after such notification. The term of employment
may also be terminated earlier by either the executive or the Company. The
agreements provide for an annual base salary of at least $265,000, plus
participation in all bonus, stock option and other benefit plans generally
available to executive officers of the Company.
If the executive's employment is terminated due to death or disability, he
generally is entitled to an amount equal to the sum of his annual base salary
and his previous year's annual incentive compensation award payable over a
12-month period. If the executive's employment is terminated by the Company
without Cause (as defined in the agreement) or by him for Good Reason (as
defined in the agreement), he generally is entitled to a severance amount
(subject to mitigation) equal to the sum of his base salary and bonuses for the
months remaining in the term of employment (or which would have been remaining
in the term of employment if the Company had given notice on the termination
date) payable over the severance period, and continued welfare benefit coverage
over such severance period. If the executive's employment is terminated for any
reason other than for Cause, the Company will allow the executive, his spouse,
and his eligible dependents to participate in the Company's health plan for a
specified period, subject to certain limitations on nonemployee participation
and subject to the executive (or his spouse or dependents) paying for such
coverage.
In addition, the Company has also entered into employment agreements with
certain of its other executive officers. Such agreements typically have a one or
two year term.
71
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of June 12, 1998 with respect
to the beneficial ownership of Common Stock by (i) each person who is known by
United to own beneficially more than five percent of United's Common Stock, (ii)
each of United's and the Company's directors and executive officers and (iii)
all current directors and executive officers as a group. Unless otherwise
indicated, each person has sole voting power and investment power with respect
to the shares attributed to him/her.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------------
<S> <C> <C>
NUMBER OF PERCENT OF
NAMES OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------------------------------------ ----------- -------------
Wingate Partners, L.P. ........................................... 3,210,380(2) 19.8%
750 N. St. Paul Street
Suite 1200
Dallas, TX 75201
Daniel H. Bushell................................................. 224,148(3) 1.4
Kathleen S. Dvorak................................................ 3,022 *
Daniel J. Good.................................................... 76,180(4) *
Roy W. Haley...................................................... -- --
Mark J. Hampton................................................... 15,166 *
Frederick B. Hegi, Jr............................................. 91,906(5) *
R. Thomas Helton.................................................. -- --
James A. Johnson.................................................. 24,279(6) *
Randall W. Larrimore.............................................. 50,000(7) *
Gary G. Miller(8)................................................. -- --
James A. Pribel................................................... 6,975 *
Michael D. Rowsey................................................. 150,032(9) *
Steven R. Schwarz................................................. 120,628 10) *
Benson P. Shapiro................................................. -- --
Albert H. Shaw.................................................... 20,429 *
Joel D. Spungin................................................... 18,520 *
Ergin Uskup....................................................... 60,126 11) *
All current directors and executive officers as a group
(17 persons).................................................... 861,411 12) 5.1
</TABLE>
- --------------
* Represents less than 1.0%.
(1) For purposes of calculating the beneficial ownership of each stockholder,
it was assumed (in accordance with the Securities and Exchange Commission's
definition of "beneficial ownership") that such stockholder had exercised
all options, conversion rights or warrants by which such stockholder had
the right within 60 days following June 12, 1998, to acquire shares of such
class of stock.
(2) Includes (i) 2,422,620 shares owned by Wingate Partners, (ii) 782,780
shares owned by Wingate II, (iii) 4,340 shares owned by Wingate Management
Corporation, and (iv) 640 shares owned by Wingate Management Limited,
L.L.C.
(3) Includes (i) 14,949 shares owned by Mr. Bushell and (ii) 209,199 shares
issuable upon exercise of employee stock options.
(4) Does not include 363,899 shares owned by Good Capital. Mr. Good is Chairman
and a controlling stockholder of Good Capital and, accordingly, may be
deemed to beneficially own the shares of record by Good Capital.
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<PAGE>
(5) Includes (i) 46,328 shares owned by Mr. Hegi, (ii) 134 shares held of
record by a family company of which he is managing partner, (iii) 23,853
shares held in trust for his benefit and for which he serves as trustee,
and (iv) 21,591 shares held in trusts for unrelated third parties of which
he is trustee. Does not include (i) 2,422,620 shares held by Wingate
Partners, (ii) 782,780 shares held by Wingate II, (iii) 4,340 shares held
by Wingate Management Corporation, and (iv) 640 shares held by Wingate
Management Limited, L.L.C. Mr. Hegi is an indirect general partner of each
of Wingate Partners and Wingate II, President of Wingate Management
Corporation, and a manager of Wingate Management Limited, L.L.C. and
accordingly, may be deemed to beneficially own the shares owned of record
by these entities. See Note (1) above and "Management."
(6) Includes 18,477 shares owned by Mr. Johnson and 5,802 shares held in a
self-directed individual retirement account for the benefit of Mr. Johnson.
Does not include (i) 782,780 shares held by Wingate II, and (ii) 640 shares
held by Wingate Management Limited, L.L.C. Mr. Johnson is an indirect
general partner of Wingate II and a manager of Wingate Management Limited,
L.L.C. and accordingly, may be deemed to beneficially own the shares owned
of record by these entities. See Note (1) above and "Management."
(7) Includes 50,000 shares issuable upon exercise of employee stock options.
(8) Does not include (i) 338,084 shares owned by Cumberland and (ii) Warrants
exercisable for 1,548 shares held by ASI Partners III, L.P. (of which
Cumberland serves as general partner). Mr. Miller is President and
stockholder of Cumberland and, accordingly, may be deemed to beneficially
own the shares and Warrants owned of record by Cumberland and ASI Partners
III, L.P.
(9) Includes (i) 9,318 shares owned by Mr. Rowsey and (ii) 140,714 shares
issuable upon exercise of employee stock options.
(10) Includes (i) 628 shares owned by Mr. Schwarz and (ii) 120,000 shares
issuable upon exercise of employee stock options.
(11) Includes (i) 126 shares owned by Mr. Uskup and (ii) 60,000 shares issuable
upon exercise of employee stock options.
(12) Includes all securities beneficially owned by the current directors and
executive officers of United and the Company, including an aggregate of
(i) 281,498 shares of Common Stock and (ii) 579,913 shares issuable upon
exercise of employee stock options.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITIES
On April 3, 1998, the Company entered into the New Credit Agreement with
United as guarantor, Chase, as agent, and a group of banks and financial
institutions (including Chase, the "Senior Lenders"). The following is a summary
of the principal terms of the New Credit Agreement which summary does not
purport to be complete and is subject, and is qualified in its entirety by
reference to, all the provisions of the New Credit Agreement, as it may be
further amended from time to time, a copy of which is available upon request to
the Company. See "Available Information."
The New Credit Agreement provided for the funding of the Azerty Acquisition,
the refinancing of certain existing indebtedness and for other general corporate
purposes of the Company and its subsidiaries. The New Credit Facilities under
the New Credit Agreement consist of $150.0 million of borrowings pursuant to the
Tranche A Term Loan Facility and commitments of up to $250.0 million of
revolving loan borrowings pursuant to the Revolving Credit Facility (including a
sublimit of $90.0 million under the Revolving Credit Facility for letters of
credit) of which approximately $16.0 million (excluding approximately $36.4
million of outstanding letters of credit under the Revolving Credit Facility)
was outstanding as of the date of the consummation of the Original Offering. A
portion of the Revolving Credit Facility is allocated for swingline loans. The
New Credit Facilities also included borrowings of $100.0 million under the
Tranche B Term Loan Facility. A substantial portion of the Tranche B Term Loan
Facility was repaid with the net proceeds from the Original Offering. The
remainder of the Tranche B Term Loan Facility was repaid with proceeds from the
sale of certain receivables. See "Use of Proceeds."
The loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility generally bear interest as determined within a set range with the rate
based on the ratio of total debt (which excludes the face amount of any undrawn
letters of credit) of United and its subsidiaries to EBITDA (as defined in the
New Credit Agreement). The Tranche A Term Loan Facility and the Revolving Credit
Facility bear interest, at the option of the Company and based upon financial
performance, at the base rate (i.e., the higher of the prime rate or federal
funds plus 0.50%) plus 0% to 0.75% or LIBOR plus 1.00% to 2.00%. The Tranche B
Term Loan Facility bore interest, at the option of the Company, at the base rate
plus 0.75% or LIBOR plus 2.00%.
As of the date of this Prospectus, the outstanding principal balance of the
Tranche A Term Loan Facility consists of $150.0 million and matures on or about
March 31, 2004, and no amount of the Tranche B Term Loan Facility is
outstanding, which had been scheduled to mature on or about December 31, 2004.
The term loans under the Tranche A Term Loan Facility are repayable in
consecutive quarterly installments commencing on or about June 30, 1998, the
first four of which are each in the amount of $2.5 million, the next four of
which are each in the amount of $3.75 million, the next four of which are each
in the amount of $6.25 million, the next four of which are each in the amount of
$7.5 million and the last eight of which are each in the amount of $8.75
million. The term loans under the Tranche B Term Loan Facility were scheduled to
be repaid in consecutive quarterly installments commencing on or about June 30,
1998, the first twenty of which were to be each in the amount of $0.25 million
and the last seven of which were to be each in the amount of approximately $13.6
million. The Company used the net proceeds of the Original Offering to repay a
substantial portion of the indebtedness outstanding under the Tranche B Term
Loan Facility. The remainder of the Tranche B Term Loan Facility was repaid with
proceeds from the sale of certain receivables.
Loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility may be prepaid at any time, and are subject to certain mandatory
prepayments out of (i) net proceeds received from the issuance of equity by
United or any of its subsidiaries subject to certain exceptions provided in the
New Credit Agreement, (ii) net proceeds from certain asset sales in excess of
$15.0 million, (iii) 50% of the Company's Excess Cash Flow (as defined in the
New Credit Agreement) for any fiscal year (commencing with the fiscal year
ending December 31, 1998), but only if the Debt to Cash Flow Ratio (as defined
in
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the New Credit Agreement) as of the last day of the fiscal year is greater than
3.75 to 1, (iv) net proceeds received from casualty events subject to certain
exceptions provided within the New Credit Agreement and (v) net proceeds
received from certain debt issuances (including the issuance of the Notes).
Optional prepayment under the Tranche A Term Loan Facility will be applied PRO
RATA to loans outstanding under the Tranche A Term Loan Facility (in each case,
PRO RATA to the remaining installments). Mandatory prepayments will be applied,
first, PRO RATA to loans outstanding under the Tranche A Term Loan Facility (in
each case, PRO RATA to the remaining installments) and, next, to the permanent
reduction of commitments (and the payment of loans outstanding) under the
Revolving Credit Facility, except that mandatory prepayments in connection with
the issuance of the Notes will be applied, first to the Tranche A Term Loan
Facility and, then, to the permanent reduction of commitments and/or prepayments
under the Revolving Credit Facility.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
guaranteed, on a joint and several basis, by United and all of the direct and
indirect domestic subsidiaries of the Company.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
secured by perfected first priority pledges of the stock of the Company, all of
the stock of the domestic direct and indirect subsidiaries of the Company and
certain of the stock of all of the foreign direct and indirect subsidiaries
(other than the Receivables Company) of the Company and security interests in,
and liens upon, certain accounts receivable, inventory, contract rights and
other personal and certain real property of the Company and its domestic
subsidiaries. The New Credit Agreement provides for the complete release, upon
request by the Company, of the liens upon achievement of an investment grade
rating from S&P or Moody's for the unsecured long-term debt of United or the
Company for any quarter, and a partial release in the event the Leverage Ratio
(as defined in the New Credit Agreement) is less than or equal to 3 to 1. The
Majority Lenders (as defined in the New Credit Agreement) may request that the
security interests be regranted if the Leverage Ratio for any subsequent quarter
exceeds 3 to 1. In addition, the New Credit Agreement permits the release of the
Senior Lenders' lien in connection with the sale of specified receivables under
the Receivables Securitization Program. See "Recent Transactions-- Receivables
Securitization Program."
The New Credit Agreement contains certain restrictive covenants that, among
other things, limit the ability of United, the Company and its subsidiaries to
dispose of assets, incur indebtedness or liens, pay dividends or make other
payments in respect of capital stock or subordinated indebtedness, make
investments or other acquisitions, engage in mergers or consolidations, engage
in transactions with affiliates, and engage in any business other than specified
businesses. In addition, the New Credit Agreement requires the Company to comply
with certain financial ratios and tests, including ratios of total debt to
EBITDA, cash flow to fixed charges, and EBITDA to interest expense, and a
minimum net worth test.
Defaults under the New Credit Agreement include, among other things, (i)
failure to pay principal when due; (ii) failure to pay interest within three
business days after the due date; (iii) default in the performance of certain
covenants and other obligations which, in some cases, continues for ten days;
(iv) default by United, the Company or any of its subsidiaries in respect of any
of its indebtedness above specified levels; (v) certain bankruptcy events; (vi)
certain judgments against United, the Company or any of its subsidiaries; (vii)
the occurrence of a change of control (as defined in the New Credit Agreement);
and (viii) the existence of certain environmental claims or liabilities.
12 3/4% NOTES
The 12 3/4% Notes were issued on May 3, 1995 pursuant to the 12 3/4% Notes
Indenture. As of the date hereof, the aggregate outstanding principal amount of
12 3/4% Notes was $100.0 million. The Notes are unsecured senior subordinated
obligations of the Company, and payment of the 12 3/4% Notes is fully and
unconditionally guaranteed by United and the Company's domestic "restricted"
subsidiaries on a
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senior subordinated basis. The 12 3/4% Notes mature on May 1, 2005, and bear
interest at the rate of 12 3/4% per annum, payable semiannually on May 1 and
November 1 of each year.
In addition, the 12 3/4% Notes are redeemable at the option of the Company
at any time on or after May 1, 2000, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount):
<TABLE>
<CAPTION>
REDEMPTION
YEAR BEGINNING MAY 1 PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2000............................................................................ 106.375%
2001............................................................................ 104.781%
2002............................................................................ 103.188%
2003............................................................................ 101.594%
</TABLE>
and thereafter at 100.0% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control (which term includes the
acquisition by any person or group of more than 50% of the voting power of the
outstanding common stock of either United or the Company or certain significant
changes in the composition of the Board of Directors of either United or the
Company), the Company shall be obligated to offer to redeem all or a portion of
each holder's 12 3/4% Notes at 101% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of such redemption. Such
obligation, if it arose, could have a material adverse effect on the Company.
The 12 3/4% Notes Indenture governing the 12 3/4% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the making
of restricted payments, transactions with affiliates, the existence of liens,
disposition of proceeds of asset sales, the making of guarantees by restricted
subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of
certain payment restrictions on restricted subsidiaries and certain mergers and
sales of assets.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on April 15, 1998, in the Original
Offering. In connection with that placement, the Company entered into the
Registration Rights Agreement, which requires that the Company file the
Registration Statement under the Securities Act with respect to the New Notes
and, upon the effectiveness of that Registration Statement, offer to the holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and which generally may be reoffered and resold by the holder without
registration under the Securities Act. The Registration Rights Agreement further
provides that the Company must use its reasonable best efforts to (i) cause the
Registration Statement with respect to the Exchange Offer to be declared
effective on or before September 12, 1998 and (ii) consummate the Exchange Offer
on or before November 1, 1998. Except as provided below, upon the completion of
the Exchange Offer, the Company's obligations with respect to the registration
of the Old Notes and the New Notes will terminate. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement, of
which this Prospectus is a part, and the summary herein of the material
provisions thereof does not purport to be complete and is qualified in its
entirety by reference thereto. As a result of the timely filing and the
effectiveness of the Registration Statement, certain liquidated damages provided
for in the Registration Rights Agreement will not become payable by the Company.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Old Notes not tendered will not have
any further registration rights and those Old Notes will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for the Old Notes could be adversely affected upon completion of the Exchange
Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Company and the Guarantors, among other things, that (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving the New Notes, (ii) neither the
holder nor any such other person is engaging in or intends to engage in a
distribution of the New Notes, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of the New Notes, and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 promulgated under the
Securities Act, of the Company and the Guarantors. Pursuant to the Registration
Rights Agreement, the Company is required to file a "shelf" registration
statement for a continuous offering pursuant to Rule 415 under the Securities
Act in respect of the Old Notes if (i) because of any change in law or
applicable interpretations thereof by the staff of the Commission, the Company
determines that it is not permitted to effect the Exchange Offer as contemplated
hereby, (ii) any Old Notes validly tendered pursuant to the Exchange Offer are
not exchanged for New Notes within 200 days after the Issue Date, (iii) any
Initial Purchaser so requests with respect to Old Notes not eligible to be
exchanged for New Notes in the Exchange Offer and held by it following the
consummation of the Exchange Offer, (iv) any applicable law or interpretations
do not permit any Holder to participate in the Exchange Offer, or (v) any holder
that participates in the Exchange Offer does not receive freely transferable New
Notes in exchange for tendered Old Notes (the obligation to comply with a
prospectus delivery requirement being understood not to constitute a restriction
on transferability). In the event that the Company is obligated to file a
"shelf" registration statement, it will be required to keep such "shelf"
registration statement effective for at least two years. Other than as set forth
in this paragraph, no holder will have the right to participate in the "shelf"
registration statement nor otherwise to require that the Company register such
holder's shares of Old Notes under the Securities Act. See "--Procedures for
Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company and the Guarantors, the
Company believes that, with the exceptions set forth below, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any person receiving such New Notes,
whether or
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not such person is the registered holder (other than any such holder or such
other person which is an "affiliate" of the Company or the Guarantors within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the New Notes are acquired in the ordinary course of business of the holder
or such other person and neither the holder nor such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes. Any holder who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "--Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the Exchange Offer if the holder does not participate in the
Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture pursuant to which the Old
Notes were issued.
As of June 12, 1998, Old Notes representing $100.0 million aggregate
principal amount were outstanding and there was one registered holder, a nominee
of DTC. This Prospectus, together with the Letter of Transmittal, is being sent
to such registered holder and to others believed to have beneficial interests in
the Old Notes. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and
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expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. In order to extend the Exchange
Offer, the Company will notify the Exchange Agent and each registered holder of
any extension by oral or written notice prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. The
Company reserves the right, in its sole discretion, (i) to delay accepting any
Old Notes, to extend the Exchange Offer or, if any of the conditions set forth
under "--Conditions to Exchange Offer" shall not have been satisfied, to
terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "--Book Entry Transfer," to tender in the Exchange
Offer a holder must complete, sign, and date the Letter of Transmittal, or a
copy thereof, have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver the Letter of Transmittal or copy
to the Exchange Agent prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal prior to the Expiration Date, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth under "--Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date will
constitute an agreement between that holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the registered
holder to tender on the beneficial owner's behalf. If the beneficial owner
wishes to tender on the owner's own behalf, the owner must, prior to completing
and executing the Letter of Transmittal and delivering the owner's Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
the beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
Old Notes tendered pursuant thereto are tendered (i) by a registered holder who
has not completed the box entitled "Special Registration Instruction" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, the Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered holder
as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities, or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "--Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company and the Guarantors
that, among other things, (i) the New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the registered holder,
(ii) neither the holder nor any such other person is engaging in or intends to
engage in a distribution of such New Notes, (iii) neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, and (iv) neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company and the Guarantors.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old
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Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal (or, with respect to the DTC and its
participants, electronic instructions in which the tendering holder acknowledges
its receipt of and agreement to be bound by the Letter of Transmittal), and all
other required documents. If any tendered Old Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering Holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such nonexchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "--Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a
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Book-Entry Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 pm., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or (for
DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth on the back cover page
of this Prospectus prior to 5:00 pm., New York City time, on the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee register the
transfer of such Old Notes into the name of the person withdrawing the tender,
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form,
and eligibility (including time of receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender, or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures under "--Procedures for Tendering" at any time on or prior to
the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "TIA"). In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
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EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Questions, requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
101 Barclay Street 101 Barclay Street
Floor 7-E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attn: Reorganization Section New York, New York 10286
Attn: Reorganization Section
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS):
(212) 815-6339
FOR INFORMATION OR
CONFIRMATION BY TELEPHONE:
(212) 815-6333
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$ , which includes fees and expenses of the Exchange Agent, accounting,
legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under the Indenture dated as of April 15, 1998
(as amended, the "Indenture") among the Company, United, Lagasse, Azerty,
Positive ID and AP Support Services and other guarantors which may be added in
the future, as Guarantors, and The Bank of New York, as trustee (the "Trustee"),
a copy of the form of which is available upon request to the Company. See
"Available Information." The Old Notes were also issued under the Indenture.
Upon the effectiveness of the Exchange Offer, the Indenture will be subject to
and governed by the TIA. The Indenture will not be qualified under the TIA,
except upon effectiveness of a registration statement for the Exchange Offer.
The following summary of the provisions of the Indenture and and the New Notes
and those terms made a part of the Indenture by the TIA sets forth all material
elements of such documents, but does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Indenture (including the definitions of certain terms therein) and the New
Notes. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions." References in this "Description of the New
Notes" to the Company or United are to United Stationers Supply Co. or United
Stationers Inc., respectively, excluding any subsidiaries thereof, and their
successors.
GENERAL
The Notes will be unsecured senior subordinated obligations of the Company,
will be issued in an aggregate principal amount of $100.0 million and will
mature on April 15, 2008. Interest on the Notes will accrue at a rate per annum
shown on the front cover of this Prospectus from April 15, 1998, or from the
most recent date to which interest has been paid or provided for, payable
semi-annually to holders of record at the close of business on April 1 or
October 1, (whether or not such day is a business day) immediately preceding the
interest payment date on April 15 and October 15 of each year commencing October
15, 1998. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Indenture provides for the issuance thereunder of up
to $100.0 million aggregate principal amount of additional Notes having
substantially identical terms and conditions to the Notes offered hereby (the
"Additional Notes"), subject to compliance with the covenants contained in the
Indenture (including compliance with restrictions regarding a new incurrence of
Indebtedness by the Company under the "Limitation on Indebtedness" covenant).
Any Additional Notes will be part of the same issue as the Notes offered hereby
(and accordingly will participate in purchase offers and partial redemptions)
and will vote on all matters with the Notes offered hereby. For purposes of this
"Description of the New Notes," all references herein to "Notes" shall be deemed
to refer collectively to Old Notes, New Notes and Additional Notes, unless the
context otherwise requires.
Payment of the Notes will be guaranteed initially by United, Lagasse,
Azerty, Positive ID and AP Support Services, on an unsecured senior subordinated
basis and will be guaranteed on an unsecured senior subordinated basis by any
domestic Restricted Subsidiary of the Company created or acquired after the
Issue Date which incurs any Indebtedness, other than any Securitization
Subsidiary that has entered into or established a Permitted Receivables
Securitization Program. See "--Guarantees."
Principal of, premium, if any, interest and Additional Amounts, if any, on
the Notes will be payable, and the Notes will be exchangeable and transferable,
at the office or agency of the Company in the City of New York maintained for
such purposes (which initially will be the office of the Trustee, The Bank of
New York, maintained at 101 Barclay Street, 21st Floor, New York, New York 10286
Attention: Corporate Trust Administration); provided, however, that payment of
principal or interest may be made at the option of the Company by check mailed
to the registered holders entitled thereto as shown on the Note register.
The Notes will be represented by one or more Notes in global form and in
certain circumstances may be represented by Notes in certificated form. See
"Book-Entry; Delivery and Form."
The Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and any integral multiple thereof. Initially, the
Trustee will act as Paying Agent and Registrar for the Notes.
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The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without prior
notice to holders of the Notes. No service charge will be made for any
registration of transfer, exchange or redemption of Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
After giving pro forma effect to the Azerty Acquisition, the Senior Credit
Facilities Refinancing and the Original Offering (including the application of
net proceeds therefrom) as if such transactions had occurred on March 31, 1998,
there would have been approximately $162.7 million of Senior Indebtedness
(excluding unused commitments) of the Company (all of which would have been
Designated Senior Indebtedness) and approximately $162.7 million of Senior
Guarantor Indebtedness of the Guarantors (all of which would have been
Designated Senior Guarantor Indebtedness) outstanding on such date,
substantially all of which represents Indebtedness or guarantees of Indebtedness
under the New Credit Facilities which will be secured by substantially all of
the assets of the Company and the Guarantors, respectively; in addition, after
taking into account approximately $36.5 million of outstanding letters of
credit, there would have been approximately $63.5 million available to be drawn
by the Company as secured Senior Indebtedness under the Revolving Credit
Facility (all of which would have been Designated Senior Indebtedness), which
amount would have been secured Senior Guarantor Indebtedness of the Guarantors
(all of which would have been Designated Senior Guarantor Indebtedness); and, on
a pro forma basis on such date, Indebtedness pari passu to the Notes would have
been $100.0 million of 12 3/4% Notes, and the Company would have had $78.4
million in Subordinated Indebtedness, consisting of intercompany indebtedness
payable to United. See "Risk Factors--Subordination" and "--Limited Practical
Value of Guarantee by United," "Capitalization" and "Unaudited Consolidated Pro
Forma Combined Financial Statements."
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after April 15,
2003, at the option of the Company, in whole or in part, on not less than 30 nor
more than 60 days' prior notice in amounts of $1,000 or an integral multiple
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning April 15, of
the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2003............................................................................ 104.188%
2004............................................................................ 102.792%
2005............................................................................ 101.396%
</TABLE>
and thereafter at 100.000% of the principal amount, in each case together with
accrued and unpaid interest and Additional Amounts, if any, to the redemption
date (subject to the right of holders of record on relevant record dates to
receive interest due on relevant interest payment dates).
In addition, at any time and from time to time prior to April 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) within 180 days
following one or more Public Equity Offerings 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, if
any, to the date of redemption (subject to the right of holders of record on
relevant record dates to receive interest due on relevant interest payment
dates); provided that immediately after giving effect to each such redemption,
at least 65% of the aggregate principal amount of the Notes (as so calculated)
remain outstanding after giving effect to each such redemption.
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SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, in the absence of such requirements or if the Notes are not
so listed, the Trustee shall select the Notes or portions thereof to be redeemed
pro rata, by lot or by any other method the Trustee shall deem fair and
reasonable, provided that no such Notes of $1,000 or less in principal amount
shall be redeemed in part. Notice of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
holder of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption. The Company has no current intention to list the Notes on
any national or regional securities exchange.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption obligation prior to maturity.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the Notes
and any Additional Amounts on the Notes pursuant to the Exchange and
Registration Rights Agreement will be subordinated, as set forth in the
Indenture, in right of payment to the prior payment in full of all Senior
Indebtedness (which, by definition, includes existing and future Senior
Indebtedness) in cash or in any other form acceptable to the holders of such
Senior Indebtedness (or such payment shall be duly provided for to the
satisfaction of the holders of the Senior Indebtedness). However, payment from
the money or the proceeds of U.S. Government Obligations (as defined in the
Indenture) held in any defeasance trust described under "--Defeasance or
Covenant Defeasance of Indenture" below is not subordinate to any Senior
Indebtedness or subject to the restrictions described herein. As of March 31,
1998 on a pro forma basis, the Company would have had $162.7 million of Senior
Indebtedness outstanding (excluding unused commitments). Although the Indenture
contains limitations on the amount of additional Indebtedness that the Company
and its Subsidiaries may incur, under certain circumstances, the amount of such
additional Indebtedness could be substantial and, in any case, all or a portion
of such Indebtedness may be Senior Indebtedness and may be secured. See
"--Certain Covenants." The Notes will be senior subordinated Indebtedness of the
Company ranking PARI PASSU in right of payment with all other existing and
future senior subordinated indebtedness of the Company, including the 12 3/4%
Notes, and senior in right of payment to all existing and future Subordinated
Indebtedness of the Company. Each of the Company and the Guarantors have agreed
in the Indenture that it will not, directly or indirectly, incur, or otherwise
permit to exist any Indebtedness that is subordinate in right of payment to any
of its Indebtedness unless such Indebtedness is either PARI PASSU with the Notes
and the Guarantees on the Notes or subordinate in right of payment to the Notes
and the Guarantees on the Notes, as the case may be. Unsecured Indebtedness is
not deemed to be subordinate or junior to secured Indebtedness merely because it
is unsecured, nor is any Indebtedness deemed to be subordinate or junior to
other Indebtedness merely because it matures after such other Indebtedness.
Secured Indebtedness is not deemed to be Senior Indebtedness merely because it
is secured.
During the continuance of any default in the payment of any Senior
Indebtedness beyond any applicable grace period, no payment (other than payments
previously made pursuant to the provisions described under "--Defeasance or
Covenant Defeasance of Indenture") or distribution of any assets of
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the Company of any kind or character shall be made by the Company on account of
principal of premium, if any, interest or Additional Amounts, if any, on, the
Notes or on account of the purchase, redemption, defeasance or other acquisition
of the Notes (other than such payments or distributions as may be agreed to by
the lenders under the Designated Senior Indebtedness in accordance with the
terms of the Designated Senior Indebtedness) unless and until such default shall
have been cured or waived or shall have ceased to exist or the Senior
Indebtedness with respect to which such payment default shall have occurred
shall have been discharged or paid in full in cash or in any other form
acceptable to the holders of such Senior Indebtedness (or such payment shall be
duly provided for to the satisfaction of the holders of such Senior
Indebtedness), after which the Company shall resume making any and all required
payments in respect of the Notes, including any missed payments.
During the continuance of any non-payment event of default with respect to
any Designated Senior Indebtedness (as such event of default is defined in the
instrument creating or evidencing such Designated Senior Indebtedness) pursuant
to which the maturity thereof may be accelerated (a "Non-payment Default") and
after receipt by the Trustee and the Company from a representative of the
holders of such Designated Senior Indebtedness of written notice of such event
of default, no payment (other than payments previously made pursuant to the
provisions described under "--Defeasance or Covenant Defeasance of Indenture")
or distribution of any assets of the Company of any kind or character (other
than such payments or distributions as may be agreed to by the holders of such
Designated Senior Indebtedness in accordance with the terms of the agreement
governing such Designated Senior Indebtedness and, only to the extent acceptable
to holders of the Notes, payment (i) in Qualified Capital Stock issued by the
Company to pay interest on the Notes or issued in exchange for the Notes, (ii)
in securities substantially identical to the Notes issued by the Company in
payment of interest accrued thereon or (iii) in securities issued by the Company
which are subordinated to the Senior Indebtedness at least to the same extent as
the Notes and do not provide for the payment of principal or mandatory
redemption or repurchase prior to the final maturity of such Designated Senior
Indebtedness) shall be made by the Company on account of any principal of,
premium, if any, interest or Additional Amounts, if any, on the Notes or on
account of the purchase, redemption, defeasance or other acquisition of the
Notes for the period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Trustee from a Representative of the holders of any
Designated Senior Indebtedness and shall end on the earliest of (i) the first
date on which 179 days shall have elapsed since the receipt of such written
notice, (ii) the date on which such Non-payment Default is cured, waived or
ceases to exist or on which such Designated Senior Indebtedness is discharged or
paid in full in cash or in any other manner acceptable to the holders of
Designated Senior Indebtedness (as determined in accordance with the terms of
the agreement governing such Designated Senior Indebtedness) (or the date on
which payment shall be duly provided for to the satisfaction of the holders of
such Designated Senior Indebtedness) or (iii) the date on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from the Representative of, or the holders of at least a majority in
principal amount of, the Designated Senior Indebtedness initiating such Payment
Blockage Period, after which, in the case of clause (i), (ii) and (iii), the
Company shall resume making any and all required payments in respect of the
Notes, including any missed payments. In no event will a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the Company or the
Trustee of the notice initiating such Payment Blockage Period (such 179-day
period referred to as the "Initial Period"). Any number of notices of
Non-payment Defaults may be given during the Initial Period; provided that
during any 365 consecutive day period, only one such period during which payment
of principal of, or interest or Additional Amounts, if any, on, the Notes may
not be made may be commenced, and the duration of such period may not exceed 179
days. No Non-payment Default with respect to Designated Senior Indebtedness
which existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment
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Blockage Period, whether or not within a period of 365 consecutive days, unless
such event of default has been cured or waived for a period of not less than 90
consecutive days.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the subordination
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
The Indenture provides that, in the event of any insolvency, bankruptcy or
reorganization case or proceeding, or any receivership, liquidation, or other
similar case or proceeding, relative to the Company, or to its assets, or any
liquidation, dissolution or other winding up of the Company, whether voluntary
or involuntary, or any assignment for the benefit of creditors or any other
marshalling of assets or liabilities of the Company, all Senior Indebtedness
must be paid in full in cash or in any other form acceptable to the holders of
Senior Indebtedness (or such payment must be duly provided for to the
satisfaction of the holders of Senior Indebtedness), before any payment or
distribution is made on account of the principal of, premium, if any, interest
or Additional Amounts, if any, on the Notes. If a distribution is made to the
Trustee or to holders of the Notes that, due to the subordination provisions of
the Notes, should not have been made to them, the Trustee or such holders are
required to hold the distribution in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full in
cash or in any other form acceptable to the holders of Senior Indebtedness, and
the Company may be unable to meet its obligations fully with respect to the
Notes. In addition, any other senior subordinated indebtedness (including any
12 3/4% Notes) that was outstanding at the time of any such liquidation or
insolvency of the Company would be PARI PASSU in right of payment with the
Notes. Therefore, any assets of the Company that remained available after
payment in full of (or satisfactory provision of payment for) the Senior
Indebtedness would be required to satisfy obligations under the Notes and any
other existing senior subordinated indebtedness (including any outstanding
12 3/4% Notes) on a PARI PASSU basis, which could reduce assets available to pay
the Company's obligations under the Notes in full.
In addition, the Indenture does not prohibit the transfer or contribution of
assets of the Company to its Restricted Subsidiaries. In the event of any such
transfer or contribution, holders of the Notes will be effectively subordinated
to the claims of creditors of such Restricted Subsidiaries with respect to such
assets.
"Senior Indebtedness" means the principal of, premium, if any, interest
(including interest accruing after the filing of a petition initiating any
proceeding under any state, federal or foreign bankruptcy law whether or not
allowable as a claim in such proceeding) and all obligations of every nature of
the Company from time to time owed under any Indebtedness of the Company (except
as otherwise provided in this definition), whether outstanding on the Issue Date
or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
the principal of (and premium, if any) and interest (including interest accruing
after the filing of a petition initiating any proceeding under any state,
federal or foreign bankruptcy laws whether or not allowable as a claim in such
proceeding) and all other obligations of every nature of the Company from time
to time owed under the Credit Facilities (including, without limitation, agency
fees, commitment fees and letter of credit fees); provided, however, that any
Indebtedness under any refinancing, refunding or replacement of the Credit
Facilities shall not constitute Senior
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Indebtedness to the extent that the Indebtedness thereunder is by its express
terms subordinate to any other Indebtedness of the Company. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include any of the following (whether
or not constituting Indebtedness under the Indenture): (i) Indebtedness
evidenced by the Notes or the 12 3/4% Notes, (ii) Indebtedness that, by its
express terms, is subordinate or junior in right of payment to any Indebtedness
of the Company, (iii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Bankruptcy Code of
1978, as amended, is without recourse to the Company, (iv) Indebtedness which is
represented by Redeemable Capital Stock, (v) any liability for foreign, federal,
state, local or other taxes owed or owing by the Company, (vi) Indebtedness of
the Company to a Subsidiary, and (vii) any trade payables.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under the
Credit Facilities; and (ii) any other Senior Indebtedness which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend, at
least $75.0 million, and which is specifically designated by the Company in the
agreement governing or the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness."
GUARANTEES
Payment of the Notes will be fully and unconditionally guaranteed initially
by United, Lagasse, Azerty, Positive ID and AP Support Services, on an unsecured
senior subordinated basis and will be guaranteed on an unsecured senior
subordinated basis by any domestic Restricted Subsidiary of the Company created
or acquired after the Issue Date which incurs any Indebtedness, other than any
Securitization Subsidiary that has entered into or established a Permitted
Receivables Securitization Program. See the "Limitation of Issuances of
Guarantees of Indebtedness" covenant below. On or after the Issue Date, the
Company will cause each Subsidiary which is required to deliver a Guarantee of
the Notes to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiary will guarantee payment of the Notes.
United is a holding company with no significant assets, liabilities or
operations other than the capital stock of the Company. See "Risk
Factors--Limited Practical Value of Guarantee by United."
Each Guarantee of the Notes will be an unsecured senior subordinated
obligation of the Guarantor, ranking pari passu with, or senior in right of
payment to, all other existing and future indebtedness of such Guarantor that is
expressly subordinated to Senior Guarantor Indebtedness of such Guarantor. The
Indebtedness of any Guarantor evidenced by its Guarantee will be subordinated to
Senior Guarantor Indebtedness of such Guarantor to the same extent as the Notes
are subordinated to Senior Indebtedness, and during any period when payment on
the Notes is prohibited pursuant to the subordination provisions of the
Indenture, payment on any Guarantee will be similarly prohibited.
"Senior Guarantor Indebtedness" means, with respect to any Guarantor, the
principal of, premium, if any, and interest (including interest accruing after
the filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy laws whether or not allowable as a claim in such proceeding)
and all obligations of every nature of such Guarantor from time to time owed
under any Indebtedness of such Guarantor (except as otherwise provided in this
definition), whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to such Guarantor's Guarantee of the Notes. Without limiting
the generality of the foregoing, "Senior Guarantor Indebtedness" shall include
the principal of (and premium, if any) and interest (including interest accruing
after the filing of a petition initiating any proceeding under any state,
federal or foreign bankruptcy laws whether or not allowable as a claim in such
proceeding) and all other obligations of every nature of any Guarantor from time
to time owed under the Credit Facilities; provided, however, that any
Indebtedness under any refinancing, refunding or replacement of the Credit
Facilities shall not constitute Senior Guarantor
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Indebtedness to the extent that the Indebtedness thereunder is by its express
terms subordinate to any other Indebtedness of any Guarantor. Each Guarantor
will grant a security interest in all or substantially all of its assets to
secure its obligations under the Credit Facilities. Notwithstanding the
foregoing, "Senior Guarantor Indebtedness" shall not include any of the
following (whether or not constituting Indebtedness under the Indenture): (i)
Indebtedness evidenced by the Guarantees of the Notes or guarantees of the
12 3/4% Notes, (ii) Indebtedness that, by its express terms, is subordinate or
junior in right of payment to any Indebtedness of any Guarantor, (iii)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Bankruptcy Code of 1978, as amended,
is without recourse to any Guarantor, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) any liability for foreign, federal, state, local
or other taxes owed or owing by any Guarantor, (vi) Indebtedness of any
Guarantor to a Subsidiary and (vii) any trade payables.
"Designated Senior Guarantor Indebtedness" means (i) all Senior Guarantor
Indebtedness under the Credit Facilities; and (ii) any other Senior Guarantor
Indebtedness outstanding in a principal amount of at least $75.0 million, and
which is specifically designated by the Guarantor in the agreement governing or
the instrument evidencing such Senior Guarantor Indebtedness as "Designated
Senior Guarantor Indebtedness."
Each Guarantor shall not, and (except in the case of United) the Company
will not permit any Guarantor to, in a single transaction or through a series of
related transactions, merge or consolidate with or into any other corporation
(other than the Company or any Restricted Wholly Owned Subsidiary) or other
entity, sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of such Guarantor's properties and assets on a Consolidated
basis to any entity (other than the Company or any Restricted Wholly Owned
Subsidiary) unless at the time and after giving effect thereto: (i) either (1)
such Guarantor shall be the continuing corporation, partnership or other legal
entity or (2) the entity (if other than such Guarantor) formed by such
consolidation or into which such Guarantor is merged or the entity which
acquires by sale, assignment, conveyance, transfer, lease or disposition the
properties and assets of such Guarantor shall be a corporation, partnership or
other legal entity duly organized and validly existing under the laws of the
United States, any state thereof or the District of Columbia and shall expressly
assume by a supplemental indenture, executed and delivered to the Trustee, all
the obligations of such Guarantor under its Guarantee of the Notes and the
Indenture; (ii) immediately before and immediately after giving effect to such
transaction or transactions, no Default shall have occurred and be continuing;
and (iii) such Guarantor shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in form and substance reasonably
satisfactory to the Trustee, each stating that such consolidation, merger, sale,
assignment, conveyance, transfer, lease or disposition and such supplemental
indenture comply with the Indenture, and thereafter all obligations of the
predecessor shall terminate; provided that the foregoing shall not apply to any
Guarantor (other than United) if (A) immediately after such merger,
consolidation, sale, assignment, conveyance, transfer, lease or other
disposition, the Person surviving such merger or consolidation or the assignee,
conveyee, transferee, lessee or recipient of such other disposition is not a
Subsidiary and (B) the "Limitation on Sale of Assets" covenant of the Indenture
is complied with in connection with such transaction.
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraph in which any Guarantor
is not the continuing corporation, the successor Person formed or remaining, if
it has so assumed the obligations of such Guarantor under the Notes, shall
succeed to, and be substituted for, and may exercise every right and power of,
and shall succeed to the obligations of, such Guarantor and the Guarantor will
be discharged from all obligations and covenants under the Indenture and its
Guarantee. However, in the event that all or substantially all of the assets of
any Guarantor or all of the Capital Stock in any Guarantor are sold (including
through merger, consolidation, by issuance or otherwise) by the Company or a
Restricted Subsidiary in a transaction constituting an Asset Sale and the Net
Cash Proceeds from such Asset Sale are used in accordance with the provisions of
the Indenture, then such Guarantor (in the event of a sale or other disposition
of all of the Capital Stock of such Guarantor) or the Person acquiring the
assets (in the event of a sale or other
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disposition of all or substantially all of the assets of such Guarantor) shall
be released and discharged from its Guarantee obligations in respect of the
Indenture and the Notes.
Any Guarantor that is designated an Unrestricted Subsidiary shall upon such
designation be released and discharged from its Guarantee obligations in respect
of the Indenture and the Notes and any domestic Unrestricted Subsidiary that is
designated as a Restricted Subsidiary shall upon such designation be required to
become a Guarantor.
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, create, issue, assume, incur, guarantee,
or otherwise in any manner become directly or indirectly liable for
(collectively, "incur") any Indebtedness (including any Acquired Indebtedness);
provided that the Company may incur Indebtedness (including any Acquired
Indebtedness) (A) if the Consolidated Fixed Charge Coverage Ratio of the Company
for the four full fiscal quarters immediately preceding the incurrence of such
Indebtedness (and for which such financial information is available) taken as
one period is at least equal to 2.00:1.00 and (B) if such Indebtedness is
Subordinated Indebtedness, such Indebtedness shall have an Average Life to
Stated Maturity longer than the Average Life to Stated Maturity of the Notes and
a final Stated Maturity of principal later than the final Stated Maturity of
principal of the Notes.
(b) The foregoing limitation will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"):
(i) Indebtedness of the Company incurred pursuant to the Credit Facilities and
any other agreements or indentures governing Senior Indebtedness
outstanding at any time in an aggregate principal amount not to exceed the
greater of (x) the sum of (I) $500.0 million and (II) if and when the
Receivables Securitization Program is terminated and the Company and its
Subsidiaries have no obligation to sell Receivables and Related Assets to
any unaffiliated third party, $175.0 million less the Program Funded
Amount at such time, and (y) $150.0 million plus the Borrowing Base;
(ii) subject to the "Limitation on Guarantees of Indebtedness" covenant,
Guarantees by Restricted Subsidiaries of Senior Indebtedness of the
Company; provided that such Indebtedness of the Company is incurred in
compliance with the provisions of the Indenture;
(iii) Indebtedness of the Company pursuant to the Notes issued on the Issue
Date and the Exchange Notes and Indebtedness of any Guarantor pursuant to
its Guarantee of the Notes and the Exchange Notes;
(iv) Indebtedness of the Company and its Restricted Subsidiaries (other than
Indebtedness described in clauses (i), (ii) and (iii) above) outstanding
on the Issue Date;
(v) Indebtedness of the Company owing to a Restricted Wholly Owned Subsidiary,
provided that any such Indebtedness (x) is made pursuant to an intercompany
note in the form attached to the Indenture and (y) is subordinated in right
of payment to the prior payment and performance of the Company's
obligations under the Notes, if applicable; provided further that (A) any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to a Restricted Wholly Owned
Subsidiary or a pledge to or for the benefit of any holder of Senior
Indebtedness) or (B) any transaction pursuant to which such Restricted
Wholly Owned Subsidiary ceases to be a Restricted Wholly Owned Subsidiary
shall be deemed to be an incurrence of such Indebtedness by the Company not
permitted by this clause (v);
(vi) Indebtedness of a Restricted Wholly Owned Subsidiary owing to the Company
or to a Restricted Wholly Owned Subsidiary; provided that, with respect to
Indebtedness owing to any Restricted Wholly Owned Subsidiary, (x) any such
Indebtedness is made pursuant to an intercompany note in the form attached
to the Indenture and (y) any such Indebtedness shall be subordinated in
right of
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payment to the payment and performance of such Subsidiary's obligations
under its Guarantee of the Notes, if applicable; provided further that (A)
any disposition, pledge or transfer of any such Indebtedness to a Person
(other than a disposition, pledge or transfer to the Company or a
Restricted Wholly Owned Subsidiary or a pledge to or for the benefit of
any holder of Senior Indebtedness) and (B) any transaction pursuant to
which any Restricted Wholly Owned Subsidiary, which has Indebtedness owing
to the Company or any other Restricted Wholly Owned Subsidiary, ceases to
be a Restricted Wholly Owned Subsidiary shall be deemed to be an
incurrence of Indebtedness by the obligor that is not permitted by this
clause (vi);
(vii) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness
described in clause (iv) of this paragraph (b) (including any successive
refinancings), so long as the aggregate principal amount of Indebtedness
represented thereby is not increased by such refinancing, except by an
amount equal to the lesser of (x) the stated amount of any premium,
interest or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or
(y) the amount of premium, interest or other payment actually paid at
such time to refinance the Indebtedness, plus, in either case, the amount
of expenses incurred in connection with such refinancing; provided that
in the case of Pari Passu Indebtedness or Subordinated Indebtedness, (A)
such new Indebtedness does not have a shorter Average Life to Stated
Maturity or a final Stated Maturity of principal earlier than the
Indebtedness being refinanced, (B) in the case of Pari Passu
Indebtedness, such new Indebtedness is pari passu with, or subordinated
to, the Notes and (C) in the case of Subordinated Indebtedness, such new
Indebtedness is subordinated to the Notes at least to the same extent as
the Indebtedness being refinanced; and provided further that in no event
may Indebtedness of the Company be refinanced with Indebtedness of any
Restricted Subsidiary pursuant to this clause (vii);
(viii) Indebtedness of the Company or any Restricted Subsidiary consisting of
Capitalized Lease Obligations, mortgage financings or purchase money
obligations in an aggregate principal amount at any time outstanding not
in excess of $50.0 million;
(ix) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of
judgment, appeal, surety, performance and other like bonds, bankers'
acceptances and letters of credit provided by the Company or any
Restricted Subsidiary in the ordinary course of its business and which do
not secure other Indebtedness and (B) consisting of bona fide Interest
Rate Agreements or currency swap agreements designed to protect the
Company and/or its Restricted Subsidiaries from, or control the exposure
of the Company and/or its Restricted Subsidiaries to, fluctuations in
interest rates or foreign currency fluctuations in respect of
Indebtedness;
(x) Indebtedness of the Company or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in respect of customary closing
purchase price or similar adjustments, in connection with the acquisition
or disposition of any business, assets or Subsidiary of the Company
permitted under the Indenture;
(xi) Indebtedness of the Company and its Restricted Subsidiaries, to the extent
the proceeds thereof are immediately used after the incurrence thereof to
purchase Notes tendered in an offer to purchase made as a result of a
Change of Control;
(xii) Indebtedness of a Securitization Subsidiary incurred in connection with a
Permitted Receivables Securitization Program; and
(xiii) Indebtedness of the Company or any Restricted Subsidiary in an aggregate
principal amount at any time outstanding not in excess of $25.0 million.
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LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders of,
any shares of its Capital Stock (other than dividends or distributions
payable solely in shares of its Qualified Capital Stock or in options,
warrants or other rights to acquire such Qualified Capital Stock and other
than dividends and distributions paid to the Company or another Restricted
Subsidiary (and, if such Restricted Subsidiary has shareholders other than
the Company or other Restricted Subsidiaries, to its other shareholders on
a pro rata basis or on a basis that results in the receipt by the Company
or a Restricted Subsidiary of dividends or distributions of equal or
greater value));
(ii) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any shares of the Capital Stock of United, the Company or any
Restricted Subsidiary (other than any Restricted Wholly Owned Subsidiary)
or options, warrants or other rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease, retire or
otherwise acquire for value, prior to the relevant scheduled principal
payment, sinking fund or maturity, any Subordinated Indebtedness; or
(iv) make any Investment in any Person, including, without limitation, any
Unrestricted Subsidiary (other than any Permitted Investments)
(the foregoing actions described in clauses (i) through (iv), collectively,
"Restricted Payments") unless at the time the Company or such Restricted
Subsidiary makes such Restricted Payment (the amount of any such Restricted
Payment, if other than cash, as determined in good faith by the Board of
Directors of the Company, such determination to be conclusive and evidenced by a
Board Resolution), (A) no Default shall have occurred and be continuing (or
would result therefrom); (B) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the "Limitation on
Indebtedness" covenant; and (C) the aggregate amount of all such Restricted
Payments declared or made after the Issue Date (including such Restricted
Payment) does not exceed the sum of:
(I) 50% of the aggregate cumulative Consolidated Net Income (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss) of the Company accrued on a cumulative basis during the
period (taken as one accounting period) beginning on January 1, 1998 and
ending on the last day of the Company's last fiscal quarter ending prior
to the date of the Restricted Payment for which such financial
information is available;
(II) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Qualified Capital Stock or any options,
warrants or rights to purchase such shares of Qualified Capital Stock
(less the value of any equity security referred to (and determined in
accordance with) the parenthetical in clause (a)(i) of the definition of
Consolidated Interest Expense);
(III) the aggregate Net Cash Proceeds received after the Issue Date by
the Company (other than from any of its Subsidiaries) upon the exercise
of any options, warrants or rights to purchase shares of Qualified
Capital Stock of the Company;
(IV) the aggregate Net Cash Proceeds received after the Issue Date by
the Company from Indebtedness of the Company or Redeemable Capital Stock
of the Company that has been converted into or exchanged for Qualified
Capital Stock of the Company (or options, warrants or rights to purchase
such Qualified Capital Stock), to the extent such Indebtedness of the
Company or Redeemable Capital Stock of the Company was originally
incurred or issued for cash, plus the aggregate Net Cash Proceeds
received by the Company at the time of such conversion or exchange;
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(V) without duplication of any of the foregoing, 100% of the aggregate
Net Cash Proceeds received by the Company as a capital contribution from
United; and
(VI) to the extent not included in Consolidated Net Income, the net
reduction (received by the Company or any Restricted Subsidiary in cash)
in Investments (other than Permitted Investments) (A) made by the
Company and the Restricted Subsidiaries since the Issue Date, and (B) as
a result of the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, not to exceed the amount of Investments (other
than Permitted Investments) made by the Company and the Restricted
Subsidiaries in such Person or in such Unrestricted Subsidiary since the
Issue Date.
(b) Notwithstanding the foregoing, and in the case of clauses (ii), (iii),
(iv), (v), (vi), (vii), (viii) and (ix) below, so long as there is no Default
continuing, the foregoing provisions shall not prohibit the following actions:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
be permitted by the provisions of paragraph (a) of this "Limitation on
Restricted Payments" covenant (such payment shall be deemed to have been
paid on such date of declaration for purposes of the calculation
required by paragraph (a) of this "Limitation on Restricted Payments"
covenant);
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or United or
warrants, options or other rights to acquire such stock (x) in exchange
for, or out of the Net Cash Proceeds of a substantially concurrent issue
and sale (other than to United or a Subsidiary) for cash of, any
Qualified Capital Stock of the Company or warrants, options or other
rights to acquire such stock or (y) in the case of Redeemable Capital
Stock, solely in exchange for, or through the application of the net
proceeds of a substantially concurrent sale for cash (other than to
United or a Subsidiary) of, Redeemable Capital Stock that has a
redemption date no earlier than, and requires the payment of current
dividends or distributions in cash no earlier than, in each case, the
Redeemable Capital Stock being purchased, redeemed or otherwise acquired
or retired;
(iii) any repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a
substantially concurrent issuance and sale (other than to United or a
Subsidiary) for cash of, any Qualified Capital Stock of the Company or
United or warrants, options or other rights to acquire such stock or for
shares of Redeemable Capital Stock that have a redemption date no
earlier than, and require the payment of current dividends or
distributions in cash no earlier than, in each case, the maturity date
and interest payment dates, respectively, of the Indebtedness being
repurchased, redeemed, defeased, retired, refinanced or acquired;
(iv) the repurchase, redemption, defeasance, retirement or other
acquisition for value or payment of principal of any Subordinated
Indebtedness through the issuance of Indebtedness meeting the
requirements of clause (vii) of paragraph (b) of the "Limitation on
Indebtedness" covenant;
(v) the repurchase, redemption, acquisition or retirement of shares of
Capital Stock of United or options, warrants or other rights to purchase
such shares held by officers or employees or former officers or
employees of United and the Subsidiaries (or their estates or
beneficiaries), upon death, disability, retirement or termination of
employment, pursuant to the terms of any employee stock option or stock
purchase plan or agreement under which such shares were acquired;
provided that the aggregate consideration paid for all such shares
following the Issue Date does not exceed $2.5 million in any fiscal year
of the Company; and provided further that the amount by which $2.5
million exceeds the amount so used in any fiscal year of the
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Company shall be available to be so used in subsequent fiscal years of
the Company, notwithstanding the immediately preceding proviso;
(vi) payments to United, to the extent used by United to (x) pay its
operating and administrative expenses including, without limitation,
directors' fees, legal and audit expenses, Commission compliance
expenses and corporate franchise and other taxes, not to exceed $2.5
million in any fiscal year of the Company, (y) make payments in respect
to its indemnification obligations owing to directors, officers or other
Persons under United's Charter or by-laws or pursuant to written
agreements with any such Person or (z) make payments in respect of
indemnification obligations and costs and expenses incurred by United in
connection with any offering of common stock of United;
(vii) payments to United, not to exceed $5.0 million in the aggregate
after the Issue Date, to the extent used by United to make cash payments
to holders of its Capital Stock in lieu of the issuance of fractional
shares of Capital Stock and to redeem or repurchase stock purchase or
similar rights issued as a shareholder rights device and repurchases of
shares from holders of Common Stock who hold less than 100 shares in
each instance;
(viii) upon the occurrence of a Change of Control or an Asset Sale and
within 60 days after the completion of the offer to repurchase the Notes
pursuant to the "Purchase of Notes upon a Change of Control" covenant or
the "Limitation on Asset Sales" covenant below (including the purchase
of all Notes tendered), any purchase, defeasance, retirement, redemption
or other acquisition of Subordinated Indebtedness required pursuant to
the terms thereof as a result of such Change of Control or Asset Sale;
(ix) advances to employees, agents and consultants for expenses incurred
or to be incurred in the ordinary course of business consistent with
past practice; and
(x) other Restricted Payments in an aggregate amount since the Issue
Date not to exceed $25.0 million.
The actions described in clauses (i) through (iii) and clauses (v), (viii) and
(x) of this paragraph (b) shall be Restricted Payments that shall be permitted
to be taken in accordance with this paragraph (b) but shall reduce the amount
that would otherwise be available for Restricted Payments under clause (C) of
paragraph (a) of this "Limitation on Restricted Payments" covenant (provided
that any dividend paid pursuant to clause (i) of this paragraph (b) shall reduce
the amount that would otherwise be available under clause (C) of paragraph (a)
of this "Limitation on Restricted Payments" covenant when declared, but not also
when paid pursuant to such clause (i)) and the actions described in clauses
(iv), (vi), (vii) and (ix) of this paragraph (b) shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph
(a).
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of assets
or property or the rendering of any services) with any Affiliate of the Company
unless (i) such transaction or series of transactions is in writing on terms
that are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party, (ii) with respect to any such
transaction or series of transactions involving aggregate payments in excess of
$10.0 million, the Company delivers an officers' certificate to the Trustee
certifying that such transaction or series of related transactions complies with
clause (i) above and such transaction or series of related transactions has been
approved by the Board of Directors, and (iii) with respect to a transaction or
series of related transactions involving aggregate value in excess of $25.0
million, the Company delivers to the Trustee an opinion of an independent
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investment banking firm of national standing stating that the transaction or
series of transactions is fair to the Company or such Restricted Subsidiary from
a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment or Permitted Investment permitted to be made pursuant to the
"Limitation on Restricted Payments" covenant, (ii) fees, compensation or
employee benefit arrangements paid to, and any indemnity provided for the
benefit of, directors, officers, employees, consultants or agents in the
ordinary course of business or any Indebtedness permitted to be incurred
pursuant to clause (xiii) of paragraph (b) of the covenant described under
"Limitation on Indebtedness," or any payments in respect thereof, (iii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iv)
transactions pursuant to agreements entered into or in effect on the Issue Date,
including amendments thereto entered into after the Issue Date, provided that
the terms of any such amendment are not, in the aggregate, less favorable to the
Company or such Restricted Subsidiary than the terms of such agreement prior to
such amendment, (v) advances to employees, agents and consultants for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business and consistent with past practices, (vi) any
transaction between or among United, the Company and/or one or more Restricted
Subsidiaries (so long as the other stockholders of any participating Restricted
Subsidiaries which are not Wholly Owned Subsidiaries are not themselves
Affiliates of the Company), or (vii) the entering into by the Company, United
and one or more of its Restricted Subsidiaries of a tax sharing agreement or
similar arrangement.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company and each
Guarantor will not, directly or indirectly, incur or otherwise permit to exist
any Indebtedness that is subordinate in right of payment to any Indebtedness of
the Company or such Guarantor, as the case may be, unless such Indebtedness is
also PARI PASSU with the Notes or the Guarantee of the Notes by such Guarantor,
as the case may be, or subordinate in right of payment to the Notes or such
Guarantee of the Notes, as the case may be, to at least the same extent as the
Notes or such Guarantee are subordinate in right of payment to Senior
Indebtedness or Senior Guarantor Indebtedness, as the case may be, as set forth
in the Indenture.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, incur, assume or suffer to
exist any Lien of any kind upon any of its property or assets (including any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary), owned on
the Issue Date or acquired after the Issue Date, or any income or profits
therefrom, except if the Notes (or the Guarantee of the Notes, in the case of
Liens on properties or assets of a Restricted Subsidiary that is a Guarantor)
and all other amounts due under the Indenture are directly secured equally and
ratably with (or prior to in the case of Liens with respect to Subordinated
Indebtedness) the obligation or liability secured by such Lien, excluding,
however, from the operation of the foregoing any of the following:
(a) any Lien existing or provided for under written arrangements
existing as of the Issue Date;
(b) any Lien arising by reason of (i) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of
such judgment, decree or order shall not have been finally terminated or
the period within which such proceedings may be initiated shall not have
expired; (ii) taxes, assessments or other governmental charges not yet
delinquent or which are being contested in good faith; (iii) security
for payment of workers' compensation or other insurance; (iv) good faith
deposits in connection with tenders, leases or contracts (other than
contracts for the payment of money); (v) zoning restrictions, easements,
licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title
(and with respect to leasehold interests, mortgages, obligations, liens
and other encumbrances incurred, created, assumed or permitted to exist
and arising by, through or under a
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landlord or owner of the leased property, with or without consent of the
lessee), none of which materially impairs the use of any property or
assets material to the operation of the business of the Company or any
Restricted Subsidiary or the value of such property or assets for the
purpose of such business; (vi) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds with respect to
matters not yet finally determined and being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof; or (vii) operation of law in favor of mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of
business for sums which are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings which suspend
the collection thereof;
(c) any Lien now or hereafter existing on property of the Company or any
Guarantor securing Senior Indebtedness or Senior Guarantor Indebtedness,
as the case may be, of such Person;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of
such Indebtedness by the Company, which Indebtedness is permitted under
the "Limitation on Indebtedness" covenant; provided that any such Lien
only extends to the assets that were subject to such Lien securing such
Acquired Indebtedness prior to the related acquisition;
(e) any Lien now or hereafter existing on Receivables and Related Assets
in connection with a Permitted Receivables Securitization Program;
(f) any Lien on property, assets or shares of Capital Stock of a Person
at the time such Person becomes a Subsidiary; provided, however, such
Lien is not created, incurred or assumed by such Person in connection
with, or in contemplation of, such other Person becoming such a
Subsidiary; provided further, however, that such Lien may not extend to
any other property owned by the Company or any Restricted Subsidiary;
(g) any Lien on property or assets at the time the Company or a
Restricted Subsidiary acquired the property or assets, including any
acquisition by means of a merger or consolidation with or into the
Company or a Restricted Subsidiary; provided, however, that such Lien is
not created in connection with, or in contemplation of, such
acquisition; provided further, however, that the Lien may not extend to
any other property owned by the Company or any Restricted Subsidiary;
(h) Liens related to Capitalized Lease Obligations, mortgage financings
or purchase money obligations (including refinancings thereof), in each
case incurred in accordance with the "Limitation on Indebtedness"
covenant and for the purpose of financing all or any part of the
purchase price or costs of construction or improvement of property,
plant or equipment used in the business of the Company or any Restricted
Subsidiary, provided that any such Lien encumbers only the asset or
assets so financed, purchased, constructed or improved;
(i) any Lien on Capital Stock or other securities of an Unrestricted
Subsidiary; and
(j) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (i) so
long as the amount of property or assets subject to such Lien is not
increased to any amount greater than the sum of (i) the outstanding
principal amount or, if greater, committed amount of the Indebtedness
described under such clauses (a) through (i) at the time the original
Lien became a Lien permitted hereunder and (ii) an amount necessary to
pay any fees and expenses, including premiums, related to such
extension, renewal, refinancing or replacement.
LIMITATION ON SALE OF ASSETS. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) at least 75% of the proceeds from such Asset Sale are
received in cash and (ii) the Company or such Restricted Subsidiary receives
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consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale is not
applied to repay permanently any Senior Indebtedness or Senior Guarantor
Indebtedness then outstanding as required by the terms thereof, and the Company
determines not to apply such Net Cash Proceeds to the prepayment of such Senior
Indebtedness or Senior Guarantor Indebtedness or if no such Senior Indebtedness
or Senior Guarantor Indebtedness is then outstanding, then the Company may,
within 12 months of the Asset Sale, invest (or enter into a written, legally
binding commitment to invest, provided that the investment provided for in such
commitment is actually made within 24 months of the Asset Sale) the Net Cash
Proceeds in other properties and assets that will be used in the businesses of
the Company and its Restricted Subsidiaries or in any company having such
properties and assets. The amount of such Net Cash Proceeds neither used to
permanently repay or prepay Senior Indebtedness or Senior Guarantor Indebtedness
nor used or invested as set forth in this paragraph (b) constitutes "Excess
Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $10.0 million or
more, the Company shall, within 15 Business Days in accordance with the
procedures set forth in the Indenture: (i) make an offer (an "Offer") to
purchase, for cash, at 100% of the principal amount thereof, plus accrued and
unpaid interest to the repurchase date (the "Repurchase Date"), the maximum
principal amount (expressed as a multiple of $1,000) of Notes that may be
purchased out of an amount (the "Note Amount") equal to the product of such
Excess Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Notes, and the denominator of which is the
sum of the outstanding principal amount of the Notes and any Pari Passu
Indebtedness that is required to be repurchased under the instrument governing
such Pari Passu Indebtedness and (ii) to the extent required by such Pari Passu
Indebtedness, the Company shall make an offer to purchase or, if required by the
terms of such Pari Passu Indebtedness, otherwise repurchase or redeem Pari Passu
Indebtedness (a "Pari Passu Repayment") in an amount (the "Pari Passu Debt
Amount") equal to the excess of the Excess Proceeds over the Note Amount;
provided that in no event shall the Pari Passu Debt Amount exceed the principal
amount of such Pari Passu Indebtedness plus the amount of any premium, if any,
and accrued and unpaid interest required to be paid to repurchase such Pari
Passu Indebtedness. To the extent that the aggregate principal amount of and
accrued but unpaid interest with respect to the Notes tendered pursuant to the
Offer is less than the Note Amount relating thereto or the aggregate amount of
Pari Passu Indebtedness that is purchased is less than the Pari Passu Debt
Amount, the Company may use such amounts not necessary to purchase the tendered
Notes and the Pari Passu Indebtedness required to be purchased for any purpose
not prohibited by the Indenture. Upon completion of the purchase of all the
Notes tendered pursuant to an Offer and the purchase of the Pari Passu
Indebtedness pursuant to a Pari Passu Repayment, the amount of Excess Proceeds,
if any, shall be reset at zero.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws and
regulations in connection with an Offer.
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS. (a) The Company will
not permit any Restricted Subsidiary to incur any Guaranteed Debt, other than
Guaranteed Debt in respect of Senior Indebtedness of the Company; provided that,
concurrently with the incurrence of such Guaranteed Debt by any Restricted
Subsidiary, the Restricted Subsidiary incurring such Guaranteed Debt (if it is
not a Guarantor) shall execute a supplemental indenture setting forth such
Restricted Subsidiary's senior subordinated guarantee of the Notes, such
guarantee to be on the same terms as United's Guarantee of the Notes. Neither
the Company nor any Guarantor shall be required to make a notation on the Notes
or the Guarantees to reflect such Guarantee. In connection with such Guarantee
of the Notes, such Restricted Subsidiary shall waive, and agree that it will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any Guarantor as a result of any payment by such Restricted
Subsidiary with respect to such Guaranteed Debt.
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(b) United will not incur any Guaranteed Debt with respect to any Pari Passu
Indebtedness or Subordinated Indebtedness unless such Guaranteed Debt is
subordinated (at least to the extent that Notes are subordinated in right of
payment to Senior Indebtedness) in right of payment to (or, in the case of
Guaranteed Debt with respect to Pari Passu Indebtedness, is pari passu in right
of payment with) United's Guarantee of the Notes.
(c) The Company will cause each of its domestic Restricted Subsidiaries
which incurs any Indebtedness, other than the Joint Venture and any
Securitization Subsidiary that has entered into or established a Permitted
Receivables Securitization Program, simultaneously with the first incurrence of
any Indebtedness, to execute a supplemental indenture providing for a Guarantee
of the Notes on the same terms as United's Guarantee of the Notes, including,
without limitation, the waiver and agreement referred to in the last sentence of
paragraph (a) above. Neither the Company nor any Guarantor shall be required to
make a notation on the Notes or the Guarantees to reflect such Guarantee.
LIMITATION ON SUBSIDIARY CAPITAL STOCK. The Company will not transfer, and
will not permit the transfer or issuance of, any Capital Stock of any Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except for (i) Capital Stock issued to and held by the
Company or a Restricted Wholly Owned Subsidiary, (ii) Capital Stock issued by a
Person prior to the time (A) such Person becomes a Restricted Subsidiary, (B)
such Person merges with or into a Restricted Subsidiary or (C) a Restricted
Subsidiary merges with or into such Person; provided that such Capital Stock was
not issued or incurred by such Person in anticipation of the type of transaction
contemplated by subclause (A), (B) or (C), (iii) the transfer of all of the
Capital Stock of a Restricted Subsidiary or (iv) the issuance or transfer of
directors' qualifying shares or a de minimis number of shares required to be
held by foreign nationals, in each case to the extent required by applicable
law. The foregoing shall not prohibit the pledge of any shares of Capital Stock
permitted under the "Limitation on Liens" covenant.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make any
other distribution on or in respect of its Capital Stock, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
any loans or advances to, or Investments in, the Company or any other Restricted
Subsidiary or (iv) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except in any such case (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (2) any encumbrance or restriction, with respect to a Person that becomes
a Restricted Subsidiary after the Issue Date, in existence at the time such
Person becomes a Restricted Subsidiary and not incurred in connection with, or
in contemplation of, such Person becoming a Restricted Subsidiary (other than as
consideration in, in contemplation of, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was otherwise acquired by the Company or another
Restricted Subsidiary); (3) any encumbrance or restriction existing under any
agreement that extends, renews, refinances or replaces the agreements containing
the encumbrances or restrictions in the foregoing clauses (1) and (2), or in
this clause (3), provided that the terms and conditions of any such encumbrances
or restrictions are (A) not materially less favorable to the Holders of the
Notes than those under or pursuant to the agreement so extended, renewed,
refinanced or replaced (as determined in good faith by the Company) and (B) with
respect to any instrument relating to any Indebtedness, no more restrictive in
any material respect than the encumbrances and restrictions contained in the
Credit Facilities as in effect on the Issue Date (as determined in good faith by
the Company); (4) any encumbrance or restriction created pursuant to an asset
purchase agreement, stock sale agreement or similar instrument pursuant to which
a bona-fide Asset Sale the proceeds of which are applied as provided in the
Indenture is to be consummated, so long as such restriction or encumbrance shall
apply only to the assets subject to such Asset Sale and
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shall be effective only for a period from the execution and delivery of such
agreement or instrument through the earlier of the consummation of such Asset
Sale or the termination of such agreement or instrument; (5) customary
nonassignment provisions of any lease governing any leasehold interest of the
Company or any Restricted Subsidiaries; (6) to the extent required by the
Indenture; (7) any encumbrance or restriction existing under or by reason of
applicable law; (8) with respect to a Restricted Subsidiary, any encumbrance or
restriction imposed pursuant to an agreement that has been entered into for the
sale of all or substantially all of the Capital Stock of such Restricted
Subsidiary; and (9) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the type referred to in
clause (iv) above.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Notes, plus accrued and unpaid interest and Additional Amounts, if any, to the
date of purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following the date upon which the Company becomes aware that
any Change of Control has occurred, the Company shall notify the Trustee thereof
and give written notice of such Change of Control to each holder of Notes by
first-class mail, postage prepaid, at his address appearing in the security
register, stating, among other things, (i) the purchase price and the purchase
date which shall be a Business Day no earlier than 30 days nor later than 60
days from the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act; (ii) that any Note not tendered
will continue to accrue interest; (iii) that, unless the Company defaults in the
payment of the purchase price, any Notes accepted for payment pursuant to the
Change of Control offer shall cease to accrue interest after the Change of
Control Purchase Date; and (iv) certain other procedures that a holder of Notes
must follow to accept a Change of Control Offer or to withdraw such acceptance.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company or United would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, restructurings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The Credit Facilities
prohibit the purchase of the Notes by the Company prior to full repayment of
Indebtedness thereunder and, upon a Change of Control, all amounts outstanding
under the Credit Facilities may become due and payable. There can be no
assurance that, in the event of a Change in Control, the Company will be able to
obtain the necessary consents from the lenders under the Credit Facilities to
consummate a Change of Control Offer. The failure of the Company to make or
consummate the Change of Control Offer or pay the Change of Control Purchase
Price when due would result in an Event of Default and would give the Trustee
and the holders of the Notes the rights described under "--Events of Default,"
subject to the subordination provisions of the Indenture. The 12 3/4% Notes
contain similar provisions requiring that the Company make an offer to
repurchase the 12 3/4% Notes on a change of control (as defined in the 12 3/4%
Notes Indenture). The failure of the Company to consummate a change of control
offer as required by the 12 3/4% Notes Indenture would result in an event of
default thereunder.
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"Change of Control" is defined in the Indenture to mean the occurrence of
any of the following events: (i) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act) becomes the ultimate
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the voting power of the total
outstanding Voting Stock of United (or any successor) or the Company (or any
successor) voting as one class; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of United or the Company (together with any new directors whose
election to such Board of Directors or whose nomination for election by the
shareholders of such Person, was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to have a majority of the total voting power of such Board of
Directors then in office; (iii) United or the Company conveys, transfers, or
leases or otherwise disposes of all or substantially all of its assets to any
Person; (iv) United (or any successor) or the Company (or any successor) is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under
"--Consolidation, Merger, Sale of Assets"; and (v) the failure of United (or any
successor) to "beneficially own" 100% of the voting power of the total
outstanding Voting Stock of the Company (or any successor).
The phrase "all or substantially all" as used in the definition of "Change
of Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret such phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
United will not, and will not permit any Subsidiary to, create or permit to
exist or become effective any restriction (other than restrictions in effect on
the Issue Date with respect to Indebtedness outstanding on the Issue Date and
refinancings thereof and customary default provisions) that would materially
impair the ability of the Company to make a Change of Control Offer to purchase
the Notes or, if such Change of Control Offer is made, to pay for the Notes
tendered for purchase.
PROVISION OF FINANCIAL STATEMENTS. Whether or not United or the Company is
subject to Section 13(a) or 15(d) of the Exchange Act, United and the Company
will, to the extent permitted under the Exchange Act, deliver to the Commission
for filing the annual reports, quarterly reports and other documents which
United and the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) if United and the Company were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which United and the Company
would have been required to so file such documents if United and the Company
were so subject (subject to a five day grace period). United and the Company
will also in any event (x) within 15 days of each Required Filing Date (subject
to a five day grace period) (i) transmit by mail to all holders, as their names
and addresses appear in the security register, without cost to such holders and
(ii) file with the Trustee copies of the annual reports, quarterly reports and
other documents which United and the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
United and the Company were subject to such Sections and (y) if filing such
documents by United and the Company with the Commission is not permitted under
the
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Exchange Act, promptly upon written request, supply copies of such documents to
any prospective holder at United's and the Company's cost
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company shall not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons (and the Company will not permit any Restricted
Subsidiary to enter into any such transaction or transactions if such
transaction or transactions, in the aggregate, would result in the sale,
assignment, conveyance, transfer, lease or disposal of all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated basis to any other Person or group of affiliated Persons) unless at
the time and after giving effect thereto: (i) either (a) the Company shall be
the continuing corporation or (b) the Person (if other than the Company) formed
by such consolidation or into which the Company or such Subsidiary is merged or
the Person which acquires by sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company or such Subsidiary, as the case may be, substantially as an entirety
(the "Surviving Entity") shall be a corporation, limited liability company,
limited partnership or business trust duly organized and validly existing under
the laws of the United States of America, any state thereof or the District of
Columbia and such Person shall expressly assume, by a supplemental indenture
executed and delivered to the Trustee, all the obligations of the Company under
the Notes and the Indenture, and the Indenture shall remain in full force and
effect; (ii) immediately before and immediately after giving effect to such
transaction or transactions, no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma basis,
the Consolidated Net Worth of the Company (or of the Surviving Entity if other
than the Company), is equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction or transactions; (iv) immediately
before and immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction
with the appropriate adjustments with respect to the transaction being included
in such pro forma calculation), the Company (or the Surviving Entity if other
than the Company), could incur at least $1.00 of additional Indebtedness under
the "Limitation on Issuance of Indebtedness" covenant (other than Permitted
Indebtedness); and (v) the Company or the Surviving Entity shall have delivered,
or caused to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an opinion of counsel,
each to the effect that such consolidation, merger, transfer, sale, assignment,
conveyance, lease or other transaction and the supplemental indenture in respect
thereto comply with the Indenture and that all conditions precedent herein
provided for relating to such transaction have been complied with.
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the continuing corporation, the successor Person formed or remaining shall
succeed to, and be substituted for, and may exercise every right and power of
the Company and the Company will be discharged from all obligations and
covenants under the Indenture and the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) failure to pay any interest on any Note when it becomes due and
payable, and such failure shall continue for a period of 30 days;
(ii) failure to pay the principal of (or premium, if any, on) any Note at
its Maturity (upon acceleration, optional or mandatory redemption, required
repurchase or otherwise);
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(iii) (a) failure to perform, or breach of, any covenant or agreement of the
Company, United or any Guarantor under the Indenture (other than a default in
the performance of, or breach of, a covenant or agreement which is specifically
dealt with in clause (i) or (ii) or in clauses (b), (c) and (d) of this clause
(iii)), and such default or breach shall continue for a period of 30 days after
written notice of such failure has been given, by certified mail, (x) to the
Company by the Trustee or (y) to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the outstanding Notes, specifying
such default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Indenture; (b) default in the
performance or breach of the provisions described under the "Consolidation,
Merger, Sale of Assets" covenant; (c) the Company shall have failed to make or
consummate an Offer in accordance with the provisions of the "Limitation on Sale
of Assets" covenant; or (d) the Company shall have failed to make or consummate
a Change of Control Offer in accordance with the provisions of the "Purchase of
Notes Upon a Change of Control" covenant;
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company or any Restricted Subsidiary
then has outstanding Indebtedness in excess of $25.0 million principal amount in
the aggregate and, if not already matured at its final maturity in accordance
with its terms, such Indebtedness shall have been accelerated;
(v) any Guarantee shall for any reason cease to be, or shall be asserted in
writing by such Guarantor, United or the Company not to be, in full force and
effect and enforceable in accordance with its terms (other than a Guarantee of a
Subsidiary that is not a Significant Subsidiary and has Consolidated Net Worth
of less than $1.0 million at such time) or any Restricted Subsidiary shall fail
to Guarantee the Notes as required by the "Limitation on Issuances of Guarantees
of Indebtedness" covenant;
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $25.0 million, either individually or in the aggregate (net of amounts
covered by insurance, bond, surety or similar instrument), shall be entered
against the Company, United or any Restricted Subsidiary, or any of their
respective properties, and shall not be discharged and either (a) any creditor
shall have commenced an enforcement proceeding upon such judgment, order or
decree or (b) there shall have been a period of 60 consecutive days during which
a stay of enforcement of such judgment or order, by reason of an appeal or
otherwise, shall not be in effect;
(vii) there shall have been the entry by a court of competent jurisdiction
of (a) a decree or order for relief in respect of the Company, United or any
Significant Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or (b) a decree or order adjudging the Company, United or any
Significant Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company, United
or any Significant Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company, United or any Significant Subsidiary
or of any substantial part of their respective properties, or ordering the
winding up or liquidation of their affairs, and any such decree or order for
relief shall continue to be in effect, or any such other decree or order shall
be unstayed and in effect, for a period of 60 consecutive days; or
(viii) (a) the Company, United or any Significant Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any other
case or proceeding to be adjudicated bankrupt or insolvent, (b) the Company,
United or any Significant Subsidiary consents to the entry of a decree or order
for relief in respect of the Company, United or any Significant Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, (c)
the Company, United or any Significant Subsidiary files a petition or answer or
consent seeking reorganization or relief under any applicable federal or state
law, (d) the Company, United or any Significant Subsidiary (x) consents to the
filing of such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company, United or any Significant Subsidiary or of any
substantial part of
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their respective properties or (y) makes an assignment for the benefit of
creditors or (e) the Company, United or any Significant Subsidiary takes any
corporate action in furtherance of any such actions in this paragraph (viii).
If an Event of Default (other than as specified in clauses (vii) and (viii)
of the prior paragraph) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may, and the Trustee at the request of such holders shall, declare
all unpaid principal of (and premium, if any, on) and accrued interest on all
the Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the holders of the Notes); provided that
so long as the Credit Facilities are in effect, such declaration shall not
become effective until the earlier of (a) five business days after receipt of
such notice of acceleration from the holders or the Trustee by the agent under
the Credit Facilities or (b) acceleration of the Indebtedness under the Credit
Facilities. Thereupon such principal shall become immediately due and payable,
and the Trustee may, at its discretion, proceed to protect and enforce the
rights of the holders of Notes by appropriate judicial proceeding. If an Event
of Default specified in clause (vii) or (viii) of the prior paragraph occurs,
then all the Notes shall ipso facto become and be immediately due and payable,
in an amount equal to the principal amount of the Notes, together with accrued
and unpaid interest, if any, to the date the Notes become due and payable,
without any declaration or other act on the part of the Trustee or any holder.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
and (iii) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (b) all Events of Default,
other than the non-payment of principal of the Notes which has become due solely
by such declaration of acceleration, have been cured or waived; and (c) the
rescission will not conflict with any judgment or decree.
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all the Notes waive any past
defaults under the Indenture and its consequences, except a default in the
payment of the principal of (and premium, if any, on) or interest on any Note,
or in respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note outstanding.
The Company is also required to notify the Trustee within five business days
of the occurrence of any Default.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided that if it acquires any conflicting
interest, it must eliminate such conflict upon the occurrence of an Event of
Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and each Guarantor and any other obligor upon the
Notes, if any, discharged with respect to the outstanding Notes ("defeasance").
Such defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, except
for (i) the rights of holders of outstanding Notes to receive payments in
respect of the principal of (and premium, if any, on) and interest on such Notes
when such payments are due, (ii) the Company's obligations with respect to
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the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and each Guarantor released with
respect to certain covenants that are described in the Indenture ("covenant
defeasance") and any omission to comply with such obligations shall not
constitute a Default with respect to the Notes. In the event covenant defeasance
occurs, certain events (not including non-payment, enforceability of any
Guarantee, bankruptcy and insolvency events) described in "--Events of Default"
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay and discharge the principal of (and premium, if any, on) and interest on
the outstanding Notes on the Stated Maturity of such principal or installment of
principal (or, if specified by the Company in an Officers' Certificate delivered
to the Trustee at the time of such deposit, any date upon which the Company
would be entitled to redeem all Notes outstanding); (ii) in the case of
defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating that since the Issue Date (A)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, the holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred; (iii) in the case
of covenant defeasance, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default shall have occurred and be continuing on the date of
such deposit; (v) such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest with respect to any securities of the
Company or any Guarantor; (vi) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under, the Indenture
or any other material agreement or instrument to which the Company or any
Guarantor is a party or by which it is bound; (vii) the Company shall have
delivered to the Trustee an opinion of independent counsel to the effect that
(A) the trust funds will not be subject to any rights of holders of Senior
Indebtedness or Senior Guarantor Indebtedness, including, without limitation,
those arising under the Indenture and (B) after the 123rd day following the
deposit, the trust funds will not be subject to avoidance under any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (viii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Notes or any Guarantee over the
other creditors of the Company or any Guarantor or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others; (ix) no event or condition shall exist that would prohibit the Company
from making payments of the principal of (and premium, if any, on) and interest
on the Notes on the date of such deposit; and (x) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to either
defeasance or covenant defeasance, as the case may be, have been complied with.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (a) either (i) all the Notes theretofore authenticated and delivered (other
than lost, stolen or destroyed Notes which have been replaced or paid) have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable at their Stated Maturity within one year or (z) are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company, and the Company or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, including principal of
(and premium, if any, on) and accrued interest at such Stated Maturity or
redemption date; (b) the Company or any Guarantor has paid or caused to be paid
all other sums payable under the Indenture by the Company and each Guarantor;
and (c) the Company has delivered to the Trustee an Officers' Certificate and an
opinion of counsel each stating that (i) all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with and (ii) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company or any Guarantor is
a party or by which the Company or any Guarantor is bound.
MODIFICATIONS AND AMENDMENTS
Without the consent of any holder, the Company, the Guarantors and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental to the Indenture for any of the following purposes: (1)
to add to the covenants of the Company and the Guarantors for the benefit of the
holders, or to surrender any right or power therein conferred upon the Company
and the Guarantors; (2) to add additional Events of Default; (3) to evidence and
provide for the acceptance of the appointment under the Indenture by a successor
Trustee; (4) to secure the Notes; (5) to cure any ambiguity, to correct or
supplement any provision in the Indenture which may be defective or inconsistent
with any other provision in the Indenture, or to make any other provisions with
respect to matters or questions arising under the Indenture, provided that such
actions pursuant to this clause shall not adversely affect the interests of the
holders in any material respect; or (6) to comply with any requirements of the
Commission in order to effect and maintain the qualification of the Indenture
under the Trust Indenture Act; provided that certain legal opinions and
Officers' Certificates are delivered.
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee with the consent of the holders of not less than
a majority in aggregate outstanding principal amount of the Notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding Note affected thereby: (i) change the Stated Maturity
of the principal of, or any installment of interest on, any Note or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which the
principal of any Note or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof; (ii) amend, change or modify the obligation
of the Company to make and consummate an Offer with respect to any Asset Sale or
Asset Sales in accordance with the "Limitation on Sale of Assets" covenant or
the obligation of the Company to make and consummate a Change of Control Offer
in the event of a Change of Control in accordance with the "Purchase of Notes
upon a Change of Control" covenant, including, without limitation, amending,
changing or modifying any definitions with respect thereto; (iii) reduce the
percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any such modifications and amendments, or the consent of
whose holders is required for any waiver; (iv) modify any of the provisions
relating to supplemental indentures requiring the consent of holders or
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relating to the waiver of past defaults or relating to the waiver of certain
covenants, except to increase the percentage of outstanding Notes required for
such actions or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each Note affected
thereby; (v) except as otherwise permitted under "--Consolidation, Merger, Sale
of Assets," consent to the assignment or transfer by the Company or any
Guarantor of any of its rights and obligations under the Indenture; or (vi)
amend or modify any of the provisions of the Indenture relating to the
subordination of the Notes or any Guarantee in any manner adverse to the holders
of the Notes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or United, as such, shall have any liability for any obligations of the Company
or United under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the Commission that such waiver is against public policy.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by, and construed
in accordance with the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person. Acquired Indebtedness shall be
deemed to be incurred on the date of the related acquisition of assets from any
Person or the date the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Restricted Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or any Restricted
Subsidiary; or (iii) any other properties or assets of the Company or any
Restricted Subsidiary, other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include (w) any
transfer of properties or assets (A) that is governed by the first paragraph
under the "Consolidation, Merger, Sale of Assets" covenant, (B) that is by the
Company to any Restricted Wholly Owned Subsidiary, or by any Restricted Wholly
Owned Subsidiary to the Company or any Restricted Wholly Owned Subsidiary in
accordance with the terms of the Indenture, (x) dispositions with a Fair Market
Value of less than $2.5 million in the aggregate in any fiscal year, (y) any
Sale of Receivables and Related Assets pursuant to a Permitted Receivables
Securitization Program, or (z) the sale of real or personal property or
equipment that has become worn out,
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obsolete or damaged or otherwise unsuitable or not required for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal, state or foreign law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Borrowing Base" means, as of any date of determination, an amount equal to
the sum of (a) 85% of the face amount of all accounts receivable of the Company
and its Restricted Subsidiaries as of such date and (b) 65% of the book value
(calculated on a FIFO basis) of all inventory owned by the Company and its
Restricted Subsidiaries as of such date, all calculated on a Consolidated basis
and in accordance with GAAP. To the extent that information is not available as
to the amount of accounts receivable or inventory as of a specific date, the
Company may utilize the most recent available quarterly or annual financial
report for purposes of calculating the Borrowing Base; provided, that any
subsequent sale of Receivables and Related Assets on or prior to the date of
determination pursuant to a Permitted Receivables Securitization Program shall
be deducted from "Borrowing Base" for purposes of the calculation thereof.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capital Lease Obligation" means any obligations of the Company and its
Restricted Subsidiaries on a Consolidated basis under any capital lease of real
or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations, partnership interests or other equivalents (however designated)
of such Person's capital stock.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio, determined on a pro forma basis, of (a) the sum of
Consolidated Net Income (Loss), Consolidated Interest Expense, Consolidated
Income Tax Expense and Consolidated Non-cash Charges deducted in computing
Consolidated Net Income (Loss) in each case, for such period, of the Company and
its Restricted Subsidiaries on a Consolidated basis, all determined in
accordance with GAAP to (b) the sum of Consolidated Interest Expense for such
period and cash and non-cash dividends required to be paid or accrued on any
Preferred Stock of the Company and its Restricted Subsidiaries during such
period; provided that (i) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on a pro forma
basis and (A) bearing a floating interest rate, shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying at the option of the
Company, either the fixed or floating rate and (ii) in making such computation,
the Consolidated Interest Expense of the Company and its Restricted Subsidiaries
attributable to interest on any Indebtedness under a revolving credit facility
computed on a pro forma basis shall be computed based upon the average daily
balance of such Indebtedness during the applicable period. "Pro forma basis"
means, for purposes of calculating the Consolidated Fixed Charge Coverage Ratio,
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giving pro forma effect to (i) the incurrence of the Indebtedness giving rise to
the need for such calculation and the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred,
and the application of such proceeds occurred, at the beginning of the relevant
four-quarter period; (ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Restricted Subsidiaries since the first day
of the relevant four-quarter period as if such Indebtedness was incurred, repaid
or retired at the beginning of such four-quarter period (except that, in making
such computation, the amount of Indebtedness outstanding under any revolving
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition as if such acquisition occurred at the
beginning of the relevant four-quarter period; and (iv) any acquisition or
disposition by the Company or its Restricted Subsidiaries of any company or any
business or any assets out of the ordinary course of business, whether by
merger, stock purchase or sale or asset purchase or sale, as if such acquisition
or disposition, as the case may be, occurred at the beginning of the relevant
four-quarter period, and any related incurrence or repayment of Indebtedness, in
each case since the first day of the relevant four-quarter period, assuming such
acquisition or disposition had been consummated on the first day of such
four-quarter period. For purposes of clause (iv) of this definition of "pro
forma basis", in connection with an acquisition of any company, business or
assets, any such pro forma calculation may include (1) any pro forma adjustments
relating to the relevant four-quarter period that would satisfy the requirements
of Rule 11-02(a) of Regulation S-X, and (2) any other reduction of operating or
other expenses in respect of restructuring or consolidating any business,
operations or facilities, any compensation or headcount reduction, or any other
cost savings, of any Persons either alone or together with the Company or any
Restricted Subsidiary, that would otherwise have resulted in the payment of cash
within the next four full fiscal quarters after the date of consummation of such
acquisition (collectively, the "Cost Savings"); provided that (a) the Company
reasonably believes in good faith that such Cost Savings would have been
achieved during the next four full fiscal quarters after the date of
consummation of such acquisition (regardless of whether such Cost Savings could
be reflected in pro forma financial statements under generally accepted
accounting principles, Regulation S-X or any other regulation or policy of the
SEC), (b) such Cost Savings are set forth in reasonable detail in an operating
plan which has been approved pursuant to a resolution of the Board of Directors
and are (X) limited to the lowest amount of a range if any such Cost Savings are
set forth as a range and (Y) net of any operating expenses reasonably expected
to be incurred during the next four full fiscal quarters after the date of
consummation of such acquisition to implement such Cost Savings, and (c) such
Cost Savings are identified and quantified in an officers' certificate signed by
the chief financial officer and another officer of the Company and delivered to
the Trustee at the time of consummation of such acquisition.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined in accordance with GAAP on a
Consolidated basis.
"Consolidated Interest Expense" of the Company means, without duplication,
for any period, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount (other than debt discount
attributable solely to a discount in the purchase price of Indebtedness sold
with an equity security, to the extent of the amount of the value reasonably
attributed in good faith to such equity security at the time of such sale and
reflected in an Officers' Certificate delivered promptly thereafter to the
Trustee), (ii) the net cost under Interest Rate Agreements (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) accrued interest and (v) the amortization of deferred financing
costs, plus (b) (i) the interest component of the Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the Company during such
period and (ii) all capitalized interest of the Company and its Restricted
Subsidiaries, less (c) the amortization of any
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deferred financing costs to the extent paid, in each case as determined in
accordance with GAAP on a Consolidated basis.
"Consolidated Net Income (Loss)" of the Company means, for any period, the
Consolidated net income (or loss) of the Company and its Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted, to the extent
included in calculating such net income (loss), by excluding, without
duplication, (i) all extraordinary, unusual or nonrecurring gains or losses
(less all fees and expenses relating thereto), (ii) the portion of net income
(or loss) of the Company and its Restricted Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by the Company or one of its
Restricted Subsidiaries, (iii) net income (or loss) of any Person combined with
the Company or any of its Restricted Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains (or losses), less all fees and expenses relating
thereto, in respect of dispositions of assets other than in the ordinary course
of business and the net income of any Unrestricted Subsidiary, except to the
extent paid to the Company or any Restricted Subsidiary in cash as a dividend or
distribution or (vi) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Net Worth" of any Person means the Consolidated stockholders'
equity (excluding Redeemable Capital Stock) of such Person and its subsidiaries
(or, in the case of United or the Company, the Restricted Subsidiaries), as
determined in accordance with GAAP on a Consolidated basis.
"Consolidated Non-cash Charges" of the Company means, for any period, the
aggregate depreciation, amortization and other non-cash charges of the Company
and its Restricted Subsidiaries on a Consolidated basis reducing the
Consolidated Net Income of the Company and its Restricted Subsidiaries for such
period, as determined in accordance with GAAP (excluding any non-cash charge
which requires an accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries (or, in the case of United
or the Company, the Restricted Subsidiaries) if and to the extent the accounts
of such Person and each of its subsidiaries (or, in the case of United or the
Company, the Restricted Subsidiaries) would normally be consolidated with those
of such Person, all in accordance with GAAP. The term "Consolidated" shall have
a similar meaning.
"Credit Facilities" means the New Credit Agreement among the Company,
United, the subsidiaries of the Company identified on the signature pages
thereof under the caption "Subsidiary Guarantors," the lenders named therein and
The Chase Manhattan Bank, as Administrative Agent for said lenders, including a
term loan made pursuant to the term loan agreement, a revolving credit loan made
pursuant to the revolving credit loan agreement, and any ancillary documents
executed in connection therewith, as such agreements may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructuring,
replacements, supplements or other modifications of the foregoing, including the
addition of new lenders or agents). For purposes of the Indenture, "Credit
Facilities " shall include any amendments, renewals, extensions, substitutions,
refinancings, restructuring, replacements, supplements or any other
modifications that increase the principal amount of the Indebtedness or the
commitments to lend thereunder, whether under one or more credit facilities or
agreements; provided that, for purposes of the definition of "Permitted
Indebtedness," no such increase may result in the principal amount of
Indebtedness under the Credit Facilities exceeding the amount permitted by
subparagraph (b)(i) of the "Limitation on Indebtedness" covenant.
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"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy as determined by the Board of Directors in good faith
and evidenced by a resolution of the Board of Directors.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect at the time any given calculation is made.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations pursuant to a guarantee given in accordance with the Indenture.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person guaranteed directly or indirectly in any manner by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring that
such property be received or such services be rendered), (iv) to maintain
working capital or equity capital of the debtor, or otherwise to maintain the
net worth, solvency or other financial condition of the debtor or (v) otherwise
to assure a creditor against loss; provided that the term "guarantee" shall not
include endorsements for collection or deposit, in either case in the ordinary
course of business.
"Guarantor" means United, Lagasse, Azerty, Positive ID and AP Support
Services, and each Restricted Subsidiary that is organized under the laws of the
United States or any state or territory thereof, including the District of
Columbia, which incurs any Indebtedness, other than the Joint Venture and any
Securitization Subsidiary that has entered into or established a Permitted
Receivables Securitization Program.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities now or hereafter outstanding,
if, and to the extent, any of the foregoing would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person and (viii) all Redeemable Capital Stock valued at
the greater of its voluntary or involuntary maximum fixed repurchase price. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness
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shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar arrangements) and/or other types of interest rate
hedging agreements from time to time.
"Investments" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued by, any other Person and all other
items that would be classified as investments on a balance sheet prepared in
accordance with GAAP. In addition, the Fair Market Value of the net assets of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made
by the Company in such Unrestricted Subsidiary. The amount of any non-cash
Investment shall be equal to the Fair Market Value of the assets invested, as
determined in good faith by (i) in the case of any Investment in excess of $5.0
million, the Board of Directors of the Company (provided that such determination
is evidenced by a Board Resolution) or (ii) in any other case, an executive
officer of the Company.
"Issue Date" means the date on which the Notes are first issued.
"Joint Venture" means United Business Computers, Inc., a Delaware
corporation.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Maturity" when used with respect to any Note means the date on which the
principal of such Note becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Repurchase Date or
the redemption date and whether by declaration of acceleration, offer in respect
of Excess Proceeds, Change of Control, call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Temporary Cash Investments including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or Temporary Cash
Investments (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other actual fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP or, until no longer required by
contract with the buyer, as required by contract with the buyer, against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee and (b) with respect to any
issuance or sale of Capital Stock or options, warrants or rights to purchase
Capital Stock or Indebtedness or Capital Stock that have been converted into or
exchanged for Capital Stock, the proceeds of such issuance or sale in the form
of cash
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or Temporary Cash Investments, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or Temporary Cash Investments (except to the extent that such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary), net of attorneys' fees, accountants' fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Pari Passu Indebtedness" means any Indebtedness of the Company or a
Guarantor that is PARI PASSU in right of payment to the Notes or a Guarantee of
the Notes, as the case may be.
"Permitted Investment" means (i) Investments in the Company or any
Restricted Subsidiary or any Person which, as a result of such Investment,
becomes a Restricted Subsidiary; (ii) Indebtedness of the Company or a
Restricted Subsidiary described under clauses (vi) and (vii) of the definition
of "Permitted Indebtedness"; (iii) Temporary Cash Investments; (iv) receivables
owing to the Company or any Restricted Subsidiary, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms PROVIDED, HOWEVER, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) Investments acquired by the Company or
any Restricted Subsidiary in connection with an Asset Sale permitted under the
"Limitation on Sale of Assets" covenant to the extent such Investments are
non-cash proceeds as permitted under such covenant; (vi) guarantees of
Indebtedness otherwise permitted by the Indenture; (vii) Investments in
existence on the Issue Date; (viii) customer advances not to exceed $2.5 million
at any one time outstanding; (ix) travel and relocation loans and advances made
to employees in the ordinary course of business; (x) Investments received in
settlement of defaulted receivables or in connection with the bankruptcy or
reorganization of suppliers and customers and in connection with the settlement
of other disputes with customers and suppliers arising in the ordinary course of
business; and (xi) additional Investments not to exceed $25.0 million at any one
time outstanding.
"Permitted Receivables Securitization Program" means a transaction or series
of transactions (including amendments, supplements, extensions, renewals,
replacements, refinancings or modifications thereof) pursuant to which a
Securitization Subsidiary purchases Receivables and Related Assets from the
Company or any Restricted Subsidiary and finances such Receivables and Related
Assets through the issuance of Indebtedness or equity interests or through the
sale of the Receivables and Related Assets or a fractional undivided interest in
the Receivables and Related Assets; PROVIDED that (i) the Board of Directors
shall have determined in good faith that such Permitted Receivables
Securitization Program is economically fair and reasonable to the Company and
the Securitization Subsidiary, (ii) all sales of Receivables and Related Assets
to or by the Securitization Subsidiary are made at Fair Market Value (as
determined in good faith by the Board of Directors), (iii) the financing terms,
covenants, termination events and other provisions thereof shall be market terms
(as determined in good faith by the Board of Directors), (iv) no portion of the
Indebtedness of a Securitization Subsidiary is Guaranteed by or is recourse to
the Company or any Restricted Subsidiary (other than recourse for customary
representations, warranties, covenants and indemnities, none of which shall
relate to the collectability of the Receivables and Related Assets) and (v)
neither the Company nor any Subsidiary has any obligation to maintain or
preserve the Securitization Subsidiary's financial condition.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the Issue
Date, and including, without limitation, all classes and series of preferred or
preference stock.
"Program Funded Amount" means, at any time, the amount of the unrecovered
aggregate "invested amount" of the purchaser or purchasers (other than the
Company or any Subsidiary) of Receivables and Related Assets or interests
therein sold by the Company and the Subsidiaries pursuant to the Receivables
Securitization Program, excluding amounts representative of yield or interest
earned on such aggregate "invested amount."
"Public Equity Offering" means a bona-fide underwritten sale to the public
of Common Stock of the Company or of United, to the extent that the net cash
proceeds thereof are paid to the Company as a capital contribution, pursuant to
a registration statement (other than Form S-8 or a registration statement
relating to securities issuable by any benefit plan of United, the Company or
any Subsidiary) that is declared effective by the Securities and Exchange
Commission.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Receivables and Related Assets" means accounts receivable in respect of
merchandise, goods or services, and instruments, documents, chattel paper,
obligations, general intangibles and other similar assets, in each case,
relating to such receivables, including interests in merchandise or goods, the
sale or lease of which gave rise to such receivable, related contractual rights,
guarantees, insurance proceeds, collections, other related assets, and proceeds
of all of the foregoing.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
Notes or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity.
"Representative" means, with respect to any Designated Senior Indebtedness
or Designated Senior Guarantor Indebtedness, the indenture trustee or other
trustee, agent or representative in respect of such Indebtedness; provided that
if, and so long as, any such Indebtedness lacks such a representative, then the
"Representative" with respect to such Indebtedness shall be the holders of a
majority in outstanding principal amount (or, if no amounts thereunder are
outstanding, the committed amounts) of such Indebtedness.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"Securitization Subsidiary" means a Consolidated Restricted Subsidiary or an
Unrestricted Subsidiary of the Company which is established for the limited
purpose of acquiring and financing Receivables and Related Assets and engaging
in activities ancillary thereto.
"Significant Subsidiary" means, at any date of determination any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal
year of the Company, accounted for more than 10% of the Consolidated revenues of
the Company or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the Consolidated assets of the Company, all as set forth on the most
recently available Consolidated financial statements of the Company for such
fiscal year.
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"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
subordinated in right of payment to the Notes or a Guarantee of the Notes, as
the case may be.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries.
"Temporary Cash Investments" means (i) any evidence of Indebtedness with a
maturity of one year or less and issued by the United States of America, or an
instrumentality or agency thereof and guaranteed fully as to principal, premium,
if any, and interest by the United States of America, (ii) any certificate of
deposit with a maturity of one year or less and issued by, or a time deposit of,
a commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less than
$500.0 million whose debt has a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's Investors Service,
Inc. ("Moody's") or any successor rating agency or "A-1" (or higher) according
to Standard and Poor's Ratings Group ("S&P") or any successor rating agency,
(iii) commercial paper with a maturity of one year or less or industrial revenue
bonds issued by a corporation (other than an Affiliate or Subsidiary of United)
organized and existing under the laws of any state of the United States of
America or the District of Columbia with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P and (iv) any money market deposit accounts issued
or offered by a domestic commercial bank having capital and surplus in excess of
$500.0 million.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (1) any Subsidiary which at the time of
determination shall be designated an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below), (2) any Subsidiary of
an Unrestricted Subsidiary, and (3) United Stationers Hong Kong Limited and
United Worldwide Limited, each of which is a corporation organized under the
laws of Hong Kong. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (a) neither the Company nor any Restricted Subsidiary is
directly or indirectly liable for any Indebtedness of such Subsidiary (except
pursuant to a guarantee that, if it had been made after such designation, would
have been permitted to be made under the "Limitation on Restricted Payments"
covenant, including Permitted Investments), (b) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary having a principal amount of $25.0 million or more to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity, (c) neither the Company nor
any Restricted Subsidiary has, prior to the date of such designation, made an
Investment in such Subsidiary unless the amount of such Investment, if it had
been made after the date of such designation, would have been permitted under
the "Limitation on Restricted Payments" covenant (including Permitted
Investments), (d) neither the Company nor any Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than those that might be
obtained at the time from Persons who are not Affiliates of the Company. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing a Board Resolution with the Trustee giving effect to such designation
and, for purposes of the "Limitation on Restricted Payments" covenant, shall
constitute the making of an Investment in such Unrestricted Subsidiary as
provided under the definition of Investment. The Board of Directors may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately
after giving effect to such designation there would be no Default under the
Indenture and the Company could incur $1.00 of additional
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Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares or a de minimis number of shares
required, under applicable law, to be owned by foreign nationals) is owned by
the Company or another Wholly Owned Subsidiary; and "Restricted Wholly Owned
Subsidiary" means a Wholly Owned Subsidiary that is a Restricted Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited on the date of the closing of
the sale of the Notes (the "Closing Date") with, or on behalf of, the Depository
Trust Company (the "Depository") and registered in the name of Cede & Co., as
nominee of the Depository, or will remain in the custody of the Trustee pursuant
to the FAST Balance Certificate Agreement between DTC and the Trustee.
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers, banks and trust companies, clearing corporations and
certain other organizations. Access to the Depository's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit, on
its internal system, the principal amount of New Notes to the respective
accounts of Participants with an interest in such Global Notes and (ii)
ownership of the New Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depository
(with respect to the interest of Participants), the Participants and the
Indirect Participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer New Notes or to pledge the New Notes as collateral will be limited to
such extent.
So long as the Depository or its nominee is the registered owner of the
Global Notes, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the New Notes represented by such Global
Notes for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities (as defined
below), and will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to giving of any directions,
instruction or approval to the Trustee thereunder. As a result, the ability of a
person having a beneficial interest in New Notes represented by a Global Note to
pledge such interest to persons or entities that do not participate
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in the Depository's system or to otherwise take action with respect to such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Accordingly, each Holder of a beneficial interest in a Global Note must rely
on the procedures of the Depository and, if such Holder is not a Participant or
an Indirect Participant, on the procedures of the Participant through which such
Holder owns its interest, to exercise any rights of a Holder under the Indenture
or such Global Note. The Company understands that under existing industry
practice, in the event the Company requests any action of Holders or an owner of
a beneficial interest in a Global Note desires to take any action that the
Depository, as the Holder of such Global Note, is entitled to take, the
Depository would authorize the Participants to take such action and the
Participant would authorize such Holders owning through such Participants to
take such action or would otherwise act upon the instruction of such Holders.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of New
Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered Holder of the Global Notes representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Notes as shown
on the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, Certificated Notes will be issued to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global Notes.
Upon any such issuance, the Trustee is required to register such Certificated
Notes in the name of such person or persons (or the nominee of any thereof) and
cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New Notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute a sale or an exchange for federal income tax purposes.
Accordingly, such exchange should have no federal income tax consequences to
holders of Old Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes pursuant to the Exchange Offer, where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions in the New
Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other than commissions or concessions of any broker-dealers and will
indemnify holders of the Old Notes (including any broker-dealers) against
certain liabilities, including certain liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby will be
passed upon for the Company by Weil, Gotshal & Manges LLP, Dallas, Texas and New
York, New York.
EXPERTS
The consolidated financial statements of United Stationers Inc. at December
31, 1996 and 1997, and for each of the three years in the period ended December
31, 1997, appearing in and incorporated by reference in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing and incorporated by
reference herein. Such consolidated financial statements are included herein and
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three months ended March 31, 1997 and 1998, Ernst & Young
LLP have reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report, included in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 and incorporated herein by reference, states that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted considering the limited nature of the review
procedures applied. The independent auditors are not subject to the liability
provisions of Section 11 of the Securities Act for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the Registration Statement prepared or certified by the auditors within the
meaning of Sections 7 and 11 of the Securities Act.
The combined financial statements of The U.S. and Mexican Office Products
Operations of Abitibi-Consolidated Inc. as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse,
Chartered Accountants, given on the authority of said firm as experts in
auditing and accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated into this
Prospectus by reference:
(1) United's Current Report on Form 8-K filed March 17, 1998;
(2) United's Proxy Statement for the 1998 Annual Meeting of Stockholders
filed April 3, 1998;
(3) The Company's and United's Annual Report on Form 10-K for the year ended
December 31, 1997;
(4) The Company's and United's Current Report on Form 8-K filed on April 20,
1998;
(5) The Company's Current Report on Form 8-K filed on April 28, 1998; and
(6) The Company's and United's Quarterly Report on Form 10-Q for the first
quarter ended March 31, 1998.
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All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any and all of the documents which have been or may be
incorporated by reference into this Prospectus, except that exhibits to such
documents will not be provided unless they are specifically incorporated by
reference into such documents. Requests for copies of any such document should
be directed to United Stationers Supply Co., 2200 East Golf Road, Des Plaines,
Illinois 60016-1267, Attention: Investor Relations, telephone number (847)
699-5000.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNITED STATIONERS INC. AND SUBSIDIARIES
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997......................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and
1997............................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997............................................................................... F-7
Notes to Consolidated Financial Statements........................................... F-8
Condensed Consolidated Balance Sheets as of December 31, 1997 (audited) and March 31,
1998 (unaudited)................................................................... F-29
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1997
and 1998 (unaudited)............................................................... F-30
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1998 (unaudited).......................................................... F-31
Notes to Condensed Consolidated Financial Statements................................. F-32
U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS OF ABITIBI-CONSOLIDATED INC.
Report of Independent Auditors....................................................... F-36
Combined Balance Sheets as of December 31, 1996 and 1997............................. F-37
Combined Statements of Earnings and Retained Earnings for the Years Ended December
31, 1995, 1996 and 1997............................................................ F-38
Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997............................................................................... F-39
Notes to Combined Financial Statements............................................... F-40
Condensed Combined Balance Sheets as of December 31, 1997 (audited) and March 31,
1998 (unaudited)................................................................... F-47
Condensed Combined Statements of Income for the Three Months Ended March 31, 1997 and
1998 (unaudited)................................................................... F-48
Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1998 (unaudited)............................................................... F-49
Notes to Condensed Combined Financial Statements..................................... F-50
</TABLE>
F-1
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REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of
Directors of United Stationers Inc.
We have audited the accompanying consolidated balance sheets of United
Stationers Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United
Stationers Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Chicago, Illinois
January 27, 1998
F-2
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................................... $ 10,619 $ 12,367
Accounts receivable, less allowance for doubtful accounts of $6,318 in 1996 and
$7,071 in 1997.................................................................. 291,401 311,920
Inventories....................................................................... 463,239 511,555
Other............................................................................. 25,221 14,845
------------- -------------
TOTAL CURRENT ASSETS................................................................ 790,480 850,687
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land.............................................................................. 21,878 21,857
Buildings......................................................................... 100,031 101,322
Fixtures and equipment............................................................ 102,092 113,037
Leasehold improvements............................................................ 1,040 1,026
------------- -------------
Total property, plant and equipment............................................... 225,041 237,242
Less--accumulated depreciation and amortization................................... 51,266 72,699
------------- -------------
NET PROPERTY, PLANT AND EQUIPMENT................................................... 173,775 164,543
GOODWILL............................................................................ 115,449 111,852
OTHER............................................................................... 30,163 20,939
------------- -------------
TOTAL ASSETS........................................................................ $ 1,109,867 $ 1,148,021
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.............................................. $ 46,923 $ 44,267
Accounts payable.................................................................. 238,124 236,475
Accrued expenses.................................................................. 93,789 107,935
Accrued income taxes.............................................................. 6,671 10,561
------------- -------------
TOTAL CURRENT LIABILITIES........................................................... 385,507 399,238
DEFERRED INCOME TAXES............................................................... 36,828 19,383
LONG-TERM DEBT...................................................................... 552,613 492,868
OTHER LONG-TERM LIABILITIES......................................................... 15,502 13,224
REDEEMABLE PREFERRED STOCK
Preferred Stock Series A, $0.01 par value, 15,000 and 0, respectively, authorized;
5,000 and 0, respectively, issued and outstanding, 3,086 and 0, respectively,
accrued......................................................................... 8,086 --
Preferred Stock Series C, $0.01 par value; 15,000 and 0, respectively, authorized;
11,699 and 0, respectively, issued and outstanding.............................. 11,699 --
------------- -------------
TOTAL REDEEMABLE PREFERRED STOCK.................................................... 19,785 --
REDEEMABLE WARRANTS................................................................. 23,812 --
STOCKHOLDERS' EQUITY
Common Stock (voting), $0.10 par value; 40,000,000 authorized 11,446,306 and
15,905,273, respectively, issued and outstanding................................ 1,145 1,591
Common Stock (nonvoting), $0.01 par value, 5,000,000 authorized; 758,994 and 0,
respectively, issued and outstanding............................................ 8 --
Capital in excess of par value.................................................... 44,418 213,042
Retained earnings................................................................. 30,249 8,675
------------- -------------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 75,820 223,308
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 1,109,867 $ 1,148,021
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- -------------
NET SALES........................................................... $ 1,751,462 $ 2,298,170 $ 2,558,135
COST OF GOODS SOLD.................................................. 1,446,949 1,907,209 2,112,204
------------- ------------- -------------
GROSS PROFIT........................................................ 304,513 390,961 445,931
OPERATING EXPENSES:
Warehousing, marketing and administrative expenses................ 237,197 277,957 311,002
Non-recurring charges............................................. -- -- 64,698
Restructuring charge.............................................. 9,759 -- --
------------- ------------- -------------
Total operating expenses.......................................... 246,956 277,957 375,700
------------- ------------- -------------
Income from operations.............................................. 57,557 113,004 70,231
INTEREST EXPENSE.................................................... 46,186 57,456 53,511
------------- ------------- -------------
Income before income taxes and extraordinary item................. 11,371 55,548 16,720
INCOME TAXES........................................................ 5,128 23,555 8,532
------------- ------------- -------------
Income before extraordinary item.................................. 6,243 31,993 8,188
EXTRAORDINARY ITEM--loss on early retirement of debt, net of tax
benefit of $967 in 1995 and $3,956 in 1997........................ (1,449) -- (5,884)
------------- ------------- -------------
NET INCOME.......................................................... 4,794 31,993 2,304
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED........................ 1,998 1,744 1,528
------------- ------------- -------------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS...................... $ 2,796 $ 30,249 $ 776
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER COMMON SHARE:
Income before extraordinary item.................................. $ 0.39 $ 2.48 $ 0.51
Extraordinary item................................................ (0.13) -- (0.45)
------------- ------------- -------------
Net income per common share....................................... $ 0.26 $ 2.48 $ 0.06
------------- ------------- -------------
------------- ------------- -------------
Average number of common shares (in thousands)...................... 10,747 12,205 13,064
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER COMMON SHARE--ASSUMING DILUTION:
Income before extraordinary item.................................. $ 0.33 $ 2.03 $ 0.43
Extraordinary item................................................ (0.11) -- (0.38)
------------- ------------- -------------
Net income per common share....................................... $ 0.22 $ 2.03 $ 0.05
------------- ------------- -------------
------------- ------------- -------------
Average number of common shares (in thousands)...................... 12,809 14,923 15,380
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF
REDEEMABLE PREFERRED STOCK COMMON COMMON
------------------------------------------ REDEEMABLE SHARES STOCK
A B C TOTAL WARRANTS (VOTING) (VOTING)
--------- --------- --------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994............................ $ 6,788 $ 6,560 $ 9,841 $ 23,189 $ 1,650 960,346 $ 10
Net income................................. -- -- -- -- -- -- --
Preferred stock dividends.................. 649 332 763 1,744 -- -- --
Repurchase of Series B preferred stock..... -- (6,892) -- (6,892) -- -- --
Cash dividends............................. -- -- -- -- -- -- --
Accretion of warrants to fair market
value.................................... -- -- -- -- 37,275 -- --
Issuance of warrants from option grant..... -- -- -- -- 2,900 -- --
Nonvoting common stock issued for services
related to financing the Acquisition
issued in exchange for common stock,
warrants and options..................... -- -- -- -- (460) (109,159) (11)
Increase in value of stock option grants... -- -- -- -- -- -- --
Common stock issued:
Acquisition.............................. -- -- -- -- -- 4,831,873 563
Exercise of warrants..................... -- -- -- -- (1,673) 58,977 6
100% stock dividend -- -- -- -- -- 5,683,463 575
Stock option exercises................... -- -- -- -- -- 20,806 2
Other...................................... -- -- -- -- -- -- --
--------- --------- --------- --------- ------------- ----------- -----------
DECEMBER 31, 1995............................ 7,437 -- 10,604 18,041 39,692 11,446,306 1,145
Net income................................. -- -- -- -- -- -- --
Preferred stock dividends.................. 649 -- 1,095 1,744 -- -- --
Reduction of warrants to fair market
value.................................... -- -- -- -- (15,880) -- --
Decrease in value of stock option grants... -- -- -- -- -- -- --
Other...................................... -- -- -- -- -- -- --
--------- --------- --------- --------- ------------- ----------- -----------
DECEMBER 31, 1996............................ $ 8,086 $ -- $ 11,699 $ 19,785 $ 23,812 11,446,306 $ 1,145
Net income................................. -- -- -- -- -- -- --
Stock dividends issued..................... 489 -- 898 1,387 -- -- --
Redemption of Series A and Series C
preferred stock.......................... (8,575) -- (12,597) (21,172) -- -- --
Accretion of lender warrants to fair market
value.................................... -- -- -- -- 23,254 -- --
Increase in value of stock option grants... -- -- -- -- -- -- --
Compensation associated with stock
options.................................. -- -- -- -- -- -- --
Conversions of redeemable warrants into
common stock............................. -- -- -- -- (47,066) 1,408,398 141
Issuance of common stock, net of offering
expenses................................. -- -- -- -- -- 2,000,000 200
Stock options exercised.................... -- -- -- -- -- 299,889 30
Conversion of nonvoting common stock into
common stock............................. -- -- -- -- -- 758,994 76
Cancellation of common stock............... -- -- -- -- -- (8,314) (1)
Other...................................... -- -- -- -- -- -- --
--------- --------- --------- --------- ------------- ----------- -----------
DECEMBER 31, 1997............................ $ -- $ -- $ -- $ -- $ -- 15,905,273 $ 1,591
--------- --------- --------- --------- ------------- ----------- -----------
--------- --------- --------- --------- ------------- ----------- -----------
<CAPTION>
NUMBER OF CAPITAL TOTAL
COMMON COMMON IN STOCK-
SHARES STOCK EXCESS RETAINED HOLDERS'
(NONVOTING) (NONVOTING) OF PAR EARNINGS EQUITY
------------ --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1994............................ -- $ -- $ 18,139 $ 6,626 $ 24,775
Net income................................. -- -- -- 4,794 4,794
Preferred stock dividends.................. -- -- -- (1,744) (1,744)
Repurchase of Series B preferred stock..... -- -- -- -- --
Cash dividends............................. -- -- -- (254) (254)
Accretion of warrants to fair market
value.................................... -- -- (28,538) (8,737) (37,275)
Issuance of warrants from option grant..... -- -- (2,900) -- (2,900)
Nonvoting common stock issued for services
related to financing the Acquisition
issued in exchange for common stock,
warrants and options..................... 139,474 1 2,749 -- 2,739
Increase in value of stock option grants... -- -- 2,407 -- 2,407
Common stock issued:
Acquisition.............................. 215,614 3 35,223 -- 35,789
Exercise of warrants..................... -- -- 1,673 -- 1,679
100% stock dividend 403,906 4 -- (579) --
Stock option exercises................... -- -- 28 -- 30
Other...................................... -- -- 90 (106) (16)
------------ --- --------- ----------- ---------
DECEMBER 31, 1995............................ 758,994 8 28,871 -- 30,024
Net income................................. -- -- -- 31,993 31,993
Preferred stock dividends.................. -- -- -- (1,744) (1,744)
Reduction of warrants to fair market
value.................................... -- -- 15,880 -- 15,880
Decrease in value of stock option grants... -- -- (339) -- (339)
Other...................................... -- -- 6 -- 6
------------ --- --------- ----------- ---------
DECEMBER 31, 1996............................ 758,994 $ 8 $ 44,418 $ 30,249 $ 75,820
Net income................................. -- -- -- 2,304 2,304
Stock dividends issued..................... -- -- -- (1,528) (1,528)
Redemption of Series A and Series C
preferred stock.......................... -- -- -- -- --
Accretion of lender warrants to fair market
value.................................... -- -- (915) (22,339) (23,254)
Increase in value of stock option grants... -- -- 380 -- 380
Compensation associated with stock
options.................................. -- -- 59,398 -- 59,398
Conversions of redeemable warrants into
common stock............................. -- -- 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............................. (758,994) (8) (68) -- --
Cancellation of common stock............... -- -- 1 -- --
Other...................................... -- -- (230) (11) (241)
------------ --- --------- ----------- ---------
DECEMBER 31, 1997............................ -- $ -- $ 213,042 $ 8,675 $ 223,308
------------ --- --------- ----------- ---------
------------ --- --------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 4,794 $ 31,993 $ 2,304
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation............................................................... 19,708 22,766 21,963
Amortization............................................................... 3,976 3,276 4,078
Amortization of capitalized financing costs................................ 4,172 5,333 4,323
Extraordinary item--early retirement of debt............................... 2,416 -- 9,840
Deferred income taxes...................................................... (163) 5,299 (16,091)
Compensation expense on stock option grants................................ 2,407 (339) 60,041
Other...................................................................... 301 1,584 51
Changes in operating assets and liabilities, net of acquisition in 1995 and
1996:
Increase in accounts receivable............................................ (32,330) (15,379) (20,519)
Decrease (increase) in inventory........................................... 31,656 (71,282) (48,316)
Decrease in other assets................................................... 2,765 1,814 9,985
(Decrease) increase in accounts payable.................................... (5,104) 36,352 (1,649)
Decrease (increase) in accrued liabilities................................. (3,474) (17,185) 18,036
Decrease in other liabilities.............................................. (4,795) (2,623) (2,278)
---------- --------- ----------
Net cash provided by operating activities.............................. 26,329 1,609 41,768
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions:
United Stationers Inc., net of cash acquired of $14,500.................... (258,438) -- --
Lagasse Bros., Inc......................................................... -- (51,896) --
Capital expenditures......................................................... (8,086) (8,190) (13,036)
Proceeds from disposition of property, plant & equipment..................... 69 11,076 45
Other........................................................................ 164 (861) --
---------- --------- ----------
Net cash used in investing activities.................................. (266,291) (49,871) (12,991)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolver................................... (3,608) 22,000 49,000
Retirements and principal payments of debt................................... (412,342) (30,861) (117,776)
Borrowings under financing agreements........................................ 686,854 57,933 --
Financing costs.............................................................. (25,290) (1,851) --
Issuance of common stock..................................................... 12,006 -- 71,606
Payment of employee withholding tax related to stock option exercises........ -- -- (8,546)
Redemption of Series A and Series C Preferred Stock.......................... -- -- (21,172)
Redemption of Series B Preferred Stock....................................... (6,892) -- --
Cash dividend................................................................ (254) -- (141)
Other........................................................................ (701) -- --
---------- --------- ----------
Net cash provided (used in) financing activities............................. 249,773 47,221 (27,029)
---------- --------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................................... 9,811 (1,041) 1,748
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................. 1,849 11,660 10,619
---------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR....................................... $ 11,600 $ 10,619 $ 12,367
---------- --------- ----------
---------- --------- ----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5%
of the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million in
the aggregate pursuant to a tender offer (the "Offer"). Immediately thereafter,
Associated merged with and into United (the "Merger" and, collectively with the
Offer, the "Acquisition"), and Associated Stationers, Inc. ("ASI"), a wholly
owned subsidiary of Associated merged with and into United Stationers Supply Co.
("USSC"), a wholly owned subsidiary of United, with United and USSC continuing
as the respective surviving corporations. United, as the surviving corporation
following the Merger, is referred to herein as the "Company." As a result of
share conversions in the Merger, immediately after the Merger, (i) the former
holders of common stock and common stock equivalents of Associated owned shares
of Common Stock and warrants or options to purchase shares of Common Stock
constituting in the aggregate approximately 80% of the shares of Common Stock on
a fully diluted basis, and (ii) holders of pre-Merger United common stock owned
in the aggregate approximately 20% of the shares of Common Stock on a fully
diluted basis. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
The financial information for the year ended December 31, 1995 includes
Associated only for the three months ended March 30, 1995 and the results of the
Company for the nine months ended December 31, 1995. All common and common
equivalent shares have been adjusted to reflect the 100% stock dividend
effective November 9, 1995.
The Acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price was allocated to the assets purchased and
the liabilities assumed based upon the estimated fair values at the date of
acquisition with the excess of cost over fair value allocated to goodwill. The
purchase price allocation to property, plant and equipment is amortized over the
estimated useful lives ranging from 3 to 40 years. Goodwill is amortized over 40
years.
The total purchase price of United by Associated and its allocation to
assets and liabilities acquired was as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchase price:
Price of United shares purchased by Associated................. $ 266,629
Fair value of United shares not acquired in the Offer.......... 21,618
Transaction costs.............................................. 6,309
---------
Total purchase price....................................... $ 294,556
---------
---------
Allocation of purchase price:
Current assets................................................. $ 542,993
Property, plant and equipment.................................. 151,012
Goodwill....................................................... 74,503
Other assets................................................... 7,699
Liabilities assumed............................................ (481,651)
---------
Total purchase price....................................... $ 294,556
---------
---------
</TABLE>
Immediately following the Merger, the number of outstanding shares of Common
Stock was 11,996,154 (or 13,947,440 on a diluted basis), of which (i) the former
holders of Class A Common Stock,
F-8
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING (CONTINUED)
$0.01 par value, and Class B Common Stock, $0.01 par value, of Associated
(collectively "Associated Common Stock") and warrants or options to purchase
Associated Common Stock in the aggregate owned 9,206,666 shares constituting
approximately 76.7% of the outstanding shares of Common Stock and outstanding
warrants or options for 1,951,286 shares (collectively 80.0% on a diluted basis)
and (ii) pre-Merger holders of shares of Common Stock (other than
Associated-owned and treasury shares) in the aggregate owned 2,789,488 shares of
Common Stock constituting approximately 23.3% of the outstanding shares (or
20.0% on a diluted basis). As used in this paragraph, the term "Common Stock"
includes shares of nonvoting common stock, $0.01 par value, of the Company, all
of which were converted into voting Common Stock in the fourth quarter of 1997.
On October 31, 1996, the Company acquired all of the capital stock of
Lagasse Bros., Inc. ("Lagasse") for approximately $51.9 million. The acquisition
was financed primarily through senior debt. The Lagasse acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets purchased and the liabilities
assumed based upon the estimated fair values at the date of acquisition with the
excess of cost over fair value of approximately $39.0 million allocated to
goodwill. The financial information for the year ended December 31, 1996
includes the results of Lagasse for two months ended December 31, 1996. The
actual and pro forma effects of this acquisition are not material.
On October 9, 1997, the Company completed a 2.0 million share primary
offering of Common Stock and a 3.4 million share secondary offering of Common
Stock ("October Equity Offering"). The shares were priced at $38.00 per share,
before underwriting discounts and a commission of $1.90 per share. The aggregate
net proceeds to the Company from this October Equity Offering of $72.2 million
(before deducting expenses) and proceeds of $0.1 million resulting from the
conversion of 1,119,038 warrants into Common Stock were used to (i) redeem $50.0
million of the Company's 12 3/4% Senior Subordinated Notes and pay the
redemption premium thereon of $6.4 million, (ii) pay fees related to the October
Equity Offering, and (iii) reduce by $15.5 million the indebtedness under the
Term Loan Facilities. The repayment of indebtedness resulted in an extraordinary
loss of $9.8 million ($5.9 million net of tax benefit of $3.9 million) and
caused a permanent reduction of the amount borrowable under the Term Loan
Facilities.
As a result of the October Equity Offering, the Company recognized the
following charges in the fourth quarter of 1997 (i) pre-tax non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9
million) and a non-recurring cash charge of $5.3 million ($3.2 million net of
tax benefit of $2.1 million) related to the vesting of stock options (see Note
10) and the termination of certain management advisory service agreements (see
Note 13), respectively, and (ii) an extraordinary loss of $9.8 million ($5.9
million net of tax benefit of $3.9 million) related to the early retirement of
debt (see Note 6), (collectively "Charges").
Net income attributable to common stockholders for the year ended December
31, 1997, before Charges, was $45.4 million, up 50.3%, compared with $30.2
million in 1996. Diluted earnings per share, before Charges, for 1997 was $2.95
on 15.4 million weighted average shares outstanding, up 45.3%, compared with
$2.03 on 14.9 million weighted average shares outstanding for the prior year.
F-9
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. OPERATIONS
The Company operates in a single segment as a national wholesale distributor
of business products. The Company offers approximately 30,000 items from more
than 500 manufacturers. This includes a broad spectrum of office products,
computer supplies, office furniture and facilities management supplies. The
Company primarily serves commercial and contract office products dealers. Its
customers include more than 15,000 resellers--such as office products dealers,
buying groups, office furniture dealers, super stores and mass merchandisers,
mail order houses, computer products resellers, sanitary supply distributors and
warehouse clubs. The Company has a distribution network of 41 Regional
Distribution Centers. Through its integrated computer system, the Company
provides a high level of customer service and overnight delivery. In addition,
the Company has 16 Lagasse Distribution Centers, specifically serving janitorial
and sanitary supply distributors.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when a product is shipped and title is transferred to
the customer in the period the sale is reported.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments that have original maturities of three
months or less are considered to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
INVENTORIES
Inventories constituting approximately 92% and 91% of total inventories at
December 31, 1996 and 1997, respectively, have been valued under the last-in,
first-out ("LIFO") method. Prior to 1995, all inventories were valued under the
first-in, first-out ("FIFO") method. Effective January 1, 1995, Associated
changed its method of accounting for the cost of inventory from the FIFO method
to the LIFO method. Associated made this change in contemplation of its
acquisition of United (accounted for as a reverse acquisition) so that its
method would conform to that of United. Associated believed that the LIFO method
provided a better matching of current costs and current revenues and that
earnings reported under the LIFO method were more easily compared to that of
other companies in the wholesale industry where the LIFO method is common. This
change resulted in a charge to pre-tax income of the Company of approximately
$8.8 million ($5.3 million net of tax benefit of $3.5 million or $0.41 per
common and common equivalent share) for the year ended December 31, 1995.
Inventory valued under the FIFO and LIFO accounting methods are recorded at the
lower of cost or market. If the lower of FIFO cost or market method of inventory
accounting had been used by the Company for all inventories, merchandise
inventories would have been approximately $4.8 million and $4.3 million higher
than reported at December 31, 1996 and 1997, respectively.
F-10
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation and
amortization are determined by using the straight-line method over the estimated
useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to
ten years; the estimated useful life assigned to buildings does not exceed 40
years; leasehold improvements are amortized over the lesser of their useful
lives or the term of the applicable lease.
GOODWILL
Goodwill represents the excess cost over the value of net assets of
businesses acquired and is amortized on a straight-line basis over 40 years. The
Company continually evaluates whether events or circumstances have occurred
indicating that the remaining estimated useful life of goodwill may not be
appropriate. When factors indicate that goodwill should be evaluated for
possible impairment, the Company will use an estimate of undiscounted future
operating income compared to the carrying value of goodwill to determine if a
write-off is necessary. The cumulative amount of goodwill amortized at December
31, 1996 and 1997 is $4.0 million and $7.6 million, respectively.
SOFTWARE CAPITALIZATION
The Company capitalizes major internal and external systems development
costs determined to have benefits for future periods. Amortization is recognized
over the periods in which the benefits are realized, generally not to exceed
three years.
INCOME TAXES
Income taxes are accounted for using the liability method under which
deferred income taxes are recognized for the estimated tax consequences for
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities. Provision has not been made for deferred
U.S. income taxes on the undistributed earnings of the Company's foreign
subsidiaries because these earnings are intended to be permanently invested.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local
currency.
F-11
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the
1997 basis of presentation.
During the fourth quarter of 1996, the Company reclassified certain delivery
and occupancy costs from operating expenses to cost of goods sold to conform the
Company's presentation to the presentation used by others in the business
products industry. The following table sets forth the impact of the
reclassification for the years presented in the Consolidated Statements of
Income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1995(1) 1996
----------- ---------
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification................................. 21.8% 21.0%
Gross margin as reported............................................... 17.4% 17.0%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification...................... 17.9%(2) 16.1%
Operating expense ratio as reported.................................... 13.5 (2) 12.1%
</TABLE>
- --------------
(1) Includes Associated only for the three months ended March 30, 1995 and the
results of the Company for the nine months ended December 31, 1995.
(2) Excludes a restructuring charge of $9.8 million.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial
Statements and accompanying notes. Actual results could differ from these
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share ("EPS").
These new standards simplify the calculation of EPS presently contained in
Accounting Principles Board Opinion No. 15, "Earnings Per Share," and various
other pronouncements, and makes them comparable to international standards. SFAS
No. 128 replaces the presentation of primary and fully diluted EPS with basic
and diluted EPS. The Company currently has a complex capital structure; as a
result, the Company is required to present (i) both basic and diluted EPS on the
face of the consolidated statement of income and (ii) a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS calculation. The earnings per share amounts prior
to 1997 have been restated as required to comply with SFAS No. 128.
F-12
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1996, the Company adopted the supplemental disclosure requirement of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages but does not
require adoption of a fair value method of accounting for stock options. For
those entities which do not elect to adopt the fair value method, the new
standard requires supplemental disclosure regarding the pro forma effects of
that method. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value based method of accounting prescribed by
the Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stocks Issued to Employees," and related Interpretations. Adoption of SFAS No.
123 will have no impact on the financial position or results of operations of
the Company.
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that an
impairment loss be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed. The effect of adoption was not material.
4. EARNINGS PER SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the weighted average number of common and common equivalent shares
outstanding during the period. Stock options and warrants are considered to be
common equivalent shares.
F-13
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C> <C>
1997
BEFORE
1995 1996 1997 CHARGES(1)
--------- --------- --------- -----------
Numerator:
Income before extraordinary item............................... $ 6,243 $ 31,993 $ 8,188 $ 46,892
Preferred stock dividends...................................... 1,998 1,744 1,528 1,528
--------- --------- --------- -----------
Numerator for basic and diluted earnings per share-- income
available to common stockholders before extraordinary item... $ 4,245 $ 30,249 $ 6,660 $ 45,364
--------- --------- --------- -----------
--------- --------- --------- -----------
Denominator:
Denominator for basic earnings per share--weighted average
shares....................................................... 10,747 12,205 13,064 13,064
Effect of dilutive securities:
Employee stock options....................................... 601 1,315 1,258 1,258
Warrants..................................................... 1,461 1,403 1,058 1,058
--------- --------- --------- -----------
Dilutive potential common shares............................... 2,062 2,718 2,316 2,316
Denominator for diluted earnings per share--adjusted weighted
average shares and assumed conversions....................... 12,809 14,923 15,380 15,380
--------- --------- --------- -----------
--------- --------- --------- -----------
Basic earnings per share......................................... $ 0.39 $ 2.48 $ 0.51 $ 3.47
--------- --------- --------- -----------
--------- --------- --------- -----------
Diluted earnings per share....................................... $ 0.33 $ 2.03 $ 0.43 $ 2.95
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
- --------------
(1) In the fourth quarter of 1997, the Company recognized the following charges
(i) pre-tax non-recurring charges of $59.4 million (non-cash) and $5.3
million (cash) related to the vesting of stock options (see Note 10) and the
termination of certain management advisory service agreements (see Note 13),
respectively, and (ii) an extraordinary loss of $9.8 million ($5.9 million
net of tax benefit of $3.9 million) related to the early retirement of debt
(see Note 6).
5. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
The following summarized unaudited pro forma operating data for the year
ended December 31, 1995 is presented giving effect to the Acquisition as if it
had been consummated at the beginning of the respective period and, therefore,
reflects the results of United and Associated on a consolidated basis. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that actually would have
resulted had the combination been in effect on the date indicated, or which may
result in the future. The pro forma results exclude one-time
F-14
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BUSINESS COMBINATION AND RESTRUCTURING CHARGE (CONTINUED)
non-recurring charges or credits directly attributable to the transaction
(dollars in thousands, except per share data):
<TABLE>
<CAPTION>
PRO FORMA TWELVE MONTHS
ENDED DECEMBER 31, 1995
--------------------------
<S> <C>
Net sales......................................................... $ 2,201,860
Income before income taxes........................................ 22,737
Net income........................................................ 13,063
Net income per diluted common and common equivalent share......... $ 0.80
</TABLE>
The pro forma income statement adjustments consist of (i) increased
depreciation expense resulting from the write-up of certain fixed assets to fair
value, (ii) additional incremental goodwill amortization, (iii) additional
incremental interest expense due to debt issued, net of debt retired, and (iv)
reduction in preferred stock dividends due to the repurchase of the Series B
preferred stock.
The historical results for the twelve months ended December 31, 1995 include
a restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9
million). The restructuring charge included severance costs totaling $1.8
million. The Company's consolidation plan specified that 330 distribution, sales
and corporate positions, 180 of which related to pre-Merger Associated, were to
be eliminated substantially within one year following the Merger. The Company
had achieved its target, with the related termination costs of approximately
$1.8 million charged against the reserve. The restructuring charge also included
distribution center closing costs totaling $6.7 million and stockkeeping unit
reduction costs totaling $1.3 million. The consolidation plan called for the
closing of eight redundant distribution centers, six of which related to
pre-Merger Associated, and the elimination of overlapping inventory items from
the Company's catalogs substantially within the one-year period following the
Merger. Estimated distribution center closing costs included (i) the net
occupancy costs of leased facilities after they are vacated until expiration of
leases and (ii) the losses on the sale of owned facilities and the facilities'
furniture, fixtures, and equipment. Estimated stockkeeping unit reduction costs
included losses on the sale of inventory items which have been discontinued
solely as a result of the Acquisition. As of December 31, 1997, five of the six
redundant pre-Merger Associated distribution centers had been closed with $5.5
million charged against the reserve and $2.0 million related to stockkeeping
unit reduction costs had also been charged against the reserve. As of December
31, 1997, the Company's consolidation plan had been completed. Seven of the
eight redundant distribution centers had been closed.
The historical results for 1995 also included an extraordinary charge of
approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) of
financing costs and original issue discount relating to the debt retired. In
addition, the historical results for 1995 included compensation expense relating
to an increase in the value of employee stock options of approximately $1.5
million ($0.9 million net of tax benefit of $0.6 million) as a result of the
Acquisition and Merger. The pro forma twelve months ended December 31, 1995 do
not include the extraordinary write-off.
F-15
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revolver............................................................ $ 207,000 $ 256,000
Term Loans
Tranche A, due in installments until September 30, 2001........... 144,374 97,524
Tranche B, due in installments until September 30, 2003........... 64,750 51,275
Senior Subordinated Notes........................................... 150,000 100,000
Mortgage at 9.4%, due in installments until 1999.................... 2,071 1,957
Industrial development bonds, at market interest rates, maturing at
various dates through 2011........................................ 14,300 14,300
Industrial development bonds, at 66% to 78% of prime, maturing at
various dates through 2004........................................ 15,500 15,500
Other long-term debt................................................ 1,541 579
----------- -----------
599,536 537,135
Less--current maturities.......................................... (46,923) (44,267)
----------- -----------
Total............................................................... $ 552,613 $ 492,868
----------- -----------
----------- -----------
</TABLE>
The prevailing prime interest rate at the end of 1996 and 1997 was 8.25% and
8.50%, respectively.
As of December 31, 1997, the credit facilities under the Amended and
Restated Credit Agreement (the "Credit Agreement") consisted of $148.8 million
of term loan borrowings (the "Term Loan Facilities"), and up to $325.0 million
of revolving loan borrowings (the "Revolving Credit Facility"). In the fourth
quarter of 1997, the Company redeemed $50.0 million of Notes (as defined) with
net proceeds from the October Equity Offering and as a result the Company
recognized an extraordinary loss on the early retirement of debt of $9.8 million
($5.9 million net of tax benefit of $3.9 million). Therefore, the Company has
$100.0 million of borrowings remaining under the 12 3/4% Senior Subordinated
Notes due 2005 (the "Notes").
The Term Loan Facilities consist of a $97.5 million Tranche A term loan
facility (the "Tranche A Facility") and a $51.3 million Tranche B term loan
facility (the "Tranche B Facility"). Quarterly payments under the Tranche A
facility range from $5.03 million at December 31, 1997 to $6.25 million at
September 30, 2001. Quarterly payments under the Tranche B Facility range from
$0.20 million at December 31, 1997 to $5.00 million at September 30, 2003. On
March 31, 1998, principal payments of $15.8 million and $8.7 million are
required to be paid from Excess Cash Flow (as defined in the Credit Agreement)
at December 31, 1997 for the Tranche A and Tranche B Facilities, respectively.
During October 1997, Tranche A and Tranche B Facilities were paid down by $10.3
million and $5.2 million, respectively, from net proceeds received from the
October Equity Offering in October 1997.
The Revolving Credit Facility is limited to the lesser of $325.0 million or
a borrowing base equal to: 80% of Eligible Receivables (as defined in the Credit
Agreement); plus 50% of Eligible Inventory (as defined in the Credit Agreement)
(provided that no more than 60% or, during certain periods 65%, of the Borrowing
Base may be attributable to Eligible Inventory); plus the aggregate amount of
cover for Letter of Credit Liabilities (as defined in the Credit Agreement). In
addition, for each year, the Company must
F-16
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
repay revolving loans so that for a period of 30 consecutive days in each year
the aggregate revolving loans do not exceed $250.0 million. The Revolving Credit
Facility matures on October 31, 2001.
The Term Loan Facilities and the Revolving Credit Facility are secured by
first priority pledges of the stock of USSC, all of the stock of the domestic
direct and indirect subsidiaries of USSC, certain of the stock of all of the
foreign direct and indirect subsidiaries of USSC and security interests in, and
liens upon, all accounts receivable, inventory, contract rights and other
certain personal and certain real property of USSC and its domestic
subsidiaries.
The loans outstanding under the Term Loan Facilities and the Revolving
Credit Facility bear interest as determined within a set range with the rate
based on the ratio of total debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Tranche A Facility and the
Revolving Credit Facility bear interest, at prime plus 0.25% to 1.25% or, at the
Company's option, the London Interbank Offering Rate ("LIBOR") plus 1.50% to
2.50%. The Tranche B Facility bears interest at prime plus 1.25% to 1.75% or, at
the Company's option, LIBOR plus 2.50% to 3.00%.
The Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of this
type. As of December 31, 1997, the Company was in compliance with all covenants
contained in the Credit Agreement.
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including collar
agreements, to reduce the impact of fluctuations in interest rates on a portion
of its variable rate debt. Such agreements generally require the Company to pay
to or entitle the Company to receive from the other party the amount, if any, by
which the Company's interest payments fluctuate beyond the rates specified in
the agreements. The Company is subject to the credit risk that the other party
may fail to perform under such agreements. The Company's allocated cost of such
agreements is amortized to interest expense over the term of the agreements, and
the unamortized cost is included in other assets. Payments received or made as a
result of the agreements, if any, are recorded as an addition or a reduction to
interest expense. At December 31, 1997, the Company had agreements which collar
$200.0 million of the Company's borrowings under the Credit Facilities at LIBOR
rates between 6.0% and 8.0%, which expire in April 1998. From April 1998 through
October 1999, the Company has interest rate collar agreements on $200.0 million
of borrowings at LIBOR rates between 5.2% and 8.0%. For the years ended December
31, 1995, 1996 and 1997, the Company recorded $0.1 million, $0.9 million and
$0.6 million, respectively, to interest expense resulting from LIBOR rate
fluctuations below the floor rate specified in the collar agreements.
The right of United to participate in any distribution of earnings or assets
of USSC is subject to the prior claims of the creditors of USSC. In addition,
the Credit Agreement contains certain restrictive covenants, including covenants
that restrict or prohibit USSC's ability to pay dividends and make other
distributions to United.
F-17
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Debt maturities for the years subsequent to December 31, 1997 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
1998............................................................................. $ 44,267
1999............................................................................. 25,684
2000............................................................................. 26,722
2001............................................................................. 282,555
2002............................................................................. 31,304
Later years...................................................................... 126,603
-----------
Total............................................................................ $ 537,135
-----------
-----------
</TABLE>
At December 31, 1996 and 1997, the Company had available letters of credit
of $55.3 million and $52.9 million, respectively, of which $52.8 million and
$49.8 million, respectively, were outstanding.
7. LEASES
The Company has entered into several non-cancelable long-term leases for
certain property and equipment. Future minimum rental payments under operating
leases in effect at December 31, 1997 having initial or remaining non-cancelable
lease terms in excess of one year are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES(1)
- ---------------------------------------------------------------------------------- -----------
<S> <C>
1998.............................................................................. $ 19,108
1999.............................................................................. 15,675
2000.............................................................................. 12,811
2001.............................................................................. 10,467
2002.............................................................................. 7,235
Later years....................................................................... 15,455
-----------
Total minimum lease payments...................................................... $ 80,751
-----------
-----------
</TABLE>
- --------------
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $14.2 million,
$18.8 million and $20.5 million in 1995, 1996 and 1997, respectively.
F-18
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
PENSION PLANS
In connection with the Merger and Acquisition, the Company assumed the
pension plans of United. Associated did not have a pension plan. Former
Associated employees entered the pension plans on July 1, 1996. As of this date,
the Company has pension plans covering substantially all of its employees.
Non-contributory plans covering non-union employees provide pension benefits
that are based on years of credited service and a percentage of annual
compensation. Non-contributory plans covering union members generally provide
benefits of stated amounts based on years of service. The Company funds the
plans in accordance with current tax laws.
The following table sets forth the plans' funded status at December 31, 1996
and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation
Vested benefits...................................................... $ 19,015 $ 22,611
Non-vested benefits.................................................. 1,431 2,092
--------- ---------
Accumulated benefit obligation......................................... 20,446 24,703
Effect of projected future compensation levels......................... 3,110 4,070
--------- ---------
Projected benefit obligation........................................... 23,556 28,773
Plan assets at fair value.............................................. 28,373 33,562
--------- ---------
Plan assets in excess of projected benefit obligation.................. 4,817 4,789
Unrecognized prior service cost........................................ 720 888
Unrecognized net gain due to past experience different from
assumptions.......................................................... (4,348) (6,020)
--------- ---------
Prepaid pension (asset) liability recognized in the Consolidated
Balance Sheets....................................................... $ 1,189 $ (343)
--------- ---------
--------- ---------
</TABLE>
The plans' assets consist of corporate and government debt securities and
equity securities. Net periodic pension cost for 1995, 1996 and 1997 for pension
and supplemental benefit plans includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefit earned during the period............... $ 1,142 $ 1,884 $ 2,333
Interest cost on projected benefit obligation............... 1,157 1,652 1,833
Actual return on assets..................................... (2,711) (3,468) (5,496)
Net amortization and deferral............................... 1,382 1,495 3,375
--------- --------- ---------
Net periodic pension cost................................... $ 970 $ 1,563 $ 2,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PENSION PLANS AND DEFINED CONTRIBUTION PLAN (CONTINUED)
The assumptions used in accounting for the Company's defined benefit plans
for the three years presented are set forth below:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ----- ---------
<S> <C> <C> <C>
Assumed discount rate.................................................. 7.25% 7.5% 7.25%
Rates of compensation increase......................................... 5.5% 5.5% 5.5%
Expected long-term rate of return on plan assets....................... 7.5% 7.5% 7.5%
</TABLE>
DEFINED CONTRIBUTION
The Company has a defined contribution plan in which all salaried employees
and certain hourly paid employees of the Company are eligible to participate
following completion of six consecutive months of employment. The plan permits
employees to have contributions made as 401(k) salary deferrals on their behalf,
or as voluntary after-tax contributions, and provides for Company contributions,
or contributions matching employees salary deferral contributions, at the
discretion of the Board of Directors. In addition, the Board of Directors
approved a special contribution in 1997 of approximately $1.0 million to the
United Stationers 401(k) Savings Plan on behalf of certain non-highly
compensated employees who are eligible for participation in the plan. Company
contributions for matching of employees contributions were approximately $0.6
million, $0.9 million and $1.0 million in 1995, 1996 and 1997, respectively.
9. POSTRETIREMENT BENEFITS
The Company maintains a postretirement plan. The plan is unfunded and
provides health care benefits to substantially all retired non-union employees
and their dependents. Eligibility requirements are based on the individual's age
(minimum age of 55), years of service and hire date. The benefits are subject to
retiree contributions, deductibles, co-payment provisions and other limitations.
Retirees pay one-half of the projected plan costs.
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheets as of December 31, 1996 and 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Retirees................................................................. $ 877 $ 618
Other fully eligible plan participants................................... 632 632
Other active plan participants........................................... 1,588 1,795
--------- ---------
Total accumulated postretirement benefit obligation...................... 3,097 3,045
Unrecognized net gain.................................................... 1 415
--------- ---------
Accrued postretirement benefit obligation................................ $ 3,098 $ 3,460
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. POSTRETIREMENT BENEFITS (CONTINUED)
The cost of postretirement health care benefits for the years ended December
31, 1995, 1996 and 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost......................................................... $ 161 $ 239 $ 268
Interest on accumulated benefit obligation........................... 109 204 190
Unrecognized net gain................................................ -- -- (15)
--------- --------- ---------
Net postretirement benefit cost...................................... $ 270 $ 443 $ 443
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumptions used in accounting for the Company's postretirement plan for
the three years presented are set forth below. Because the Company's annual
medical cost increases for current and future retirees and their dependents are
capped at 3% per year, which is the assumed health care trend rate used in
calculating the accumulated benefit obligation, an increase in the medical trend
rate above 3% has no effect on the accumulated postretirement benefit
obligation.
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ---------
<S> <C> <C> <C>
Assumed average heath care cost trend rate.............................. 3.0% 3.0% 3.0%
Assumed discount rate................................................... 7.5% 7.5% 7.25%
</TABLE>
10. STOCK OPTION PLAN
The Management Equity Plan (the "Plan"), as amended, is administered by the
Board of Directors, although the Plan allows the Board of Directors of the
Company to designate an option committee to administer the Plan. The Plan
provides for the issuance of shares of Common Stock through the exercise of
options, to key officers and management employees of the Company, either as
incentive stock options or as non-qualified stock options.
In October 1997, the Company's stockholders approved an amendment to the
Plan which provided for the issuance of approximately 1.5 million additional
options to key management employees and directors of the Company. During 1997,
approximately 0.3 million options were granted to management employees and
directors at fair market value.
In September 1995, the Company's Board of Directors approved an amendment to
the Plan which provided for the issuance of options in connection with the
Merger ("Merger Incentive Options") to key management employees of the Company
exercisable for up to 2.2 million additional shares of its Common Stock.
Subsequently, approximately 2.2 million options were granted during 1995 and
1996 to management employees. Some of the options were granted at an option
price below market value and the option price of certain options increases by
$0.625 on a quarterly basis effective April 1, 1996.
These Merger Incentive Options were granted in order to provide incentives
to management with respect to the successful development of ASI and the
integration of ASI with the Company. All Merger Incentive Options were vested
and became exercisable with the completion of the October Equity Offering in
October 1997. All Common Stock issued from the exercise of Merger Incentive
Options is subject to a six month holding period which expires on April 10,
1998. In the fourth quarter of 1997, the Company was required to recognize
compensation expense based upon the difference between the fair market value of
the Common Stock and the exercise prices. Based on the closing stock price on
F-21
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
October 10, 1997 of $39.125 and options outstanding as of October 10, 1997, the
Company recognized a non-recurring non-cash charge of $59.4 million ($35.5
million net of tax benefit of $23.9 million).
An optionee under the Plan must pay the full option price upon exercise of
an option (i) in cash, (ii) with the consent of the Board of Directors of the
Company, by delivering mature shares of Common Stock already owned by such
optionee (including shares to be received upon exercise of the option) and
having a fair market value at least equal to the exercise price or (iii) in any
combination of the foregoing. The Company may require the optionee to satisfy
federal tax withholding obligations with respect to the exercise of options by
(i) additional withholding from the employee's salary, (ii) requiring the
optionee to pay in cash or (iii) reducing the number of shares of Common Stock
to be issued (except in the case of incentive options).
The following table summarizes the transactions of the Plan for the last
three years:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
MANAGEMENT EQUITY PLAN EXERCISE EXERCISE EXERCISE
(EXCLUDING RESTRICTED STOCK) 1995 PRICES 1996 PRICES 1997 PRICES
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
the period......................... 217,309 $ 1.45 2,030,996 $ 10.73 2,497,768 $ 11.61
Granted.............................. 1,854,649 11.65 650,772 7.95 269,000 22.87
Exercised............................ (20,804) 1.45 -- -- (846,871) 15.41
Canceled............................. (20,158) 1.45 (184,000) 7.64 (121,000) 14.76
----------- ----------- -----------
Options outstanding at end of the
period............................. 2,030,996 $ 10.73 2,497,768 $ 11.61 1,798,897 $ 13.77
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table summarizes information concerning outstanding options of
the Plan at
December 31, 1997:
<TABLE>
<CAPTION>
REMAINING
NUMBER CONTRACTUAL
EXERCISE PRICES OUTSTANDING LIFE (YEARS)
- ------------------------------------------------------------------ ------------ ---------------
<S> <C> <C>
$ 1.45............................................................ 378,183 4.09
5.12............................................................ 116,250 4.74
16.88............................................................ 1,037,464 4.74
20.25............................................................ 2,000 4.74
21.63............................................................ 250,000 9.00
44.25............................................................ 15,000 9.87
------------
Total............................................................. 1,798,897
------------
------------
</TABLE>
All share and per share data have been restated to reflect the 100% stock
dividend effective November 9, 1995 and the conversion of Associated common
stock as a result of the Merger.
During 1996, the Company adopted the supplemental disclosure requirements of
SFAS No. 123. Accordingly, the Company is required to disclose pro forma net
income and earnings per share as if the fair value-based accounting method in
SFAS No. 123 had been used to account for stock-based
F-22
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
compensation cost. The Company's Merger Incentive Options granted under the Plan
were considered "all or nothing" awards because the options did not vest to the
employee until the occurrence of a Vesting Event. The fair value of "all or
nothing" awards were measured at the grant date; however, amortization of
compensation expense began when it was probable that the awards were vested. The
October 1997 October Equity Offering constituted a Vesting Event; as a result,
all Merger Incentive Options vested and became exercisable by the optionees.
Options granted under the Plan during 1997 did not require compensation cost
to be recognized in the income statement; however, they are subject to the
supplemental disclosure requirements of SFAS No. 123. Net income and earnings
per share, before charges (see (1) and (2) below), for 1995 and 1997 represent
the Company's results excluding one-time charges and the pro forma adjustments
required by SFAS No. 123. Had compensation cost been determined on the basis of
SFAS No. 123 for options granted during 1995, 1996 and 1997, net income and
earnings per share would have been adjusted as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income attributable to common stockholders
As reported........................................................... $ 2,796 $ 30,249 $ 776
Before charges........................................................ 10,081(1) 30,249 45,364(2)
Pro forma............................................................. 2,796 30,249 18,396
Net income per common share--basic
As reported........................................................... $ 0.26 $ 2.48 $ 0.06
Before charges........................................................ 0.94(1) 2.48 3.47(2)
Pro forma............................................................. 0.26 2.48 1.41
Weighted average shares outstanding................................... 10,747 12,205 13,064
Net income per common share--diluted
As reported........................................................... $ 0.22 $ 2.03 $ 0.05
Before charges........................................................ 0.79(1) 2.03 2.95(2)
Pro forma............................................................. 0.22 2.03 1.20
Weighted average shares outstanding and assumed conversions........... 12,809 14,923 15,380
</TABLE>
- --------------
(1) During 1995, the Company recorded a restructuring charge of $9.8 million and
an extraordinary loss of $2.4 million ($1.4 million net of tax benefit of
$1.0 million) related to early retirement of debt.
(2) The year ended December 31, 1997 reflects non-recurring charges of $59.4
million (non-cash) and $5.3 million (cash) related to the vesting of stock
options and the termination of certain management advisory service
agreements. In addition, during the fourth quarter of 1997 the Company
recorded an extraordinary loss of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) related to early retirement of debt.
F-23
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
The Company uses a binomial option pricing model to estimate the fair value
of options at the date of grant. The weighted average assumptions used to value
options and the weighted average fair value of options granted during 1995, 1996
and 1997 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Fair value of options granted................................ $ 9.33 $ 17.67 $ 13.69
Exercise price............................................... $ 11.65 $ 8.59 $ 22.87
Expected stock price volatility.............................. 102.2% 80.7% 64.7%
Expected dividend yield...................................... 0.0% 0.0% 0.0%
Risk-free interest rate...................................... 5.9% 5.2% 6.4%
Expected life of options..................................... 3 years 2 years 5 years
</TABLE>
11. REDEEMABLE PREFERRED STOCK
At December 31, 1996, the Company had 1,500,000 authorized shares of $0.01
par value preferred stock, of which 15,000 shares were designated as Series A
preferred stock, 15,000 shares were designated as Series C preferred stock, and
1,470,000 shares remained undesignated. Series C preferred stock was junior in
relation to the Series A preferred stock. All preferred stock issued at the date
of inception was valued at the amount of cash paid or assets received for the
stock at $1,000 per share. On September 2, 1997, the Company completed the
redemption of all Series A and Series C preferred stock issued and outstanding
for $8.6 million and $12.7 million, respectively, including accrued and unpaid
dividends thereon. On July 28, 1995, the Company repurchased all Series B
preferred stock issued and outstanding for $7.0 million, including accrued and
unpaid dividends thereon. Upon redemption, each series of preferred stock
resumed the status of undesignated preferred stock. The Company does not have
any preferred stock outstanding as of December 31, 1997.
During the year ended December 31, 1996, 649 shares of Series A preferred
stock were accrued but not issued. As of December 31, 1996, 3,086 shares of
Series A preferred stock have been accrued as dividends but not issued. Also,
noncash dividends were declared and issued for Series C preferred stock in the
amount of 1,095 shares during 1996.
12. REDEEMABLE WARRANTS
The Company had 1,227,438 warrants ("Lender Warrants") outstanding at
December 31, 1996, which allowed holders thereof to buy shares of Common Stock
at an exercise price of $0.10 per share. During 1997, 1,227,438 warrants were
exercised into Common Stock resulting in proceeds of $122,744, which was used to
repay indebtedness under the Term Loan Facilities. Outstanding Lender Warrants
as of December 31, 1996 were valued at $19.50 per warrant. During 1996, 203,030
warrants were contributed back to the Company and terminated in connection with
anti-dilution agreements.
13. TRANSACTIONS WITH RELATED PARTIES
The Company had management advisory service agreements with three investor
groups. These investor groups provided certain advisory services to the Company
in connection with the Acquisition.
Pursuant to an agreement, Wingate Partners, L.P. ("Wingate Partners") had
agreed to provide certain oversight and monitoring services to the Company in
exchange for an annual fee of up to
F-24
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
$725,000, payment (but not accrual) of which is subject to restrictions under
the Credit Agreement related to certain Company performance criteria. At the
Merger, the Company paid aggregate fees to Wingate Partners of $2.3 million for
services rendered in connection with the Acquisition. Wingate Partners earned an
aggregate of $603,000, $725,000 and $513,540 with respect to each of the years
ended 1995, 1996 and 1997, respectively, for such oversight and monitoring
services. Under the agreement, the Company was obligated to reimburse Wingate
Partners for its out-of-pocket expenses and indemnify Wingate Partners and its
affiliates from loss in connection with these services.
Pursuant to an agreement, Cumberland Capital Corporation ("Cumberland") had
agreed to provide certain oversight and monitoring services to the Company in
exchange for an annual fee of up to $137,500, payment (but not accrual) of which
is subject to restrictions under the Credit Agreement related to certain Company
performance criteria. At the Merger, the Company paid aggregate fees to
Cumberland of $100,000 for services rendered in connection with the Acquisition.
Pursuant to the agreement, Cumberland earned an aggregate of $129,000, $137,000
and $97,400 with respect to the years ended 1995, 1996 and 1997, respectively,
for such oversight and monitoring services. The Company was also obligated to
reimburse Cumberland for its out-of-pocket expenses and indemnify Cumberland and
its affiliates from loss in connection with these services.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") had an
agreement to provide certain oversight and monitoring services to the Company in
exchange for an annual fee of up to $137,500, payment (but not accrual) of which
is subject to restrictions under the Credit Agreement related to certain Company
performance criteria. At the Merger, the Company paid aggregate fees to Good
Capital of $100,000 for services rendered in connection with the Acquisition.
Pursuant to the agreement, Good Capital earned an aggregate of $129,000,
$137,500 and $97,400 with respect to the years ended 1995, 1996 and 1997,
respectively, for such oversight and monitoring services. The Company was also
obligated to reimburse Good Capital for its out-of-pocket expenses and indemnify
Good Capital and its affiliates from loss in connection with these services.
In the fourth quarter of 1997, the Company terminated the management
advisory service agreements for one-time payments of approximately $2.4 million,
$400,000 and $400,000 to Wingate Partners, Cumberland and Good Capital,
respectively. As indicated in Note 1, these one-time payments were included as
non-recurring charges on the Consolidated Statements of Income.
F-25
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES
The provision for (benefit from) income taxes consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Currently payable--
Federal................................................... $ 4,172 $ 14,724 $ 19,812
State..................................................... 1,119 3,532 4,811
--------- --------- ---------
Total currently payable................................... 5,291 18,256 24,623
Deferred, net--
Federal................................................... (142) 4,614 (12,889)
State..................................................... (21) 685 (3,202)
--------- --------- ---------
Total deferred, net..................................... (163) 5,299 (16,091)
--------- --------- ---------
Provision for income taxes.................................. $ 5,128 $ 23,555 $ 8,532
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's effective income tax rates for the years ended December 31,
1995, 1996 and 1997 varied from the statutory Federal income tax rate as set
forth in the following table (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997
---------------------- ---------------------- ----------------------
<CAPTION>
% OF % OF % OF
PRE-TAX PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on the federal statutory
rate............................................. $ 3,980 35.0% $ 19,442 35.0% $ 5,852 35.0%
State and local income taxes--net of federal income
tax benefit...................................... 705 6.2 3,000 5.4 1,053 6.3
Non-deductible and other........................... 443 3.9 1,113 2.0 1,627 9.7
--------- --- --------- --- --------- ---
Provision for income taxes......................... $ 5,128 45.1% $ 23,555 42.4% $ 8,532 51.0%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
The deferred tax assets and liabilities result from timing differences in
the recognition of certain income and expense items for financial and tax
accounting purposes. The sources of these differences and the related tax
effects were as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C> <C>
1996 1997
---------------------- ----------------------
<CAPTION>
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Accrued expenses.............................. $ 17,882 $ -- $ 18,280 $ --
Allowance for doubtful accounts............... 11,036 -- 8,632 --
Inventory reserves and adjustments............ -- 13,795 -- 16,852
Depreciation and amortization................. -- 43,798 -- 41,588
Reserve for stock option compensation......... -- -- 16,792 --
Other......................................... 6,915 -- 5,720 --
--------- ----------- --------- -----------
Total......................................... $ 35,833 $ 57,593 $ 49,424 $ 58,440
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
F-26
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
In the Consolidated Balance Sheets, these deferred assets and liabilities
are classified on a net basis as current and non-current based on the
classification of the related asset or liability or the expected reversal date
of the temporary difference.
15. SUPPLEMENTAL CASH FLOW INFORMATION
In addition to the information provided in the Consolidated Statements of
Cash Flows, the following are supplemental disclosures of cash flow information
for the years ended December 31, 1995, 1996 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................. $ 36,120 $ 52,871 $ 49,279
Income taxes............................................. 8,171 17,482 13,663
</TABLE>
The following are supplemental disclosures of noncash investing and
financing activities for the years ended December 31, 1995, 1996 and 1997
(dollars in thousands):
- On March 30, 1995, the Company issued stock valued at $2,162 in exchange
for services related to financing the Acquisition.
- On May 3, 1995, the Company issued stock valued at $2,406 in exchange for
services related to the issuance of the Notes.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
Cash and cash equivalents.................................... $ 10,619 $ 10,619 $ 12,367 $ 12,367
Current maturities of long-term obligations and capital
lease...................................................... 46,923 46,923 44,267 44,267
Long-term debt and capital lease:
Notes...................................................... 150,000 168,000 100,000 114,750
All other.................................................. 403,079 403,079 392,868 392,868
Interest rate collar......................................... -- 1,200 -- 387
</TABLE>
The fair value of the Notes and interest rate collar are based on quoted
market prices and quotes from counterparties, respectively.
17. SUBSEQUENT EVENT
The Company announced on February 10, 1998 that its subsidiary, USSC, signed
a definitive purchase agreement with Abitibi-Consolidated Inc. to acquire the
U.S. and Mexican operations of its
F-27
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENT (CONTINUED)
Office Products Division, a specialty wholesale division of computer
consumables, peripherals and accessories. The purchase price is anticipated to
be approximately $110.0 million. The proposed transaction involves three of the
five business units of the Office Products Division, including: Azerty (U.S. and
Mexico); Positive ID (which distributes bar-code scanning products); and AP
Support Services (which provides outsourcing services in telemarketing, direct
response marketing, logistics and data management services). The Company has
filed for antitrust (Hart-Scott-Rodino) clearance and expects to close the
transaction in April 1998 subject to obtaining the necessary approvals and the
completion of due diligence.
18. SELECTED FINANCIAL DATA FOR LAGASSE BROS., INC.
On October 31, 1996, the Company acquired all of the capital stock of Lagasse.
Therefore, the following summary income statement data for the year ended
December 31, 1996 reflects the financial information of Lagasse for two months.
Set forth below is the summary balance sheet data for Lagasse as of December 31,
1996 and 1997 and the related summary income statement data for the two months
ended December 31, 1996 and the year ended December 31, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Balance Sheet Data:
Current assets........................................................................... $ 18,619 $ 29,731
Total assets............................................................................. 58,365 68,766
Current liabilities...................................................................... 6,295 13,564
Total liabilities........................................................................ 12,338 18,490
</TABLE>
<TABLE>
<CAPTION>
FOR THE TWO MONTHS
ENDED DECEMBER 31, FOR THE YEAR ENDED
1996 DECEMBER 31, 1997
------------------- -------------------
<S> <C> <C>
Income Statement Data:
Net sales............................................................. $ 12,668 $ 97,275
Gross margin.......................................................... 1,790 18,014
Operating income...................................................... 173 7,976
Net (loss) income..................................................... (21) 4,190
</TABLE>
F-28
<PAGE>
UNITED STATIONERS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(AUDITED)
DECEMBER 31, (UNAUDITED)
1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 12,367 $ 11,504
Accounts receivable, net...................................................... 311,920 282,237
Inventories................................................................... 511,555 484,911
Other current assets.......................................................... 14,845 15,754
-------------- --------------
Total current assets........................................................ 850,687 794,406
Property, plant and equipment, net.............................................. 164,543 161,894
Goodwill, net................................................................... 111,852 111,110
Other........................................................................... 20,939 20,282
-------------- --------------
Total assets................................................................ $ 1,148,021 $ 1,087,692
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 236,475 $ 235,915
Accrued liabilities........................................................... 118,496 107,616
Current maturities of long-term debt.......................................... 44,267 19,551
-------------- --------------
Total current liabilities................................................... 399,238 363,082
Deferred income taxes........................................................... 19,383 19,208
Long-term obligations........................................................... 506,092 468,773
-------------- --------------
Total liabilities........................................................... 924,713 851,063
Stockholders' equity:
Common stock (voting), $0.10 par value; 40,000,000 authorized; 15,905,273 and
16,024,019, respectively, issued and outstanding............................ 1,591 1,602
Additional paid-in capital.................................................... 213,042 211,261
Retained earnings............................................................. 8,675 23,766
-------------- --------------
Total stockholders' equity.................................................. 223,308 236,629
-------------- --------------
Total liabilities and stockholders' equity.................................. $ 1,148,021 $ 1,087,692
-------------- --------------
-------------- --------------
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE>
UNITED STATIONERS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net sales............................................................................... $ 635,021 $ 712,517
Cost of goods sold...................................................................... 526,279 589,455
----------- -----------
Gross profit............................................................................ 108,742 123,062
Operating expenses
Warehousing, marketing and administrative expenses.................................... 76,704 85,037
----------- -----------
Income from operations.................................................................. 32,038 38,025
Interest expense........................................................................ 14,661 11,826
----------- -----------
Income before income taxes.............................................................. 17,377 26,199
Income taxes............................................................................ 7,368 11,108
----------- -----------
Net income.............................................................................. 10,009 15,091
Preferred stock dividends issued and accrued............................................ 455 --
----------- -----------
Net income attributable to common stockholders.......................................... $ 9,554 $ 15,091
----------- -----------
----------- -----------
Net income per share.................................................................... $ 0.78 $ 0.94
----------- -----------
----------- -----------
Average number of common shares......................................................... 12,205 15,995
----------- -----------
----------- -----------
Net income per common share--assuming dilution.......................................... $ 0.65 $ 0.88
----------- -----------
----------- -----------
Average number of common shares--assuming dilution...................................... 14,608 17,098
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-30
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................... $ 10,009 $ 15,091
Depreciation and amortization............................................................ 6,534 7,433
Transaction costs and other amortization................................................. 1,179 930
Changes in operating assets and liabilities.............................................. 31,206 44,046
---------- ----------
Net cash provided by operating activities.............................................. 48,928 67,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................................... (1,642) (3,984)
Proceeds from disposition of property, plant and equipment............................... 30 9
---------- ----------
Net cash used in investing activities.................................................. (1,612) (3,975)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt............................................................... (29,417) (29,934)
Net repayments under revolver............................................................ (11,000) (32,000)
Payment of employee withholding tax related to stock option exercises.................... -- (2,571)
Issuance of common shares................................................................ -- 243
Other.................................................................................... 66 (126)
---------- ----------
Net cash used in financing activities.................................................. (40,351) (64,388)
---------- ----------
Net change in cash and cash equivalents.................................................. 6,965 (863)
Cash and cash equivalents, beginning of period........................................... 10,619 12,367
---------- ----------
Cash and cash equivalents, end of period............................................... $ 17,584 $ 11,504
---------- ----------
---------- ----------
Other Cash Flow Information:
Cash payments during the three month period for:
Income taxes paid...................................................................... $ 349 $ 742
Interest paid.......................................................................... 8,340 10,424
</TABLE>
See notes to condensed consolidated financial statements.
F-31
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited,
except for the Consolidated Balance Sheet as of December 31, 1997. These
financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the Company's
management, the condensed consolidated financial statements for the unaudited
interim periods presented include all adjustments necessary to fairly present
the results of such interim periods and the financial position as of the end of
said periods. These adjustments were of a normal recurring nature and did not
have a material impact on the financial statements presented. Certain interim
expense and inventory estimates are recognized throughout the fiscal year
relating to marginal income tax rates, shrinkage, price changes and product mix.
Any refinements to these estimates based on actual experience are recorded when
known.
2. OPERATIONS
The Company is a national wholesale distributor of business products. The
Company offers approximately 35,000 items from more than 550 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 computer products resellers, office furniture dealers,
mass merchandisers, sanitary supply distributors, warehouse clubs, mail order
houses and office products superstores. The Company has a distribution network
of 64 Regional Distribution Centers. Through its integrated computer system, the
Company provides a high level of customer service and overnight delivery.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement 130, "Reporting Comprehensive Income." Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or stockholders' equity. Statement 130 requires foreign currency
translation adjustments, which prior to adoption were included in stockholders'
equity, to be included in other comprehensive income.
During the first quarter of 1998 and 1997, total comprehensive income amounted
to $14,968,000 and $9,982,000, respectively.
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the weighted average number of common and common equivalent shares
outstanding during the period. Stock options and warrants are considered to be
common equivalent shares.
F-32
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
NUMERATOR:
Net income............................................................................... $ 10,009 $ 15,091
Preferred stock dividends................................................................ 455 --
--------- ---------
Numerator for basic and diluted earnings per share--
Net income attributable to common stockholders......................................... $ 9,554 $ 15,091
--------- ---------
--------- ---------
DENOMINATOR:
Denominator for basic earnings per share--
Weighted average shares................................................................ 12,205 15,995
Effect of dilutive securities:
Employee stock options................................................................. 1,001 1,103
Warrants............................................................................... 1,402 --
--------- ---------
Dilutive potential common shares......................................................... 2,403 1,103
--------- ---------
Denominator for diluted earnings per share--
Adjusted weighted average shares and assumed conversions............................... 14,608 17,098
--------- ---------
--------- ---------
Basic earnings per share................................................................... $ 0.78 $ 0.94
--------- ---------
--------- ---------
Diluted earnings per share................................................................. $ 0.65 $ 0.88
--------- ---------
--------- ---------
</TABLE>
5. SUBSEQUENT EVENTS
AZERTY ACQUISITION
On April 3, 1998, the Company completed the acquisition of all of the capital
stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID
Wholesale Inc., and AP Support Services Incorporated (collectively, the "Azerty
Acquisition"), which together comprised substantially all of the United States
and Mexican operations of the Office Products Division of Abitibi-Consolidated
Inc. (collectively, the "Azerty Business"). The aggregate purchase price paid by
the Company for the Azerty Business was approximately $115.1 million (including
fees and expenses) following an initial post-closing adjustment, and subject to
final audit and review by the Company. The Azerty Business is primarily a
specialty wholesaler of computer consumables, peripherals and accessories in the
United States and Mexico. It is currently anticipated that the Company's
existing Micro United division will be integrated into the Azerty Business.
The purchase price for the Azerty Business was funded from borrowings under the
Company's New Credit Facilities (as defined).
F-33
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SUBSEQUENT EVENTS (CONTINUED)
THE NEW CREDIT FACILITIES
On April 3, 1998, in order to fund the purchase price of the Azerty Business,
refinance borrowings under the Company's then-existing senior secured credit
facilities, and pay related fees and expenses in connection therewith, the
Company amended and restated its existing credit agreement (as amended and
restated, the "New Credit Agreement") governing its senior secured credit
facilities (the "New Credit Facilities"). The New Credit Facilities initially
consisted of a $250.0 million six-year revolving credit facility (the "Revolving
Credit Facility"), a $150.0 million six-year tranche A term loan facility (the
"Tranche A Term Loan Facility"), and a $100.0 million six and three-quarter year
tranche B term loan facility (the "Tranche B Term Loan Facility"). The net
proceeds of the Notes Offering (as defined) were used to permanently repay a
substantial portion of indebtedness outstanding under the Tranche B Term Loan
Facility and the remainder of such facility was permanently repaid with proceeds
from the sale of certain receivables, following which the Tranche B Term Loan
Facility was terminated. As a result of the early retirement of the Existing
Credit Facilities, approximately $9.5 million ($5.7 million net of tax benefit
of $3.8 million) of unamortized financing fees will be expensed as a non-cash
extraordinary charge during the second quarter of 1998.
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into a $163.0 million 364-day liquidity facility
(the "Receivables Securitization Program"), pursuant to which the Company sells
certain of its U.S. dollar trade receivables to a wholly-owned offshore
bankruptcy-remote subsidiary of the Company (the "Receivables Company"). The
Receivables Company then transfers the Eligible Receivables to a third-party,
multi-seller asset-backed commercial paper program existing solely for the
purpose of issuing commercial paper rated A-1/P-1 or higher. The Company
received approximately $160.0 million proceeds from the initial sale of Eligible
Receivables on April 3, 1998.
The proceeds to the Company from the Receivables Securitization Program were
used to reduce borrowings under the Revolving Credit Facility and a portion of
the Tranche B Term Loan Facility.
THE NOTES OFFERING
On April 15, 1998, USSC consummated the sale (the "Notes Offering") of $100.0
million of its 8 3/8% Senior Subordinated Notes due 2008 (the "8 3/8% Notes") in
a transaction not subject to the registration requirements of the Securities Act
of 1933. The 8 3/8% Notes were immediately resold by the initial purchasers
thereof in reliance on Rule 144A under the Securities Act of 1933. The aggregate
net proceeds to the Company (aggregating approximately $97.0 million) from the
sale of the 8 3/8% Notes were used to repay a substantial portion of the
indebtedness outstanding under the Tranche B Term Loan Facility.
COMPUTER SERVICES CONTRACT WRITE-OFF
As a condition to the spinoff of ASI from the Wholesale Division of Boise
Cascade Office Products Corporation in January 1992, ASI entered into the
Computer Services Contract with a third party service provider to perform
certain computer services.
F-34
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SUBSEQUENT EVENTS (CONTINUED)
Upon completion of the systems integration between USSC and ASI, increasing
differences in the operating processes and technical environment between the
Company and the third-party service provider, became evident. The Computer
Services Contract was modified to allow the Company, at its discretion, not to
perform any processing at the third-party service provider's facilities.
Accordingly, the related fees were reduced. Payments made to the third-party
service provider subsequent to this final renegotiation were effectively for
disaster recovery purposes only. The Company has recently consolidated its
disaster recovery services under an agreement with another third-party service
provider. In May 1998, the Company completed an assessment of the future utility
of the Computer Services Contract. Based upon such assessment, the Company has
determined that it is no longer feasible to use the prior third-party service
provider for disaster recovery purposes.
During the second quarter of 1998, the Company will write off the remaining term
of the Computer Services Contract. As a result, the Company will record a
non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6
million), which includes a $2.6 million prepaid expense and $11.3 million of
future payments.
6. SELECTED FINANCIAL DATA FOR LAGASSE BROS., INC.
Set forth below is the summary balance sheet data for Lagasse Bros., Inc. as of
December 31, 1997 and March 31, 1998 and the related summary income statement
data for the three months ended March 31, 1997 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1997 1998
-------------- -----------
<S> <C> <C>
Balance Sheet Data:
Current assets...................................................................... $ 29,731 $ 32,499
Total assets........................................................................ 68,766 71,227
Current liabilities................................................................. 13,564 15,914
Total liabilities................................................................... 18,490 19,875
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
---------------------------
1997 1998
-------------- -----------
<S> <C> <C>
Income Statement Data:
Net sales........................................................................... $ 21,976 $ 26,925
Gross margin........................................................................ 3,919 5,073
Operating income.................................................................... 1,581 2,155
Net income.......................................................................... 737 1,072
</TABLE>
F-35
<PAGE>
REPORT OF CHARTERED ACCOUNTANTS
AUDITORS' REPORT
To the Directors of
Abitibi-Consolidated Inc.
We have audited the combined balance sheets of THE U.S. AND MEXICAN OFFICE
PRODUCTS OPERATIONS OF ABITIBI-CONSOLIDATED INC. as described in Note 2 to the
financial statements as at December 31, 1997 and 1996 and the combined
statements of earnings and retained earnings and cash flows for each of the
years in the three-year period ended December 31, 1997. These combined financial
statements are the responsibility of Abitibi-Consolidated Inc.'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 an audit to obtain
reasonable assurance 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.
In our opinion, these combined financial statements present fairly, in all
material respects, the financial position of The U.S. and Mexican Office
Products Operations of Abitibi-Consolidated Inc. as at December 31, 1997 and
1996 and the results of its operations and the changes in its cash flows for
each of the years in the three-year period ended December 31, 1997 in accordance
with generally accepted accounting principles in the United States.
PRICE WATERHOUSE Toronto, Canada
Chartered Accountants January 31, 1998
F-36
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash................................................................................. $ 6,916 $ 7,034
Accounts receivable:
Trade, less allowance for doubtful accounts of $779 (1997-$873).................... 14,737 39,051
Affiliated companies (NOTE 3)...................................................... 18,000 --
Inventories.......................................................................... 31,624 33,639
Prepaid expenses and other current assets............................................ 3,941 4,262
Due from affiliate................................................................... 186 --
----------- ------------
75,404 83,986
Property and equipment (NOTE 4)........................................................ 5,833 5,392
Goodwill, net of amortization of $12,223 (1997-$13,763)................................ 18,155 16,615
----------- ------------
$ 99,392 $ 105,993
----------- ------------
----------- ------------
LIABILITIES
Current liabilities
Trade accounts payable............................................................... $ 35,655 $ 47,758
Accrued expenses..................................................................... 3,185 3,365
Current portion of long-term debt (NOTE 5)........................................... 86 99
Due to affiliate..................................................................... -- 456
----------- ------------
38,926 51,678
Advances from Abitibi-Consolidated Inc. (NOTE 6)....................................... 34,161 22,495
Long-term debt (NOTE 6)................................................................ 425 287
----------- ------------
73,512 74,460
EQUITY
Capital stock (NOTE 7)................................................................. 16,623 16,623
Contributed surplus.................................................................... 436 2,463
Retained earnings...................................................................... 8,880 12,496
Cumulative foreign exchange translation adjustment..................................... (59) (49)
----------- ------------
25,880 31,533
----------- ------------
$ 99,392 $ 105,993
----------- ------------
----------- ------------
Commitments, contractual obligations and contingencies (NOTE 12)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
COMBINED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Net sales................................................................. $ 255,102 $ 303,938 $ 355,423
Cost of sales (including purchased inventory from an affiliated company of
$8 million)............................................................. 232,881 274,990 323,161
------------ ----------- -----------
Gross profit.............................................................. 22,221 28,948 32,262
Selling, general and administrative expenses (NOTE 6)..................... 17,764 19,955 25,374
Unusual items (NOTE 8).................................................... (1,563) (1,423) 451
------------ ----------- -----------
Operating profit.......................................................... 2,894 7,570 7,339
Interest expense, net (NOTE 6)
Abitibi-Consolidated Inc................................................ 1,459 1,470 636
Other................................................................... -- 35 42
------------ ----------- -----------
1,459 1,505 678
Other expenses (income), net.............................................. (62) 186 184
------------ ----------- -----------
Earnings before income taxes.............................................. 1,497 5,879 6,477
Income tax expense (NOTE 9)
State taxes............................................................. 217 464 302
Deferred income taxes................................................... 1,001 3,136 2,559
------------ ----------- -----------
1,218 3,600 2,861
------------ ----------- -----------
Net earnings for the year................................................. 279 2,279 3,616
Retained earnings, beginning of year...................................... 6,322 6,601 8,880
------------ ----------- -----------
Retained earnings, end of year............................................ $ 6,601 $ 8,880 $ 12,496
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Cash provided by (used in)
OPERATING ACTIVITIES
Net earnings for the year................................................... $ 279 $ 2,279 $ 3,616
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation............................................................ 729 1,014 1,233
Goodwill amortization................................................... 1,458 1,519 1,540
Deferred income taxes................................................... 1,001 3,136 2,559
Changes in current assets and liabilities
Accounts receivable--trade.............................................. (1,917) 12,893 (24,314)
Inventories............................................................. (3,307) (3,362) (2,015)
Advances (repayments) to affiliate...................................... -- (186) 642
Prepaid expenses and other current assets............................... (407) (557) (321)
Trade accounts payable and accrued expenses............................. 10,848 5,596 12,283
---------- ---------- ---------
8,684 22,332 (4,777)
INVESTING ACTIVITIES
Property and equipment additions............................................ (1,985) (1,519) (792)
Acquisition of business, including goodwill................................. -- (1,198) --
---------- ---------- ---------
(1,985) (2,717) (792)
FINANCING ACTIVITIES
Borrowings on long-term debt................................................ -- 511 --
Payments on long-term debt.................................................. (1,280) -- (125)
Advances (repayments) to Abitibi-Consolidated, Inc., net.................... (1,407) 1,808 (14,225)
Obligation assumed by parent company...................................... (907) (188) 2,027
Accounts receivable--affiliated companies (NOTE 3)........................ -- (18,000) 18,000
Other....................................................................... 171 (230) 10
---------- ---------- ---------
(3,423) (16,099) 5,687
---------- ---------- ---------
INCREASE IN CASH DURING THE YEAR.............................................. 3,276 3,516 118
CASH, BEGINNING OF YEAR....................................................... 124 3,400 6,916
---------- ---------- ---------
CASH, END OF YEAR............................................................. $ 3,400 $ 6,916 $ 7,034
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. ORGANIZATION
The U.S. and Mexican Office Products Operations of Abitibi-Consolidated Inc.
(the "division"), as described in Note 2, are effectively wholly owned by
Abitibi-Consolidated Inc. The division is a distributor of computer consumables,
peripherals and accessories. The division's customers include specialized
computer supplies dealers, value added computer resellers, office products
dealers and retailers, including superstores.
No single customer accounted for more than 5% of the division's annual net
sales during the three-year period ended December 31, 1997 and the operations of
the division are predominately in the United States.
The ultimate shareholder of the U.S. and Mexican Office Products Operations
entered into an agreement in February 1998 to sell these businesses. These
special purpose financial statements have been prepared to enable the purchaser
to meet certain U.S. regulatory filing requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The division's financial statements are expressed in U.S. dollars and are
prepared in accordance with accounting principles generally accepted in the
United States.
PRINCIPLES OF COMBINATION AND BASIS OF PRESENTATION
The combined financial statements include the operations of the following
entities:
- certain wholly-owned subsidiaries of Abitibi-Consolidated Sales
Corporation (formerly Abitibi-Price Sales Corporation), a Delaware
corporation, including Azerty Incorporated, Positive I.D. Wholesale Inc.
and AP Support Services Incorporated; Azerty Incorporated also owns a 1%
interest in Azerty de Mexico, S.A. de C.V.; and
- Azerty de Mexico, S.A. de C.V. (99% share owned by Abitibi-Consolidated
Inc.)
All significant intercompany transactions and balances have been eliminated
in the combined financial statements. Bonuses earned by senior executives which
were paid on behalf of the entities by the parent company in 1998 have also been
included in selling, general and administrative expenses on the combined
statements of earnings and retained earnings and in contributed surplus in the
combined balance sheets. The benefit conferred by Abitibi-Consolidated Sales
Corporation after taxes was $2,027,000 for the year ended December 31, 1997
(1996-expense of $188,000; 1995-expense of $907,000).
USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-40
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of Azerty de Mexico, S.A. de C.V. are translated into
U.S. dollars at the end-of-the-year exchange rate. The resulting translation
adjustment is recorded in the foreign currency translation adjustment account
which is included as a component of equity. Revenues and expenses are translated
at average prevailing exchange rates during the year.
Monetary assets and liabilities for integrated operations are translated at
the rates of exchange on the balance sheet date and nonmonetary assets and
liabilities are translated at historic rates. Revenues and expenses are
translated at average prevailing exchange rates during the year. Gains and
losses from foreign currency transactions are included in net earnings. The
Mexican operations were translated on a self-sustaining basis starting January
1, 1996. Previously, they had been accounted for on an integrated basis.
CASH
Cash includes cash equivalents. Cash equivalents are short-term investments
with maturities of three months or less from the date of purchase.
REVENUE RECOGNITION
Revenues are recognized at the time of shipment of products or upon
completion of the performance of services.
FINANCIAL INSTRUMENTS
The recorded values of the financial instruments, which include short-term
investments, accounts receivable, accounts payable and accrued expenses,
approximate market value. In the opinion of management, the operations do not
have any significant concentration of credit risk. Concentration of credit risk
with respect to accounts receivable is limited due to the wide variety of
customers and channels to and through which the products are sold.
INVENTORIES
Inventories consist of product held for sale and are stated at the lower of
cost and net realizable value with cost determined on a first-in, first-out
basis.
F-41
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged directly to earnings. Depreciation is calculated using the straight-line
method at rates that depreciate the related assets over their estimated useful
lives as follows:
<TABLE>
<S> <C>
Buildings............................................... 30 years
Machinery and equipment................................. 5-10 years
Office furniture, fixtures and equipment................ 3-10 years
</TABLE>
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over twenty years. Any
impairment in value is recorded in earnings when it is identified based on
projected undiscounted future cash flows from the related operations.
3. ACCOUNTS RECEIVABLE
Under agreements with major banks, accounts receivables were sold to two of
the parent company's wholly-owned subsidiary companies beginning in late 1996.
This program was discontinued in early 1997. These affiliated companies then
sold the receivables, with minimal recourse, to the banks. The division acted as
a service agent and administered the collection of the accounts receivable. At
December 31, 1996, the banks owned approximately $18.2 million of such
receivables, with a maximum credit risk exposure to the division of $1.4
million.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Land............................................................................. $ 216 $ 216
Buildings and improvements....................................................... 1,892 1,909
Machinery and equipment.......................................................... 2,078 2,086
Office furniture, fixtures and equipment......................................... 5,625 6,279
Leasehold improvements........................................................... 290 371
--------- ---------
10,101 10,861
Less: Accumulated depreciation................................................... 4,268 5,469
--------- ---------
$ 5,833 $ 5,392
--------- ---------
--------- ---------
</TABLE>
F-42
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Promissory notes........................................................................ $ 472 $ 382
Other................................................................................... 39 4
--------- ---------
Total debt.............................................................................. 511 386
Less: Current portion................................................................... 86 99
--------- ---------
Long-term portion....................................................................... $ 425 $ 287
--------- ---------
--------- ---------
</TABLE>
The unsecured notes bear interest at a rate of 10% per annum and are
repayable in monthly instalments of $11,000 of principal and interest through to
May 2001.
6. RELATED PARTY TRANSACTIONS
Advances from Abitibi-Consolidated Inc. of $5,475,000 (1996-$2,749,000;
1995-$18,000,000) bore interest at LIBOR plus 1/8% per annum (1996 and
1995-LIBOR plus 3/4% per annum) with no fixed terms of repayment. The LIBOR rate
at the end of 1997 was 5.7% (1996-5.53%; 1995-5.72%). Interest expense on these
advances amounted to $636,000, $1,470,000 and $1,459,000 for the years ended
December 31, 1997, 1996 and 1995. The remainder of the advances are noninterest
bearing with no fixed repayment terms. The noninterest bearing advances averaged
$15,450,000 in 1997 (1996-$13,250,000; 1995-$11,704,000). Subsequent to December
31, 1997, all of the advances from Abitibi-Consolidated Inc. were repaid
primarily through the subscription by Abitibi-Consolidated Inc. for, and the
issuance of, common shares by the respective companies.
Included in selling, general and administrative expenses are parent company
administrative charges related primarily to executive administration, legal,
treasury and internal audit services of $97,000, $148,000 and $126,000,
respectively, for the years ended December 31, 1997, 1996 and 1995. In the
opinion of management, these costs have been allocated on a reasonable and
consistent basis.
F-43
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
7. CAPITAL STOCK
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Azerty Incorporated
Authorized
1,000 common shares
125 preferred shares
Issued
542,857 common shares.............................................. $ 16,468 $ 16,468
Azerty de Mexico, S.A. de C.V.
Authorized
100 Class 1 shares
Unlimited Class 2 shares
Issued
100 Class 1 shares
1,000 Class 2 shares............................................... 155 155
AP Support Services Incorporated
Authorized
1,000 common shares
125 preferred shares
Issued
100 common shares.................................................. -- --
Positive I.D. Wholesale Inc.
Authorized
1,000 common shares
125 preferred shares
Issued
100 common shares.................................................. -- --
--------- ---------
$ 16,623 $ 16,623
--------- ---------
--------- ---------
</TABLE>
8. UNUSUAL ITEMS
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Reduction in vendor allowances.................................................. $ -- $ -- $ 800
Incremental costs relating to United Parcel Service strike...................... -- -- (349)
Start-up costs and losses associated with new businesses........................ -- (1,423) --
Costs related to restructuring, including employee severance costs.............. (1,086) -- --
Foreign exchange loss relating to Mexican operations............................ (477) -- --
--------- --------- ---------
$ (1,563) $ (1,423) $ 451
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-44
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
State taxes
U.S.A......................................................................... $ 217 $ 464 $ 300
Mexico........................................................................ -- -- 2
--------- --------- ---------
217 464 302
Deferred taxes
U.S.A......................................................................... 1,001 3,136 2,559
Mexico........................................................................ -- -- --
--------- --------- ---------
1,001 3,136 2,559
--------- --------- ---------
Total provision for income taxes................................................ $ 1,218 $ 3,600 $ 2,861
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income before taxes consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
U.S.A........................................................................... $ 1,803 $ 5,578 $ 5,885
Mexico.......................................................................... (306) 301 592
--------- --------- ---------
$ 1,497 $ 5,879 $ 6,477
--------- --------- ---------
--------- --------- ---------
</TABLE>
The U.S. entities are part of a tax sharing agreement with
Abitibi-Consolidated Sales Corporation. As part of this agreement, earnings are
charged with income taxes relating to reported profits and the federal taxes
allocated to the U.S. entities are recorded through advances from
Abitibi-Consolidated Inc. The amounts allocated are calculated on the basis that
the U.S. entities are a separate taxable entity. The U.S. combined effective
federal and state income tax rate is 40%. The goodwill on the balance sheets
does not have an income tax base and the related amortization expense is a
permanent difference for tax purposes.
Azerty de Mexico, S.A. de C.V. is a separate entity for taxation purposes.
An income tax expense for the year ended December 31, 1997 of $200,000
(1996-$85,000; 1995-$60,000) was offset by the utilization of unrecorded tax
benefits relating to accounting losses of previous years. At December 31,1997,
Azerty de Mexico, S.A. de C.V. had approximately $1.7 million of income tax
losses available to be carried forward and offset against future taxable income.
These tax losses expire in 2005 and 2006. The income tax benefit arising from
these losses has not been recognized in the financial statements.
10. PENSION COSTS AND OBLIGATIONS
Certain of the operations have defined contribution retirement plans
covering substantially all of their employees. The contributions vary by entity
and provide for payments as a percentage or multiple of employee contributions.
Pension costs approximated $200,000 in 1997 (1996-$100,000; 1995-$100,000).
F-45
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
11. BANK INDEBTEDNESS
The division borrows on an unsecured line of credit of $4,000,000 bearing
interest at LIBOR plus 1/2% per annum to fund general operating requirements. As
at December 31, 1997, no amounts were outstanding under the line of credit. The
line of credit will be terminated April 3, 1998.
12. COMMITMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
Equipment and facilities under operating leases expiring in various years
through 2007 are summarized below. In most cases, management expects that, in
the normal course of business, leases will be renewed or replaced by other
leases.
Minimum future annual rental payments under noncancellable operating leases
having original terms in excess of one year, are as follows:
<TABLE>
<S> <C>
1998............................................... $ 1,114
1999............................................... 802
2000............................................... 785
2001............................................... 383
2002............................................... 271
Thereafter......................................... 716
---------
$ 4,071
---------
---------
</TABLE>
Total rental expense under operating leases approximated $820,000, $800,000
and $660,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The division carries products and accessories purchased from numerous
suppliers and approximately 60% of net sales in each of the three years ended
December 31, 1997 were derived from products purchased from the five largest
suppliers.
The division is involved in certain litigation arising in the ordinary
course of business. Management believes that such litigation will be resolved
without material effect on the financial position or results of operations.
F-46
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 7,034 $ 2,375
Accounts receivable, net....................................................... 39,051 45,458
Inventories.................................................................... 33,639 33,476
Other current assets........................................................... 4,262 3,641
-------------- ------------
Total current assets....................................................... 83,986 84,950
Property and equipment......................................................... 5,392 5,345
Goodwill, net.................................................................. 16,615 16,271
-------------- ------------
Total assets............................................................... $ 105,993 $ 106,566
-------------- ------------
-------------- ------------
LIABILITIES
Current liabilities:
Accounts payable............................................................... $ 47,758 $ 40,288
Accrued liabilities............................................................ 3,821 3,103
Current maturities of long-term debt........................................... 99 102
-------------- ------------
Total current liabilities.................................................. 51,678 43,493
Advances from Abitibi-Consolidated Inc......................................... 22,495 30,145
Long-term obligations.......................................................... 287 248
-------------- ------------
Total liabilities.......................................................... 74,460 73,886
Divisional equity.............................................................. 31,533 32,680
-------------- ------------
Total liabilities and equity............................................... $ 105,993 $ 106,566
-------------- ------------
-------------- ------------
</TABLE>
See notes to condensed combined financial statements.
F-47
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net sales.................................................................................. $ 88,367 $ 99,723
Cost of goods sold......................................................................... 80,390 91,050
--------- ---------
Gross profit............................................................................... 7,977 8,673
Operating expenses
Selling, general and administrative expenses............................................. 5,295 6,219
--------- ---------
Operating income........................................................................... 2,682 2,454
Interest expense........................................................................... 255 185
Other income and (expense), net............................................................ 10 (221)
--------- ---------
Income before income taxes................................................................. 2,437 2,048
Income taxes............................................................................... 1,072 901
--------- ---------
Net income................................................................................. $ 1,365 $ 1,147
--------- ---------
--------- ---------
</TABLE>
See notes to condensed combined financial statements.
F-48
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 1,365 $ 1,147
Depreciation and amortization.............................................................. 683 680
Changes in operating assets and liabilities................................................ (10,632) (13,771)
--------- ---------
Net cash used in operating activities.................................................. (8,584) (11,944)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................................... (187) (289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................................................. (30) (39)
Advances to Abitibi-Consolidated Inc., net................................................. 2,244 7,650
Other...................................................................................... (151) (37)
--------- ---------
Net cash provided by financing activities................................................ 2,063 7,574
--------- ---------
Net change in cash and cash equivalents.................................................... (6,708) (4,659)
Cash and cash equivalents, beginning of period............................................. 6,916 7,034
--------- ---------
Cash and cash equivalents, end of period................................................. $ 208 $ 2,375
--------- ---------
--------- ---------
</TABLE>
See notes to condensed combined financial statements.
F-49
<PAGE>
THE U.S. AND MEXICAN OFFICE PRODUCTS OPERATIONS
OF ABITIBI-CONSOLIDATED INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
The U.S. and Mexican Office Products Operations of Abitibi-Consolidated Inc.
(the "division") are effectively wholly owned by Abitibi-Consolidated Inc. The
division is a leading distributor of computer consumables, peripherals and
accessories. The division's customers include specialized computer supplies
dealers, value added computer resellers, office products dealers and retailers,
including superstores.
No single customer accounted for more than 5% of the division's annual net
sales during the three months ended March 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The division's financial statements are expressed in U.S. dollars and are
prepared in accordance with accounting principles generally accepted in the
United States.
PRINCIPLES OF COMBINATION AND BASIS OF PRESENTATION
The combined financial statements include the operations of the following
entities and divisions:
- certain wholly-owned subsidiaries of Abitibi-Consolidated Sales
Corporation (formerly Abitibi-Price Sales Corporation), a Delaware
corporation, including Azerty Incorporated, Positive I.D. Wholesale Inc.
and AP Support Services Incorporated. Azerty Incorporated also has a 1%
share of Azerty de Mexico, S.A. de C.V.; and
- Azerty de Mexico, S.A. de C.V. (99% share owned by Abitibi-Consolidated
Inc.).
All significant intercompany transactions and balances have been eliminated
in the combined financial statements.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the division adopted Financial Accounting Standards
Board Statement 130, "Reporting Comprehensive Income." Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
division's net income or stockholders' equity. Statement 130 requires foreign
currency translation adjustments, which prior to adoption were included in
stockholders' equity, to be included in other comprehensive income.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $1,626,000 and $1,613,000, respectively.
4. SUBSEQUENT EVENTS
On April 3, 1998, United Stationers Supply Co. ("USSC") completed the
acquisition of all of the capital stock of Azerty Incorporated, Azerty de
Mexico, S.A. de C.V., Positive ID Wholesale Inc., and AP Support Services
Incorporated, which together comprised substantially all of the United States
and Mexican operations of the Office Products Division of Abitibi-Consolidated
Inc. (collectively, the "Azerty Business"). The aggregate purchase price paid by
USSC for the Azerty Business was approximately $115.1 million (including fees
and expenses) following an initial post-closing adjustment, and subject to final
audit and review by USSC.
F-50
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NEW NOTES BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE NEW NOTES
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN A CHANGE IN FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
---------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................... i
Prospectus Summary...................... 1
Risk Factors............................ 16
Recent Transactions..................... 24
Use of Proceeds......................... 27
Capitalization.......................... 27
Selected Consolidated Financial Data.... 28
Unaudited Consolidated Pro Forma
Financial Statements.................. 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 44
Business................................ 54
Management.............................. 65
Certain Transactions.................... 68
Security Ownership of Certain Beneficial
Owners................................ 72
Description of Certain Indebtedness..... 74
The Exchange Offer...................... 77
Description of the New Notes............ 84
Certain Federal Income Tax
Considerations........................ 118
Plan of Distribution.................... 118
Legal Matters........................... 119
Experts................................. 119
Incorporation of Certain Documents by
Reference............................. 119
Index to Financial Statements........... F-1
</TABLE>
---------------------------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
OFFER TO EXCHANGE ALL OUTSTANDING 8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
UNITED STATIONERS SUPPLY CO.
[LOGO]
-------------------
P R O S P E C T U S
-------------------
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and the Bylaws of the Company and Lagasse
Bros., Inc., a Louisiana Corporation ("Lagasse"), and the Certificates of
Incorporation and Bylaws of United, Azerty Incorporated, a Delaware corporation,
Positive ID Wholesale Inc., a Delaware corporation, and AP Support Services
Incorporated, a Delaware corporation (collectively, the "Delaware Guarantors"),
provide for the indemnification of directors and officers to the fullest extent
permitted by the Business Corporation Act of the State of Illinois ("IBCA"), the
Louisiana Business Corporation Law ("LBCL") and the General Corporation Law of
the State of Delaware ("DGCL"), respectively. Pursuant to Section 8.75 of the
IBCA, the Company generally has the power to indemnify its present and former
directors and officers against expenses incurred by them in connection with any
suit to which such directors and officers are, or are threatened to be made, a
party by reason of their serving in such positions, so long as they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of the Company, and with respect to any criminal action, they
had no reasonable cause to believe their conduct was unlawful. Pursuant to
Section 12:83 of the LBCL, Lagasse has the power to indemnify its present and
former directors and officers who were or are a party, or are threatened to be
made a party, to any proceeding, by reason of their serving in such positions,
against expenses actually and reasonably incurred by them in such proceeding if
they acted in good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of Lagasse. Pursuant to the provisions of
Section 145 of the DGCL, the Delaware Guarantors have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding (other than an
action by or in the right of the Delaware Guarantors) by reason of the fact that
he is or was a director, officer, employee, or agent of the Delaware Guarantors
against any and all expenses, judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit, or
proceeding. The power to indemnify applies only if such person acted in good
faith and in a manner he reasonably believed to be in the best interest, or not
opposed to the best interest, of the Delaware Guarantors and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Indemnification is not available if such person has been adjudged to have
been liable to the Company, Lagasse or the Delaware Guarantors, unless and only
to the extent the court in which such action was brought determines that,
despite the adjudication of liability, but in view of all the circumstances, the
person is reasonably and fairly entitled to indemnification for such expenses as
the court shall deem proper. The Company, Lagasse and the Delaware Guarantors
have the power to purchase and maintain insurance for such persons. The statutes
also expressly provide that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise.
The above discussion of the Articles of Incorporation and Bylaws of the
Company and Lagasse, and the Certificates of Incorporation and Bylaws of the
Delaware Guarantors and of Section 8.75 of the IBCA, Section 12:83 of the LBCL
and Section 145 of the DGCL is not intended to be exhaustive and is qualified in
its entirety by such Articles of Incorporation and Bylaws of the Company and
Lagasse, such Certificates of Incorporation and Bylaws of the Delaware
Guarantors, and the IBCA, LBCL and DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
Lagasse or the Delaware Guarantors pursuant to the foregoing provisions, or
otherwise, the Company, Lagasse and the Delaware Guarantors have been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by
the Company, Lagasse and the Delaware Guarantors of
II-1
<PAGE>
expenses incurred or paid by a director, officer, or controlling person thereof
in the successful defense of any action, suit, or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Company, Lagasse and the Delaware Guarantors will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Certificate of Ownership and Merger merging Associated into United(2).
2.2 -- 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 -- Restated Articles of Incorporation of the Company, as amended(5).
3.2 -- Restated Bylaws of the Company(1).
3.3 -- Certificate of Incorporation of United(5).
3.4 -- Bylaws of United(5).
3.5 -- Amended and Restated Articles of Incorporation of Lagasse Bros., Inc.*
3.6 -- Bylaws of Lagasse Bros., Inc.*
3.7 -- Certificate of Incorporation of Azerty Incorporated (formerly named
Datarex Systems Inc.).*
3.8 -- Bylaws of Azerty Incorporated (formerly named Datarex Systems Inc.).*
3.9 -- Certificate of Incorporation of Positive ID Wholesale Inc.*
3.10 -- Bylaws of Positive ID Wholesale, Inc.*
3.11 -- Certificate of Incorporation of AP Support Services, Incorporated.*
3.12 -- Bylaws of AP Support Services Incorporated.*
4.1 -- Indenture, dated as of April 15, 1998, among the Company, as issuer,
United, Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc. and 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 -- Purchase Agreement, dated as of April 9, 1998, among the Company, as
issuer, United, Lagasse Bros., Inc., Azerty Incorporated, Positive ID
Wholesale Inc. and AP Support Services Incorporated, as guarantors, and
Chase Securities Inc. and Bear, Stearns & Co. Inc., as initial purchasers
(Exhibit 4.2 to the Company's Report on Form 8-K filed April 20, 1998)(3).
4.3 -- Exchange and Registration Rights Agreement, dated as of April 15, 1998,
among the Company, United, Lagasse Bros., Inc., Azerty Incorporated,
Positive ID Wholesale Inc., AP Support Services Incorporated, Chase
Securities Inc. and Bear, Stearns & Co. Inc. (Exhibit 4.3 to the Company's
Report on Form 8-K filed April 20, 1998)(3).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
4.4 -- 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, and The Bank of New York, as
trustee (Exhibit 4.4 to the Company's Report on Form 8-K filed April 20,
1998)(3).
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity of the securities
registered hereby.*
10.1 -- Registration Rights Agreement, dated as of January 31, 1992, between
United and Chase Manhattan Investment Holdings, Inc. (included in Exhibit
10.4, Annex 2).
10.2 -- Amendment No. 1 to Registration Rights Agreement, dated as of March 30,
1995, among United, Chase Manhattan Investment Holdings, Inc. and certain
other holders of Lender Warrants(1).
10.3 -- Amended and Restated Registration Rights Agreement, dated as of March 30,
1995, among United, Wingate Partners, Cumberland, Good Capital Co., Inc.
and certain other United stockholders(1).
10.4 -- Warrant Agreement, dated as of January 31, 1992, among United, the Company
and Chase Manhattan Investment Holdings, Inc.(1).
10.5 -- Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992, among
United, the Company, Chase Manhattan Investment Holdings, Inc. and the
other parties thereto(1).
10.6 -- Letter Agreement dated as of February 10, 1995, amending certain
provisions of the Warrant Agreement, among United, the Company, Chase
Manhattan Investment Holdings, Inc. and the other parties thereto(4).
10.7 -- Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995, among
United, the Company, Chase Manhattan Investment Holdings, Inc. and the
other parties thereto(1).
10.8 -- Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995, among
United, the Company, Chase Manhattan Investment Holdings, Inc. and the
other parties thereto(4).
10.9 -- Amendment No. 4 to Warrant Agreement, effective as of July 7, 1997, among
United, the Company, Chase Manhattan Investment Holdings, Inc. and the
other parties thereto(5).
10.10 -- Warrant Agreement, dated as of January 31, 1992, between United and Boise
Cascade Corporation(1).
10.11 -- Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995, between
United and Boise Cascade Corporation(1).
10.12 -- Indenture, dated as of May 3, 1995, among the Company, United and The Bank
of New York(1).
10.13 -- First Supplemental Indenture, dated as of July 28, 1995, among the
Company, United and the Bank of New York(1).
10.14 -- Investment Banking Fee and Management Agreements, dated as of January 31,
1992, among United, the Company and each of Wingate Partners, Cumberland
and Good Capital Co., Inc.(1).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
10.15 -- Amendment No. 1 to Investment Banking Fee and Management Agreements, dated
as of March 30, 1995, among the Company, United and each of Wingate
Partners, Cumberland and Good Capital Co., Inc.(1).
10.16 -- Termination Agreements, dated as of October 31, 1997, terminating, the
Investment Banking Fee and Management Agreements among United, the Company
and each of Wingate Partners, Cumberland and Good Capital Co., Inc.
(Exhibit 10.16 to Company's Report on Form 10-K dated March 12, 1998)(3).
10.17 -- Amendment No. 4 to Management Equity Plan, dated as of August 19, 1997(5).
10.18 -- United Management Equity Plan, as amended through August 19, 1997(5).
10.19 -- Letter agreements, dated January 31, 1992, between United (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
United 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 United 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 United and
Thomas W. Sturgess, granting options(4).
10.24 -- Executive Stock Purchase Agreements, dated as of January 31, 1992, among
United, Wingate Partners, ASI Partners, L.P. and each of Michael D.
Rowsey, Robert W. Eberspacher, Lawrence E. Miller and Daniel J.
Schleppe(1).
10.25 -- First Amendments to Executive Stock Purchase Agreements, dated as of March
30, 1995, among United, Wingate Partners, ASI Partners, L.P. and each of
Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and Daniel J.
Schleppe(1).
10.26 -- Management Incentive Plan for 1996(4).
10.27 -- Management Incentive Plan for 1997 (Exhibit 10.39 to the Company's Report
on Form 10-K dated March 26, 1997)(3).
10.28 -- 1997 Special Bonus Plan (Exhibit 10.40 to the Company's Report on Form
10-K dated March 26, 1997)(3).
10.29 -- United Stationers 401(k) Savings Plan, restated as of March 1, 1996
(Exhibit 10.45.1 to the Company's Report on Form 10-K dated March 26,
1997)(3).
10.30 -- United Stationers Supply Co. Pension Plan as amended (See the Company's
Reports on Form 10-K for the fiscal years ended August 31, 1985, 1986,
1987 and 1989)(3).
10.31 -- Amendment to Pension Plan adopted February 10, 1995(2).
10.32 -- One Time Merger Integration Bonus Plan(4).
10.33 -- Amended and Restated Employment and Consulting Agreement dated April 15,
1993 among United, the Company and Joel D. Spungin (Exhibit 10(b) to the
Company's Report on Form 10-K dated November 22, 1993)(3).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
10.34 -- Amendment dated February 13, 1995 to the Amended and Restated Employment
and Consulting Agreement among United, the Company and Joel D. Spungin(2).
10.35 -- Severance Agreement between United, the Company and James A. Pribel dated
February 13, 1995(2).
10.36 -- Letter Agreement dated February 13, 1995 between United and Ergin
Uskup(2).
10.37 -- Employment Agreements dated October 1, 1995 between the Company 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 the Company and Otis
H. Halleen(4).
10.39 -- Employment Agreement dated as of January 1, 1996 between United, the
Company and Thomas W. Sturgess(4).
10.40 -- Deferred Compensation Plan. (Exhibit 10(f) to the Company's 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 the Company,
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 the Company, as tenant(1).
10.46 -- Lease, dated as of February 1, 1993, between CMD Florida Four Limited
Partnership and the Company, as amended(1).
10.47 -- Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
10.48 -- First Amendment to Industrial Lease dated January 23, 1997 between ERI-CP,
Inc. (successor to Carol Point Builders I) and the Company (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 the Company, 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 the Company, 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).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
10.53 -- Lease, dated as of April 17, 1989, between Isaac Heller and the Company,
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 the Company (as successor to
Associated Stationers, Inc.) dated December 3, 1996(5).
10.56 -- Lease effective March 1, 1997 between Davis Partnership and the Company
(Exhibit 10.56 to the Company's Report on Form 10-K dated March 12,
1998)(3).
10.57 -- Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.58 -- Lease Agreement, dated as of March 31, 1978, among Gillich O. Traughber
and J.T. Cruin, Joint Venturers, and Boise Cascade Corporation, as
amended(1).
10.59 -- Lease Agreement, dated November 7, 1988, between Dalware II Associates and
Stationers Distributing Company, Inc., as amended(1).
10.60 -- Lease Agreement, dated November 7, 1988, between Central East Dallas
Development Limited Partnership and Stationers Distributing Company, Inc.,
as amended(1).
10.61 -- Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing Company,
Inc., as amended(1).
10.62 -- Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1).
10.63 -- Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
10.64 -- Lease Agreement, dated as of July 1994, between Bettilyon Mortgage Loan
Company and the Company(1).
10.65 -- Agreement of Lease, dated as of January 5, 1994, between the Estate of
James Campbell, deceased, and the Company(1).
10.66 -- Amendment No. 2 to Agreement of Lease dated February 1, 1997 between The
Estate of James Campbell, deceased and the Company(5).
10.67 -- Lease Agreement dated January 5, 1996 between Robinson Properties, L.P.
and the Company(4).
10.68 -- Agreement for Data Processing Services, dated January 31, 1992, between
the Company (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 the Company and Affiliated
Computer Services, Inc.(1).
10.70 -- Stock Purchase Agreement between the Company 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 the
Company's Report on Form 8-K filed November 5, 1996)(3).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
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
the Company's Report on Form 8-K filed November 5, 1996)(3)
10.72 -- USI Employee Benefits Trust Agreement dated March 21, 1995 between United
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(5).
10.74 -- Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 1997 through April 1, 1998(5).
10.75 -- Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 1998 through April 1, 2000.*
10.76 -- Amendment to Medical Plan Document for United(2).
10.77 -- The Company Severance Plan, adopted February 10, 1995(2).
10.78 -- Securities Purchase Agreement, dated as of July 28, 1995, among United,
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).
10.79 -- Amendment dated February 23, 1996 to Option Agreements between United and
Thomas W. Sturgess (Exhibit 10.110 to the Company's Report on Form 10-K
dated March 28, 1996)(3).
10.80 -- Amendment No. 3 to United Management Equity Plan, dated as of September
27, 1995 (Exhibit 10.111 to the Company's Report on Form 10-K dated March
28, 1996(3).
10.81 -- Amendment No. 2 dated March 5, 1996 to Stock Option Agreements between
United and Thomas W. Sturgess (Exhibit 10.112 to the Company's Report on
Form 10-K dated March 28, 1996)(3).
10.82 -- Amendment to Employment Agreement dated March 5, 1996 between United, the
Company and Thomas W. Sturgess (Exhibit 10.113 to the Company's Form 10-K
dated March 28, 1996)(3).
10.83 -- Employment Agreement dated as of May 23, 1997 between United, the Company
and Randall W. Larrimore(5).
10.84 -- Employment Agreements dated as of June 1, 1997 between the Company and
each of Daniel H. Bushell, Michael D. Rowsey and Steven R. Schwarz(5).
10.85 -- 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).
10.86 -- Lease dated as of October 20, 1997 between Ozburn-Hessey Storage Co. and
the Company (Exhibit 10.84 to the Company's Report on Form 10-K dated
March 12, 1998)(3).
10.87 -- United Non-employee Directors' Deferred Stock Compensation Plan (Exhibit
10.85 to the Company's Report on Form 10-K dated March 12, 1998)(3).
10.88 -- 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).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------
<C> <C> <S>
10.89 -- Second Amended and Restated Security Agreement, dated as of 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).
10.90 -- Subsidiary Guarantee and Security Agreement, dated as of 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).
10.91 -- Pooling Agreement, dated as of April 3, 1998, among USS Receivables
Company, Ltd., the Company, as servicer, and The Chase Manhattan Bank, as
trustee (Exhibit 10.4 to the Company's Report on Form 8-K filed April 20,
1998)(3).
10.92 -- Series 1998-1 Supplement, dated as of April 3, 1998, to Pooling Agreement
dated as of April 3, 1998, among USS Receivables Company Ltd., the
Company, as servicer, The Chase Manhattan Bank, as funding agent, APA bank
and trustee, and Park Avenue Receivables Corporation, as initial purchaser
(Exhibit 10.5 to the Company's Report on Form 8-K filed April 20,
1998)(3).
10.93 -- 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).
10.94 -- 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).
12.1 -- Computation of Ratio of Earnings to Fixed Charges.*
15.1 -- Letter regarding unaudited interim financial information.*
21.1 -- Subsidiaries of the Co-Registrants.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as
Exhibit 5.1 to the Registration Statement).*
23.2 -- Consent of Ernst & Young LLP, independent auditors.*
23.3 -- Consent of Price Waterhouse, independent auditors.*
24.1 -- Powers of Attorney of directors and executive officers of the
Co-Registrants (included on the signature pages hereto).*
25.1 -- Statement of Eligibility and Qualification of the Bank of New York, as
trustee, under the Indenture listed as Exhibit 4.1 hereto on Form T-1.*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------------
* Filed herewith.
(1) Incorporated by reference to United's Form S-1 (No. 33-59811), as
amended, initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to United's Schedule 14D-9 dated February 21,
1995.
(3) Incorporated by reference to other prior filings of United and the
Company as indicated.
(4) Incorporated by reference to United's Form S-2 (No. 333-01089) as filed
with the Commission on February 20, 1996.
II-8
<PAGE>
(5) Incorporated by reference to United's Form S-2 (No. 333-34937), as
amended, as initially filed with the Commission on September 4, 1997.
(b) Financial Statement Schedules:
All schedules have been omitted since the required information is either not
present or not in amounts sufficient to require submission of the schedule,
or because the information required is included in the consolidated
financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned Co-Registrants hereby undertake to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
(5) The undersigned Co-Registrants hereby undertake to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on June 12, 1998.
<TABLE>
<S> <C> <C>
UNITED STATIONERS SUPPLY CO.
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND ASSISTANT SECRETARY
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Randall W. Larrimore and Daniel H. Bushell, and each of them,
any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director, President and
/s/ RANDALL W. LARRIMORE Chief Executive Officer
- ------------------------------ (principal executive June 12, 1998
Randall W. Larrimore officer of the Company)
Director, Executive Vice
President, Chief
/s/ DANIEL H. BUSHELL Financial Officer and
- ------------------------------ Assistant Secretary June 12, 1998
Daniel H. Bushell (principal financial and
accounting officer of
the Company)
/s/ STEVEN R. SCHWARZ
- ------------------------------ Director June 12, 1998
Steven R. Schwarz
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director June 12, 1998
Michael D. Rowsey
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on June 12, 1998.
<TABLE>
<S> <C> <C>
UNITED STATIONERS INC.
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND ASSISTANT SECRETARY
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Randall W. Larrimore and Daniel H. Bushell, and each of them,
any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ FREDERICK B. HEGI, JR.
- ------------------------------ Chairman of the Board June 12, 1998
Frederick B. Hegi, Jr.
Director, President and
/s/ RANDALL W. LARRIMORE Chief Executive Officer
- ------------------------------ (principal executive June 12, 1998
Randall W. Larrimore officer)
Executive Vice President,
/s/ DANIEL H. BUSHELL Chief Financial Officer
- ------------------------------ and Assistant Secretary June 12, 1998
Daniel H. Bushell (principal financial and
accounting officer)
/s/ DANIEL J. GOOD
- ------------------------------ Director June 12, 1998
Daniel J. Good
II-11
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROY W. HALEY
- ------------------------------ Director June 12, 1998
Roy W. Haley
/s/ JAMES A. JOHNSON
- ------------------------------ Director June 12, 1998
James A. Johnson
/s/ GARY G. MILLER
- ------------------------------ Director June 12, 1998
Gary G. Miller
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director June 12, 1998
Michael D. Rowsey
/s/ BENSON P. SHAPIRO
- ------------------------------ Director June 12, 1998
Benson P. Shapiro
/s/ JOEL D. SPUNGIN
- ------------------------------ Director June 12, 1998
Joel D. Spungin
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on June 12, 1998.
<TABLE>
<S> <C> <C>
LAGASSE BROS., INC.
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND ASSISTANT SECRETARY
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Randall W. Larrimore and Daniel H. Bushell, and each of them,
any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director and Chief
/s/ RANDALL W. LARRIMORE Executive Officer
- ------------------------------ (principal executive June 12, 1998
Randall W. Larrimore officer)
Director, Executive Vice
President Chief
/s/ DANIEL H. BUSHELL Financial Officer and
- ------------------------------ Assistant Secretary June 12, 1998
Daniel H. Bushell (principal financial and
accounting officer)
/s/ KEVIN C. LAGASSE
- ------------------------------ Director and President June 12, 1998
Kevin C. Lagasse
II-13
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DAVID C. LAGASSE
- ------------------------------ Director and Senior Vice June 12, 1998
David C. Lagasse President
/s/ STEVEN R. SCHWARZ
- ------------------------------ Director and Executive June 12, 1998
Steven R. Schwarz Vice President
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director June 12, 1998
Michael D. Rowsey
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on June 12, 1998.
<TABLE>
<S> <C> <C>
AZERTY INCORPORATED
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Randall W. Larrimore and Daniel H. Bushell, and each of them,
any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director and Chief
/s/ RANDALL W. LARRIMORE Executive Officer
- ------------------------------ (principal executive June 12, 1998
Randall W. Larrimore officer)
Director and Executive
/s/ DANIEL H. BUSHELL Vice President
- ------------------------------ (principal financial and June 12, 1998
Daniel H. Bushell accounting officer)
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director and Executive June 12, 1998
Michael D. Rowsey Vice President
/s/ STEVEN R. SCHWARZ
- ------------------------------ Director and Executive June 12, 1998
Steven R. Schwarz Vice President
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on June 12, 1998.
<TABLE>
<S> <C> <C>
POSITIVE ID WHOLESALE, INC.
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Randall W. Larrimore and Daniel H. Bushell, and each of them,
any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director and Chief
/s/ RANDALL W. LARRIMORE Executive Officer
- ------------------------------ (principal executive June 12, 1998
Randall W. Larrimore officer)
Director and Executive
/s/ DANIEL H. BUSHELL Vice President
- ------------------------------ (principal financial and June 12, 1998
Daniel H. Bushell accounting officer)
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director and Executive June 12, 1998
Michael D. Rowsey Vice President
/s/ STEVEN R. SCHWARZ
- ------------------------------ Director and Executive June 12, 1998
Steven R. Schwarz Vice President
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on June 12, 1998.
<TABLE>
<S> <C> <C>
AP SUPPORT SERVICES INCORPORATED
By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
EXECUTIVE VICE PRESIDENT
</TABLE>
Each person whose signature to this Registration Statement appears below
hereby appoints Randall W. Larrimore and Daniel H. Bushell, and each of them,
any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director and Chief
/s/ RANDALL W. LARRIMORE Executive Officer
- ------------------------------ (principal executive June 12, 1998
Randall W. Larrimore officer)
Director and Executive
/s/ DANIEL H. BUSHELL Vice President
- ------------------------------ (principal financial and June 12, 1998
Daniel H. Bushell accounting officer)
/s/ MICHAEL D. ROWSEY
- ------------------------------ Director and Executive June 12, 1998
Michael D. Rowsey Vice President
/s/ STEVEN R. SCHWARZ
- ------------------------------ Director and Executive June 12, 1998
Steven R. Schwarz Vice President
II-17
<PAGE>
*
AMENDED AND RESTATED * UNITED STATES OF AMERICA
*
ARTICLES OF INCORPORATION * STATE OF LOUISIANA
*
OF * PARISH OF ORLEANS
*
LAGASSE BROS., INC. *
*
* * * * * * * * * * * * * * * * * *
BE IT KNOWN, that on this 9th day of March, 1983.
BEFORE ME, Paul H. Waldman, a Notary Public, duly commissioned and
qualified, in and for the Parish of Orleans, State of Louisiana, and in the
presence of the witnesses hereinafter undersigned:
PERSONALLY CAME AND APPEARED:
Clinton W. Lagasse and Linette Lagasse, the president and secretary,
respectively, of Lagasse Bros., Inc., A Louisiana corporation domiciled in the
Parish of Orleans, State of Louisiana, who, pursuant to authorization by the
Unanimous Consent of the Shareholders and Board of Directors of the Corporation
do hereby declare that:
FIRST: The date of incorporation of the Corporation was December 9, 1958
by an act passed before Harold J. Lamy, Notary Public, in and for the Parish of
Orleans, State of Louisiana, and recorded on December 9, 1958 in the Recorder of
Mortgages Office for the Parish of Orleans in Book No.1945.
SECOND: On the 9th day of March, 1983, the Shareholders of the
Corporation, unanimously resolved to amend and restate the Articles of
Incorporation of said Corporation as in effect prior to said date by completely
deleting each and every article thereof and by adopting the Amended and Restated
Articles of Incorporation of the Corporation as set forth herein.
THIRD: The Amended and Restated Articles of Incorporation of the
Corporation are as follows:
ARTICLE I
NAME
The name of this Corporation is:
LAGASSE BROS., INC.
ARTICLE II
PURPOSE
The purpose of this Corporation is to engage in the distribution of
sanitary maintenance products and in any lawful activity for which corporations
may be formed under the Louisiana Business Corporation Law.
1
<PAGE>
ARTICLE III
AUTHORIZED CAPITAL
The Corporation has authority to issue an aggregate of ten thousand
(10,000) shares of capital stock, all of which are designated common stock
having no par value per share.
ARTICLE IV
PREEMPTIVE RIGHTS
Shareholders shall have preemptive rights. In the event any shareholder
does not exercise his preemptive right, the shares in respect of which such
rights are not exercised shall then be offered pro rata to the remaining
shareholders who shall have preemptive rights to such shares, ad infinitum,
before any such shares may be offered to outside purchasers.
ARTICLE V
DIRECTORS
5.1 The Directors of the Corporation shall have the power to make,
alter, amend or repeal the By-laws of the Corporation and to manage the affairs
of the Corporation in accordance with the provisions of law and the By-Laws of
the Corporation.
5.2 Any Director absent from a meeting of the Directors or any
Committee thereof may be represented by any other Director or shareholder, who
may cast the vote of the absent Director according to the written instructions,
general or special, of the absent Director.
5.3 Whenever the affirmative vote of the Directors is required to
authorize or constitute corporate action, the consent in writing to such action
signed only by Directors holding that portion of the total voting power on the
question that is required by law or by the By-laws of the Corporation, whichever
requirement is higher, shall be sufficient for the purpose without necessity for
a meeting of the Board of Directors, provided that such consent is submitted to
all Directors prior to the effective date of such consent.
ARTICLE VI
SHAREHOLDERS
6.1 Matters requiring shareholder action or approval shall be taken
or given only upon the affirmative vote of more than fifty percent (50%) of the
number of shares entitled to vote thereon. If shareholder action or approval is
required by law in connection with the amendment of these articles or with any
merger, consolidation, transfer of corporate assets or dissolution of, or
involving, the Corporation, such action or approval shall be taken or given only
upon the affirmative vote of more than fifty (50%) percent of the number of
shares entitled to vote thereon. In the election of directors of the
Corporation, the shareholders shall have the right of cumulative voting, that
is, each shareholder shall
2
<PAGE>
have the right to multiply the number of votes to which he is entitled by the
number of directors to be elected, and to cast all such votes for one
candidate, or to distribute them among two or more candidates.
6.2 Whenever the affirmative vote of shareholders is required to
authorize or constitute corporate action, the consent in writing to such action
signed only by shareholders holding that proportion of the total voting power on
the question that is required by these Articles of Incorporation shall be
sufficient for the purpose, without necessity for a meeting of shareholders,
provided such consent is submitted to all shareholders prior to the effective
date of such consent.
ARTICLE VII
RESTRICTION ON TRANSFERABILITY
No shareholder of the Corporation may sell or transfer any shares of the
Corporation without first offering to sell such shares to the Corporation and to
the other shareholders. Said offer must be at a price per share equal to the
lower of the price per share at which the selling shareholder has received a
written, bona fide, and currently open offer for the purchase of said shares at
the book value of said shares as determined in accordance with the accounting
practices consistently applied in the preparation of the Corporation's federal
income tax returns as of the close of the fiscal year of the Corporation prior
to such offer. Said offer must be made by delivering to the Secretary of the
Corporation, in exchange for written receipt therefor, the certificates
representing said shares endorsed in blank, and a written offer to sell said
shares to the Corporation and to the other shareholders. The Corporation shall
have the right for a period of twenty (20) days from the delivery of the offer
to purchase all or any portion of the shares offered for sale. Each other
shareholder shall have the right for a period of ten (10) days thereafter to
purchase all or any portion of the shares offered for sale and not purchased by
the Corporation, provided that each purchasing shareholder shall have the right
to purchase up to the same proportion of the shares available for purchase by
shareholders as the shares held by him bears to the shares held by all
purchasing shareholders. Additionally, each purchasing shareholder shall have
the right to purchase any remaining shares offered for sale as to which he has
acquired the purchase rights from other shareholders entitled to same. Shares
not purchased pursuant to said offer may be transferred to any person qualified
to own shares of the Corporation. Each certificate of stock of the Corporation
shall be marked with notice that its transferability is limited in accordance
with the provisions of this charter. By written agreement executed by the
holders of more than fifty percent (50%) of the stock, the provisions of this
Article VII may be superseded.
3
<PAGE>
ARTICLE VIII
INCORPORATORS
8.1 The names of the incorporators of the corporation and their
addresses at the time of incorporation were:
Clinton W. Lagasse Errol C. Lagasse Chris William Lagasse
4212 Loyola Street 4107 Elba Street 425 Ninth Street
New Orleans, Louisiana New Orleans, Louisiana New Orleans, Louisiana
THUS DONE AND PASSED, in multiple original, in my office in the Parish
of Orleans, State of Louisiana, on the day, month and year hereinabove set
forth, in the presence of the undersigned competent witnesses, who hereunto sign
their names with the said appearers and me, Notary, after a reading of the
whole.
WITNESSES:
- ----------------------- ------------------------------------
Clinton W. Lagasse, President
- ----------------------- ------------------------------------
Linette Lagasse, Secretary
-----------------------------------
PAUL H. WALDMAN
NOTARY PUBLIC
4
<PAGE>
BY-LAWS
OF
LAGASSE BROS., INC.
ARTICLE I
OFFICES
SECTION 1 - PRINCIPAL OFFICE:
The principal office of the Corporation shall be located in the Parish
of Jefferson, State of Louisiana.
SECTION 2 - OTHER OFFICES:
The Corporation may also maintain offices at such other places within or
without the State of Louisiana and the United States as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
SHAREHOLDERS
SECTION 1 - ANNUAL MEETINGS:
The annual meeting of the Shareholders of the Corporation shall be held
on the date during the month immediately prior to the end of the
Corporation's taxable year and designated by the President or the Board of
Directors for the purposes of electing Directors and of transacting such other
business as may properly come before the meeting.
SECTION 2 - SPECIAL MEETINGS:
Special meetings of the Shareholders may be called for any purpose or
purposes at any time by the Board of Directors or by the President, and shall
be called by the President or the Secretary at the written request of the
holders of twenty percent (20%) or more of the shares then outstanding and
entitled to vote or as otherwise required by law. Such requests shall state
the purpose of the proposed meeting. A special meeting called upon the
written request of a Shareholder or Shareholders shall be held at a time
fixed by the Secretary not less than fifteen (15) nor more than sixty (60)
days after the receipt of said request; and if the Secretary shall neglect or
refuse to fix such time, the Shareholder or Shareholders making the request
may do so.
SECTION 3 - PLACE OF MEETINGS:
All meetings of Shareholders shall be held at the principal office of
the Corporation or such other place determined by the unanimous written
consent of the Shareholders of record entitled to notice of the meeting.
<PAGE>
SECTION 4 - NOTICE OF MEETINGS:
(A) Written notice of each meeting of Shareholders, whether annual or
special, stating the time and place of the meeting, shall be served either
personally or by mail, not less than ten or more than fifty days before the
meeting, upon each Shareholder of record entitled to vote at such meeting
and upon any other Shareholder to whom the giving of notice may be required
by law. Notice of the annual meeting need not state the purpose thereof,
unless action is to be taken at the meeting as to which notice is required by
law. Notice of a special meeting shall state the purpose or purposes for
which the meeting is called and shall indicate that the special meeting is
being called by, or at the direction of, the person or persons calling the
meeting. If at any meeting action is proposed to be taken that would, if
taken, entitle Shareholders to receive payment for their shares pursuant to
the Louisiana Business Corporation Law, the notice of such meeting shall
include a statement of that purpose. If placed in the United States Mail,
notice of meetings shall be directed to each Shareholder at his address as it
appears on the records of the Shareholders of the Corporation, unless a
Shareholder shall have previously filed with the Secretary of the Corporation
a written request that notices intended for him be mailed to some other
address, in which case, notice shall be mailed to the address designated in
such request.
(B) Notice of any meeting of Shareholders need not be given to any
person who may become a Shareholder of record after the mailing of such
notice and prior to the meeting, or to any Shareholder who attends such
meeting, in person or by proxy, or to any Shareholder who, in person or by
proxy, submits a signed waiver of notice either before or after such meeting.
(C) If the time and place of a reconvened meeting of Shareholders was
announced at the adjourned meeting, adjournments of any annual or special
meeting of Shareholders may be taken without new notice being given unless a
new record date is fixed for the adjourned meeting or unless required by law.
However, any meeting at which Directors are to be elected shall be adjourned
only from day to day until such Directors shall have been elected.
SECTION 5 - QUORUM:
(A) Except as otherwise provided herein, by law or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), at all meetings
of Shareholders of the Corporation, the presence at the commencement of such
meetings, in person or by proxy, of Shareholders holding of record a majority
of the total number of shares of the Corporation then issued and outstanding
and entitled to vote, shall be necessary and sufficient to constitute a
quorum for the transaction of any business. The withdrawal of any Shareholder
after the commencement of a meeting shall have no effect on the existence of
a quorum once a quorum has been established at a meeting.
(B) Despite the absence of a quorum at any annual or special meeting of
Shareholders, the Shareholders present, in person or by proxy, by a majority
of the votes cast by the holders of shares entitled to vote thereon, may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented by proxy. At
any such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
called if a quorum had been present.
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SECTION 6 - VOTING:
(A) Except as otherwise provided by law or by the Articles of
Incorporation, any corporate action, to be taken by the vote of the
Shareholders at a meeting of Shareholders when a quorum is present or
represented by proxy, shall be authorized by a majority of the votes cast at
the meeting of Shareholders by the holders of shares entitled to vote thereon.
(B) At every meeting of the Shareholders, a list of Shareholders entitled
to vote, arranged alphabetically and certified by the Secretary or by the
agent of the Corporation having charge of the transfer of shares, showing the
number and class of shares held by each Shareholder on the record date for
the meeting, shall be produced on the request of any Shareholder.
(C) Except as otherwise provided by statute or by the Articles of
Incorporation, at each meeting of Shareholders, each Shareholder of record of
stock of the Corporation entitled to vote at the meeting, shall be entitled
to one vote for each share of stock registered in his name on the books of
the Corporation.
(D) Each Shareholder entitled to vote or to express consent or dissent
without a meeting, may do so by proxy; provided, however, that the instrument
authorizing such proxy to act shall have been executed in writing by the
Shareholder himself, or by his attorney-in-fact who is duly authorized in
writing. The Secretary of the Corporation or, if appointed, the proxy officer
or committee, shall determine the validity or invalidity of any proxy. The
regularity of a proxy on its face shall be received as prima facie evidence
of validity for the purpose of establishing the presence of a quorum at such
meeting and for all other purposes. If valid on its face, the burden of
challenging any proxy shall be on the challenger who must challenge prior to
a vote by the proxy. The proxy holder need not be a Shareholder of the
Corporation. No proxy shall be valid after the expiration of eleven months
from the date of its execution, unless the persons executing it shall have
specified therein the length of time it is to continue in force. But in no
case shall an outstanding proxy be valid for longer then three years, unless
a later date is permitted by law. Each proxy instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
(E) Voting on all matters shall be by voice vote or by show of hands
unless any qualified voter, prior to the voting on any matter, demands vote
by ballot. In a vote by ballot, each ballot shall state the name of the
Shareholder voting and the number of shares voted by him, and it shall also
state the name of the proxy holder of the ballot be cast by proxy.
(F) Any action consented to in writing, signed by that number of the
Shareholders entitled to vote thereon and necessary to constitute the approval
of the Shareholders, if the matter had been presented to a meeting of the
Shareholders, shall be and constitute action by the Shareholders with the
same force and effect as if it had been passed by the necessary vote of the
Shareholders at a duly called meeting of Shareholders. The written consents
signed by the Shareholders shall be filed with the minutes of the Corporation
by the Secretary.
SECTION 7 - PRESIDING OFFICER:
The President of the Corporation shall serve as chairman of every meeting
of the Shareholders unless some other person is elected to serve as chairman
by a majority vote of the shares represented at the meeting. The chairman
shall appoint such persons as he deems necessary to assist with the meeting
of the Shareholders.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 1 - QUALIFICATIONS:
Each member of the Board of Directors shall be a natural person at least
18 years of age, and shall be qualified by law to serve as a member of the
Board of Directors. A member of the Board of Directors need not be a
Shareholder of the Corporation.
SECTION 2 - NUMBER, ELECTION AND TERM OF OFFICE:
(A) The number of the Directors that shall constitute the Board of
Directors of the Corporation shall be six (6), except that when all of the
outstanding shares of the Corporation are held of record by fewer than three
shares, there need be only as many directors as there are shareholders, unless
and until a different number is determined by a vote of a majority of the
entire Board of Directors.
(B) If provided in the Articles of Incorporation, the members of the
Board of Directors of the Corporation shall be elected by a majority of the
votes cast at a meeting of Shareholders by the holders of shares entitled to
vote in the election and each Shareholder entitled to vote therein shall have
the right to multiply the number of votes to which he is ordinarily entitled
under Section 6(C) of Article II by the number of Directors to be elected and
to cast all such votes for one candidate for Director or to distribute them
among any two or more candidates for Director. If the Articles of
Incorporation do not provide for cumulative voting in the election of
Directors, Directors shall be elected by the majority of the votes cast at a
meeting of the Shareholders by the holders of shares entitled to vote in the
election.
(C) Each Director shall hold office until the annual meeting of the
Shareholders next succeeding his election, and until his successor is elected
and qualified, or until his prior death, resignation or removal.
SECTION 3 - DUTIES AND POWERS:
(A) The Board of Directors shall be responsible for the control and
management of the affairs, property and interests of the Corporation, and may
exercise all powers of the Corporation, except as are by the Articles of
Incorporation, by these By-Laws, or by law expressly conferred upon or
reserved to the Shareholders.
(B) The Board of Directors shall have the power to determine which
accounts, books and records of the Corporation shall be opened to the
inspection of Shareholders, except such as by law must be specifically open
to inspection. The Board of Directors shall have the power to fix reasonable
rules and regulations not in conflict with the applicable law for the
inspection of accounts, books and records which by law or determination of
the Board of Directors shall be open to inspection.
(C) The Board of Directors shall have the power to make, alter or amend
the By-Laws of the Corporation; however, the Shareholders shall have the
power to amend and repeal By-Laws made by the Directors
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SECTION 4 - ANNUAL AND REGULAR MEETINGS; NOTICE:
(A) A regular meeting of the Board of Directors shall be held immediately
following the annual meeting of the Shareholders at the principal office of
the Corporation or at such other place as determined by the unanimous written
consent of the Directors. But if notice of any regular meeting of the Board
of Directors is required to be given to any Director, said regular meeting
shall be held after the required notice is given or excused at the time
stated in said notice and at the principal office of the Corporation, or at
such other place as determined by the unanimous written consent of the
Directors and set forth in said notice.
(B) The Board of Directors may provide by resolution or by written
consent for other regular meetings of the Board of Directors to be held on
the dates and at the times stated in said resolution or written consent at
the principal office of the Corporation or at such other place as determined
by the unanimous resolution or unanimous written consent of the Directors.
(C) Notice of any regular meeting of the Board of Directors shall not be
required to be given; provided, however, if the Board of Directors shall fix
the time or place of any regular meeting of the Board of Directors at a time
other than immediately following the annual meeting of the Shareholders or at
a place other than the principal office of the Corporation or if any Director
is newly elected at an annual meeting of the Shareholders and was not present
at the said annual meeting of the Shareholders at which he was elected, then
notice of the regular meeting of the Board of Directors shall be required to
be given to those Directors who were not present at the meeting of the Board
of Directors which fixed the time or place of said regular meeting of the
Board of Directors, who did not consent to fix the time or place of said
regular meeting of the Board of Directors, in a consent executed by the
Directors, or who were newly elected Directors and were not present at said
annual meeting of the Shareholders. Notice of any regular meeting of the
Board of Directors required to be given shall be given in the manner set
forth for notice of a special meeting of the Board of Directors, except the
purpose or purposes of the regular meeting need not be included in the
notice, unless required by law.
(D) Notice of any regular meeting shall not be required to be given to
any Director who shall attend a regular meeting of the Board of Directors
without protesting prior to the commencement of the regular meeting. The lack
of notice to such a Director or to a Director who submits a signed waiver of
notice, whether before or after the regular meeting, shall not invalidate the
regular meeting or the actions of the Directors taken at such regular
meeting. Attendance by a Director at a regular meeting shall constitute
waiver of notice of such regular meeting, except where a Director attends a
regular meeting for the express purpose of objecting to the transaction of
business because the regular meeting is not lawfully called. Notice of any
adjourned regular meeting shall not be required to be given.
SECTION 5 - SPECIAL MEETINGS; NOTICE:
(A) Special meetings of the Board of Directors shall be held whenever
called by the President or by the Secretary upon the written request of one
of the Directors on the date and at the time specified in the notice or
waivers of notice thereof and at the principal office of the Corporation,
or at such other place as determined by the unanimous written consent of the
Directors and set forth in said notice. The date and time of a special
meeting of the Board of Directors shall be reasonable considering the
attending circumstances and the purpose or purposes of the meeting.
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(B) Notice of special meetings of the Board of Directors shall be mailed
directly to each Director, addressed to him at his residence or usual place
of business, at least two (2) days before the day on which the meeting is to
be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later
than the day before the day on which the special meeting is to be held.
Notice of a special meeting of the Board of Directors shall include the date,
time, place, if other than the principal office of the Corporation, and
purpose or purposes of the meeting. Emergency special meetings may be held on
any date, at any time, at any place and after any notice that is reasonable
under the circumstances.
(C) Notice of any special meeting of the Board of Directors shall not be
required to be given to any Director who shall attend the special meeting
without protesting prior to the commencement of the special meeting. The lack
of notice to such a Director or to a Director who submits a signed waiver of
notice, whether before or after the special meeting, shall not invalidate the
special meeting or the actions of the Directors taken at such special
meeting. Attendance by a Director at a special meeting shall constitute
waiver of notice of such special meeting, except where a Director attends a
special meeting for the express purpose of objecting to the transaction of
business because the special meeting is not lawfully called. Notice of any
adjourned special meeting shall not be required to be given.
SECTION 6 - CHAIRMAN OF THE BOARD:
At all meetings of the Board of Directors, the Chairman of the Board, if
any and if present, shall preside. If there is no Chairman or if he is
absent, then the President shall preside, and in his absence, a temporary
Chairman chosen by the Directors shall preside.
SECTION 7 - QUORUM AND ADJOURNMENTS:
(A) At all meetings of the Board of Directors, the presence of a majority
of the Directors of the entire Board of Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business by the
Board of Directors, except as otherwise provided by law, the Articles of
Incorporation, or these By-laws.
(B) A meeting of the Board of Directors at which a quorum is present may
be adjourned by a majority of the Directors present to reconvene at a
specific date and time. It shall not be necessary to give notice of the
reconvened meeting or of the business to be transacted, other than to
announce the date, time, place, if other than the principal office of the
Corporation, and purpose or purposes for the reconvened meeting at the
meeting which was adjourned. At any such reconvened meeting at which a
quorum is present, any business may be transacted which could have been
transacted at the meeting which was adjourned.
(C) A majority of the Directors of the Board of Directors present at any
regular or special meeting of the Board of Directors, although less than a
quorum, may adjourn the same from time to time without notice, until a quorum
shall be present.
SECTION 8 - MANNER OF ACTING:
(A) At all meetings of the Board of Directors, each Director present
shall have one vote, irrespective of the number of shares of stock, if any,
which he may hold.
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(B) Except as otherwise provided by law, the Articles of Incorporation,
or these By-Laws, the action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. If a quorum is present when a meeting of the Board of Directors is
convened, the Directors present may continue to do business, taking action by
a vote of a majority of a quorum as fixed above, until adjournment,
notwithstanding the withdrawal of enough Directors to leave less than a
quorum as fixed above or the refusal of any Director present to vote.
(C) Any action consented to in writing by that number of the Directors
entitled to vote thereon and necessary to constitute the approval of the
Board of Directors, if the matter had been presented to a meeting of the
Board of Directors, shall be and constitute the act of the Board of Directors
and shall have the same force and effect as if the same had been passed by
the necessary vote of Directors at a duly called meeting of the Board of
Directors. The written consents of Directors shall be filed by the Secretary
with the minutes of the Corporation.
(D) A Director of the Corporation who is present at a meeting of the
Board of Directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the Secretary of the meeting
before the adjournment thereof or forwards such dissent by registered mail to
the Secretary of the Corporation immediately after the termination of the
meeting. Such right to dissent shall not apply to a Director who voted in
favor of such action.
SECTION 9 - VACANCIES:
Any vacancy in the Board of Directors occurring by reason of an increase
in the number of Directors or by reason of the death, resignation,
disqualification, removal or inability to act of any Director shall be filled
for the unexpired portion of the term by a majority vote of the remaining
Directors, though less than a quorum, at any regular meeting of the Board of
Directors or at any special meeting of the Board of Directors called for that
purpose. Provided, however, that the Shareholders shall have the right, at
any regular meeting of the Shareholders or special meeting of the
Shareholders called for the purpose, prior to action by the Board of
Directors, to fill the vacancy.
SECTION 10 - RESIGNATION:
Any Director may resign at any time by giving written notice to the
Board of Directors or to the President or the Secretary of the Corporation.
Unless otherwise specified in such written notice, such resignation shall
take effect upon receipt thereof by the Board of Directors or such Officer,
and the formal or informal acceptance of such resignation shall not be
necessary to make it effective.
SECTION 11 - REMOVAL:
Any Director may be removed with or without cause at any time by the
affirmative vote of the Shareholders necessary to elect a Director, whether
at a regular meeting or at a special meeting of the Shareholders called for
that purpose. If a Director has been elected by the exercise of the privilege
of cumulative voting, such Director may not be removed if the votes cast
against his removal would be sufficient to elect him if then cumulative voted
in an election of the entire Board of Directors. Any Director may be removed
for cause by resolution of the Board of Directors.
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SECTION 12 - COMPENSATION:
No stated salary shall be paid to Directors, as such, for their
services. By resolution of the Board of Directors or the Shareholders, a
fixed sum and expenses of attendance, if any, may be allowed for attendance
at each regular or special meeting of the Board of Directors. In the event of
a conflict as to the amount of compensation to be paid to Directors for their
services and for reimbursement of expenses, the vote of the Shareholders
shall prevail over that of the Directors. Nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and from receiving compensation therefor.
SECTION 13 - CONTRACTS:
(A) No contract or other transaction between this Corporation and any
other corporation shall be impaired, affected or invalidated, nor shall any
Director be liable in any way by reason of the fact that any one or more of
the Directors of this Corporation is or are interested in, or is a director
or officer, or are directors or officers of such other corporation, provided
that such facts are disclosed or made known to the Board of Directors.
(B) Any Director, personally and individually, may be a party to, or
may be interested in, any contract or transaction of this Corporation. No
Director shall be liable in any way by reason of such interest, provided that
the fact of such interest be disclosed or made known to the Board of
Directors and provided that the Board of Directors shall authorize, approve
or ratify such contract or transaction by the vote of a majority of a
quorum, notwithstanding the presence of any such Director at the meeting at
which such action is taken. Such Director or Directors may be counted in
determining the presence of a quorum at such meeting, but may not vote on the
authorization, approval, or ratification of the matter, unless such Director
is the sole Director of the Corporation.
(C) This section shall not be construed to impair or invalidate or in
any way affect any contract or other transaction which would otherwise be
valid under applicable law.
SECTION 14 - COMMITTEES:
The Board of Directors, by resolution adopted by a majority of the
Directors of the entire Board of Directors, may from time to time designate
from among its members an executive committee and such other committees, and
alternate members thereof, as they deem desirable. Each committee shall
consist of three or more members and shall have and exercise the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation to the extent permitted by law and as determined
by the Board of Directors. The members of each committee shall serve at the
pleasure of the Board of Directors. The President and the Chairman of the
Board shall be members EX OFFICIO of each committee appointed by the Board of
Directors, if not otherwise serving on such committee. Each committee shall
have such name or names as may be determined by resolution adopted by the
Board of Directors. Any vacancy occurring on a committee shall be filled by
the Board of Directors, but the President may designate another Director to
serve on the committee pending action by the Board of Directors. The Board of
Directors may not delegate to a committee the power to declare dividends,
issue stock, recommend to Shareholders any action requiring their approval,
approve loan agreements, and change the membership of any committee either
with or without cause. Additionally, the Board of Directors may not delegate
to a committee the powers to be delegated to Officers of the Corporation.
Each committee shall keep
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regular minutes of its meetings and report the same to the Board of Directors
at the next following meeting of the Board of Directors. A majority of the
members of each committee may fix its rules of procedure.
ARTICLE IV
OFFICERS
SECTION 1 - NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE:
(A) The Officers of the Corporation shall consist of a Chairman of the
Board of Directors, a President, a Secretary, a Treasurer, and such other
Officers, including one or more Vice-Presidents, as the Board of Directors
may deem advisable. Any Officer other than the Chairman of the Board of
Directors may be, but is not required to be, a Director of the Corporation.
Any two of more offices may be held by the same person.
(B) The Officers of the Corporation shall be elected by the Board of
Directors at the regular meeting of the Board of Directors following the
annual meeting of Shareholders.
(C) Each Officer shall hold office until the next regular meeting of
the Board of Directors held after the annual meeting of the Shareholders
and until his successor shall have been elected and qualified, or until his
death, resignation or removal.
SECTION 2 - RESIGNATION:
Any Officer may resign at any time by giving written notice of such
resignation to the Board of Directors or to the President or the Secretary
of the Corporation. Unless otherwise specified in such written notice, such
resignation shall take effect upon receipt thereof by the Board of Directors
or by such Officer, and the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3 - REMOVAL:
Any Officer may be removed, either with or without cause, at any time by
the Board of Directors.
SECTION 4 - VACANCIES:
A vacancy in any office by reason of death, resignation, inability to
act, disqualification, removal, or any other reason, may be filled for the
unexpired portion of the term by the Board of Directors. In its
discretion, the Board of Directors, by the vote of a majority of the
whole board, may leave unfilled for any such period as it may fix by resolution
any offices except those of President, Secretary, and Treasurer.
SECTION 5 - DUTIES OF OFFICERS:
(A) Officers of the Corporation shall, unless otherwise provided by the
Board of Directors, each have such powers and duties as generally pertain to
their respective offices as well as such powers and duties as may be set
forth in these By-Laws, or may be specifically conferred or imposed upon
them by the Board of Directors. The Board of Directors shall have the power to
alter the duties of the Officers.
(B) The duties of the several Officers shall be as follows:
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(1) PRESIDENT: The President shall be the chief executive officer
of the Corporation. The President shall preside at all meetings of the
Shareholders. If a Chairman of the Board of Directors has not been elected,
then the President shall preside at all meetings of the Board of Directors.
The President shall have the power to generally and actively manage the daily
business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. The President shall execute
bonds, mortgages and other contracts on behalf of the Corporation. The
President shall have the power to alter the duties of the other Officers and
to delegate duties to them. The President shall have the general powers and
duties of supervision and management usually vested in the office of
president of a corporation, together with those specifically outlined as
follows: The President shall have the sole authority in the hiring and firing
of employees other than Officers; in the granting and accepting of leases; in
the buying of all equipment, fixtures, and inventory of the Corporation; and
generally in all matters having to do with the normal day-to-day operation of
the business as set forth in the corporate charter or as is regularly
conducted by the Corporation, reserving to the other Officers and to the
Board of Directors those powers delegated to them by law and those reserved
to them herein.
(2) VICE PRESIDENT(S): The Vice President(s), if any, in the order
of their seniority shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President, and shall
perform such other duties as the President or the Board of Directors shall
prescribe. In the absence of the Secretary or Treasurer, and their respective
assistants, if any, the duties of such absent Officer(s) shall devolve upon
the Vice President(s) in his/their capacity as Assistant Secretary or
Assistant Treasurer.
(3) SECRETARY: The Secretary shall attend all meetings of the
Shareholders, the Board of Directors and the committees of Directors. The
Secretary shall keep accurate records and minutes of the acts, proceedings,
and meetings of Shareholders, Directors and committees of Directors. The
Secretary shall have authority to give all notices required by law or these
By-Laws. When authorized by the Board of Directors or the President, the
Secretary may affix the corporate seal to any lawfully executed documents
requiring it and shall sign such instruments as may require his signature.
The Secretary shall give, or cause to be given, the required notice of
meetings of the Shareholders and of meetings of the Board of Directors. The
Secretary shall perform such other duties as may be prescribed by the Board
of Directors or the President, under whose supervision he shall be. The
Secretary shall keep in safe custody the corporate seal (if any) and all
records, documents, contracts, and papers of the Corporation not pertaining
to the performance of the duties vested in other Officers, which shall at
reasonable times be available for the examination of any Director.
(4) TREASURER: The Treasurer shall, subject to the direction of
the President, have general custody of all the funds and securities of the
Corporation and shall have have general supervision of the collection and
disbursement of the funds of the Corporation. The Treasurer shall endorse, on
behalf of the Corporation, checks, notes and other obligations and shall
deposit the same to the credit of the Corporation in such bank or banks or
depositaries as the Board of Directors may designate. The Treasurer may sign,
with the President, or such other person or persons as may be designated for
the purpose by the Board of Directors, all bills of exchange, checks, and
promissory notes of the Corporation. The Treasurer shall enter, or cause to
be entered, regularly in the books of the Corporation full and accurate
account of all money received and paid by him on account of the Corporation;
shall at all reasonable times exhibit his books and accounts to any Director
of the Corporation upon application at the office of the Corporation during
business hours; and, whenever required by the Board of Directors or the
President, shall
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render a statement of his accounts. In the absence of a comptroller, the
Treasurer shall be responsible to the Board of Directors and the President
for all financial control and internal audit of the Corporation and its
subsidiaries. The Treasurer shall perform such other duties as may be
prescribed from time to time by the Board of Directors or the President.
SECTION 6 - SURETIES AND BONDS:
If the Board of Directors shall so require by resolution, any Officer,
employee or agent of the Corporation shall execute to the Corporation a bond
in such sum, and with such surety or sureties, as the Board of Directors may
direct, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting
for all property, funds or securities of the Corporation which may come into
his hands.
SECTION 7 - SHARES OF OTHER CORPORATIONS:
Whenever the Corporation is the holder of shares of any other
corporation, any right or power of the Corporation as to such shares
(including the attendance, acting and voting at shareholders' meetings and
the execution of waivers, consents, proxies or other instruments) may be
exercised on behalf of the Corporation by the President or such other person
as the Board of Directors may authorize.
SECTION 8 - COMPENSATION:
The compensation of all Officers of the Corporation shall be fixed by
the Board of Directors. The compensation of an Officer may include both a
basic salary and a discretionary bonus determined by the Board of Directors
and dependent upon the superior performance of duties by the Officer. If an
expense is paid by the Corporation that is finally determined by a
governmental body not to be a tax deductible expense of the Corporation
because the expense was incurred for the personal benefit of an officer, such
officer shall be deemed to have received additional compensation in the amount
of the expense in the year the expense was paid. If an expense is paid by the
Corporation that is finally determined, by a government taxing authority and
such courts to which any such determination is appealed, not to be a tax
deductible expense because the expense was incurred for the personal benefit
of an Officer, such Officer shall be deemed to have received additional
compensation.
ARTICLE V
SHARES OF STOCK
SECTION 1 - CERTIFICATES OF STOCK:
(A) The certificates representing shares of stock of the Corporation
shall be in such form as shall be adopted by the Board of Directors and shall
be numbered and registered in the order issued. The certificates shall bear
the holder's name and the number of shares, shall be signed by the President
or the Secretary, shall bear a conspicuous legend referring to any
restrictions on sale and transfer of said certificates, as required by
applicable law, and may bear the corporate seal.
(B) In the absence of any Officer or for any other reason that the
Board of Directors deems sufficient, the Board of Directors may delegate all
or a part of the duties of an Officer in respect to certificates of stock
temporarily to any other Officer or to any Director.
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(C) No certificate representing shares shall be issued until the full
amount of consideration therefor has been paid, except as otherwise
permitted by law.
(D) The Board of Directors may authorize the issuance of certificates
for fractions of a share which shall entitle the holder to exercise voting
rights, receive dividends and participate in liquidating distributions, in
proportion to the fractional holders; or it may authorize the payment in cash
of the fair value of fractions of a share as of the time when those entitled
to receive such fractions are determined; or it may authorize the issuance,
subject to such conditions as may be permitted by law, of scrip in registered
or bearer form over the signature of an Officer or agent of the Corporation,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of a Shareholder, except as therein provided.
SECTION 2 - LOST OF DESTROYED CERTIFICATES:
The holder of any certificate representing shares of the Corporation
shall immediately notify the Corporation of any loss or destruction of the
certificate by affidavit. The Corporation may issue a new certificate in the
place of any certificate previously issued by it and alleged to have been
lost or destroyed. On production of evidence of loss or destruction, the
Board of Directors in its discretion may require the owner of the lost or
destroyed certificate, or his legal representatives, to give the Corporation
a bond in such sum as the Board of Directors may direct, with such surety
or sureties as may be satisfactory to the Board of Directors, to indemnify
the Corporation against any claims, loss, liability or damage it may suffer
on account of the issuance of the new certificates. A new certificate may be
issued without requiring such evidence, bond, or surety, when, in the
judgment of the Board of Directors, it is proper so to do.
SECTION 3 - TRANSFER OF SHARES:
(A) Transfer of stock of the Corporation shall be made on the stock
records of the Corporation only upon the request of the holder of record
thereof made in person or by duly authorized attorney. Transfers of stock of
the Corporation may only be made upon the surrender of the certificate or
certificates, representing the shares to be transferred, to the Corporation
or to the transfer agent of the Corporation, for cancellation and if the
surrendered certificate or certificates, representing the shares to be
transferred, are accompanied with a proper assignment or power to transfer
endorsed thereon or delivered therewith. The proper assignment or power to
transfer must be duly executed and there must be provided such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(B) The Corporation and its Directors, Officers and agents shall be
entitled to recognize and to treat the holder of record of any share or
shares as the absolute owner thereof for all purposes, and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any other person, whether or
not there shall have been express or other notice thereof, except as
otherwise provided by law.
SECTION 4 - RECORD DATE:
The Board of Directors may close the stock transfer books of the
Corporation for a period not exceeding fifty days preceding the date of any
meeting of Shareholders, the date for payment of any dividend, the date for
the allotment of rights, the date when any change or conversion or exchange of
capital stock shall go into effect, or the date in
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<PAGE>
connection with obtaining the consent of Shareholders to a proposal without a
meeting for any purpose. In lieu of closing the stock transfer books, the
Board of Directors may fix a record date in advance. The record date fixed in
advance shall not exceed fifty (50) days prior to the date of any meeting of
Shareholders, the date for the payment of any dividend, the date for the
allotment of rights, the date when any change or conversion or exchange of
capital stock shall go into effect, or the date in connection with obtaining
Shareholder consent, as the case may be. The record date fixed in advance
shall be used for the determination of the Shareholders entitled to receive
notice of, and to vote at, any meeting of the Shareholders to receive payment
of any dividend, to receive any allotment of rights, to exercise rights in
respect of any change, conversion or exchange of capital stock, or to give
consent as a Shareholder to a proposal without a meeting, as the case may be.
If a record date is fixed for the purpose of determining the Shareholders
entitled to notice of, and to vote at, a meeting of the Shareholders, the
record date shall be a date not less than ten days prior to the date of said
meeting. Only the Shareholders who are Shareholders of record on the record
date so fixed shall be entitled to receive notice of, and to vote at, a
meeting of the Shareholders, to receive payment of a dividend, to receive
any allotment of rights, to exercise rights in respect of any change,
conversion, or exchange of capital stock, or to give consent as a Shareholder
to a proposal without a meeting, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record
date fixed. If no record date is fixed, the record date for the determination
of Shareholders entitled to notice of, or to vote at, a meeting of
Shareholders shall be at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining
Shareholders for any other purpose shall be at the close of business on the
day on which the resolution of the Directors relating thereto is adopted.
When a determination of Shareholders of record entitled to notice of, or to
vote at, any meeting of the Shareholders has been made as provided for herein,
such determination shall apply to any adjournment thereof, unless the
Directors fix a new record date for the adjourned meeting.
ARTICLE VI
DIVIDENDS
SECTION 1 - PAYMENT OF DIVIDENDS:
Subject to any applicable law, dividends may be declared and paid out of
any amounts available therefor, as often, in such amounts, and at such time
or times as the Board of Directors may determine. Dividends may be declared
and paid in cash, in property, or in shares of stock of the Corporation.
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
as reserves necessary to meet contingencies for any proper purpose. The Board
of Directors may modify or abolish any reserve in the same manner in which it
was created at any time.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors, subject to applicable law.
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<PAGE>
ARTICLE VIII
CORPORATE SEAL
The Corporate seal, if any, shall be in such form as shall be approved
by the Board of Directors. The corporate seal shall have inscribed thereon
the name of the Corporation and the words "Corporate Seal, Louisiana". The
seal may be used by causing it or a facsimile thereof to be impressed,
affixed or reproduced. An impression of the seal, if any, shall be affixed to
the margin hereof when availvable. The absence of the corporate seal on any
document shall not affect the validity of the instrument.
ARTICLE IX
AMENDMENTS
SECTION 1 - BY DIRECTORS:
The Board of Directors shall have power to make, adopt, alter and amend
or repeal the By-Laws of the Corporation; however, the Shareholders, as
provided in this Article, may amend or repeal the By-Laws made by the Board
of Directors. If any By-Law is adopted, repealed or amended by the Board of
Directors, there shall be set forth in a notice to each Shareholder the
By-Law so adopted, repealed or amended, together with a concise statement of
the changes made and the purpose or purposes thereof.
SECTION 2 - BY SHAREHOLDERS:
All By-Laws of the Corporation shall be subject to amendment or repeal by
the Shareholders.
ARTICLE X
INDEMNIFICATION
SECTION 1 - INDEMNIFICATION:
The Corporation may indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (including any action by or
in the right of the Corporation) by reason of the fact that such person is or
was a Director, Officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, Officer, employee or
agent of another business, foreign or non-profit corporation, partnership,
joint venture or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful; provided that in case of actions by or in the right of the
Corporation, the indemnity shall be limited to expenses (including attorneys'
fees and amounts paid in settlement not exceeding, in the judgment of the
Board of Directors, the estimated expense of litigating the action to
conclusion) actually and reasonably incurred in connection with the defense
or settlement of such action and no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the court shall
deternmine upon application
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<PAGE>
that, despite the adjudication of liability but in view of all the
circumstances of the case, he is fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2 - SUCCESSFUL DEFENSE:
To the extent that a Director, Officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
such action suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
SECTION 3 - STANDARD OF CONDUCT:
The indemnification hereunder (unless ordered by the court) shall be made
by the Corporation only as authorized in a specific case upon a determination
that the applicable standard of conduct has been met. Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable or a quorum of
disinterested Directors so directs, by independent legal counsel, or (3) by
the Shareholders.
SECTION 4 - ADVANCE PAYMENT:
The expenses incurred in defending such an action, suit or proceeding shall
be paid by the Corporation in advance of the final disposition thereof if
authorized by the Board of Directors in the manner provided in Section 3
above, upon receipt of an undertaking by or on behalf of the Director,
Officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized hereunder.
SECTION 5 - OTHER RIGHTS:
The indemnification provided hereunder shall not be deemed exclusive of
any other rights to which one indemnified may be entitled, both as to action
in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of his
heirs and legal representatives.
SECTION 6 - INSURANCE:
The Corporation may procure insurance on behalf of any person who is or
was a Director, Officer, employee, or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, Officer, employee or
agent of another business, non-profit or foreign corporation, partnership,
joint venture or other enterprise against any liability asserted against or
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the Business Corporation Law of Louisiana.
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<PAGE>
ARTICLE XI
NOTICES
SECTION 1 - EFFECT OF NOTICE:
Any written notice required or permitted by law, the Articles of
Incorporation or the By-Laws to be given to any Shareholder, Director or
Officer shall be deemed to have been given to such Shareholder, Director, or
Officer one business day after the notice is placed in the United States
mail, postage prepaid, and addressed to such Shareholder, Director, or
Officer at his last known address as it appears on the records of the
Corporation.
SECTION 2 - WAIVER OF NOTICE:
Whenever any notice is required to be given by law, the Articles of
Incorporation, or the 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 the equivalent of the required notice.
ARTICLE XII
FINANCIAL STATEMENT
The Board of Directors shall present at each annual meeting of the
Shareholders, and at any special meeting of the Shareholders when called for
by vote of the Shareholders, a full and clear statement of the business and
condition of the Corporation.
ARTICLE XIII
CHECKS
All checks or demands for money and notes of the Corporation shall be
signed or shall otherwise be prepared for negotiation by the President,
Treasurer, or such person or persons as the Board of Directors may designate.
The Secretary of the Corporation shall maintain custody of signature
facsimile devices used in the preparation of checks.
ARTICLE XIV
REVERSION TO CORPORATION
Cash, property or stock dividends, shares issuable to Shareholders in
connection with a reclassification of stock and the redemption price of
redeemed shares, which are not claimed by the Shareholders entitled thereto
within one year after the dividend or redemption price became payable or the
shares became issuable, despite reasonable efforts by the Corporation to pay
the dividend or redemption price or to deliver the certificates for the shares
to such Shareholders within such time, shall, at the expiration of such time,
revert in full ownership to the Corporation; and the Corporation's obligation
to pay such dividend or redemption price or issue such shares, as the case
may be, shall thereupon cease. The Board of Directors may, at any time, for
any reason satisfactory to it and at its discretion, authorize (a) payment of
the amount of any cash or property dividend or redemption price or (b)
issuance of any shares, ownership of which has reverted to the Corporation
pursuant to this Article, to the entity who or which would be entitled
thereto had such reversion not occurred.
Dated: March 9, 1983 /s/ Linette L. Abadie
-----------------------------
Linette L. Abadie, Secretary
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
DATAREX SYSTEMS INC.
________________________________________
Article 1: The name of the corporation is Datarex Systems Inc.
Article 2: The address of the corporation's registered office in
the State of Delaware is 410 South State St., in the City of Dover, County
of Kent. The name of the corporation's registered agent at such address is
Corporate Filing Service Inc.
Article 3: The purpose of the corporation is to engage in any
lawful act or activities for which corporations may be organized under the
General Corporation Law of Delaware.
Article 4: The total number of shares of all classes of stock
which the corporation shall have authority to issue is Four Million
(4,000,000) of which Three Million Five Hundred Thousand (3,500,000) shares
shall be Common Stock, with a par value of $.01 per share ("Common Stock"),
and Five Hundred Thousand (500,000) shares shall be Preferred Stock
("Preferred Stock"), with a par value of $.01 per share, issuable in one or
more series.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of
<PAGE>
-2-
the shares of each class of stock are, so far as not inconsistent with the
provisions of this Certificate of Incorporation or the General Corporate Law
of the State of Delaware, as follows:
PREFERRED STOCK
(a) The Preferred Stock may be issued from time to time in one or
more series. All shares of Preferred Stock shall be identical and of equal
rank except in respect to the particulars that may be fixed by the Board of
Directors as provided herein, and all shares of each series of Preferred
Stock shall be identical and of equal rank except as to the time from which
the cumulative dividends, if any, thereof shall be cumulative.
(b) Subject to the limitations set forth herein and any
limitations prescribed by law, the Board of Directors is expressly
authorized, prior to issuance of any series of Preferred Stock, to fix by
resolution or resolutions providing for the issue of any series the number of
shares included in such series and the designation, relative powers,
preferences and rights and the qualifications, limitations or restrictions of
such series. Pursuant to the foregoing general authority vested in the Board
of Directors, but not in limitation of the powers conferred on the Board of
Directors thereby and by the General Corporation Law of the State of
Delaware, the Board of Directors is expressly authorized to determine with
respect to each series of Preferred Stock:
<PAGE>
-3-
(i) the designation or designations of such series and the
number of shares (which number from time to time may be decreased by the
Board of Directors, but not below the number of such shares then
outstanding, or may be increased by the Board of Directors, but not above
any number or limit specified in such series) constituting such series;
(ii) the rate or amount and times at which, and the
preferences and conditions under which, dividends shall be payable on
shares of such series, the status of such dividends as cumulative or
noncumulative, the date or dates from which dividends, if cumulative,
shall accumulate, and the status of such shares as participating or
nonparticipating after the payment of dividends as to which such shares
are entitled to any preference;
(iii) the rights and preferences, if any, of the holders of
shares of such series upon the liquidation, dissolution or winding up of
the affairs of, or upon any distribution of the assets of, the Corporation,
which amount may vary depending upon whether such liquidation, dissolution
or winding up is voluntary or involuntary and, if voluntary, may vary at
different dates, and the status of the shares of such series as
participating or nonparticipating after the satisfaction of any such rights
and preferences;
<PAGE>
-4-
(iv) the full or limited voting rights, if any, to be provided
for shares of such series, in addition to the voting rights provided by
law;
(v) the times, terms and conditions, if any, upon which
shares of such series shall be subject to redemption, including the amount
the holders of shares of such series shall be entitled to receive upon
redemption (which amount may vary under different conditions or at
different redemption dates);
(vi) the amount, terms, conditions and manner of operation of
any purchase, retirement or sinking fund to be provided for the shares of
such series;
(vii) the rights, if any, of holders of shares of such series
to convert such shares into, or to exchange such shares for, shares of any
other class or classes or of any other series of the same class, the prices
or rates of conversion or exchange, and adjustments thereto, an any other
terms and conditions applicable to such conversion or exchange;
(viii) the limitations, if any, applicable while such series is
outstanding on the payment of dividends or making of distributions on, or
the acquisition or redemption of, Common Stock or any other class of shares
ranking junior
<PAGE>
-5-
as to dividends or upon liquidation, to the shares of such series;
(ix) the conditions or restrictions, if any, upon the issuance
of any additional shares (including additional shares of such series or any
other series or of any other class) ranking on a parity with or prior to
the shares of such series either as to dividends or upon liquidation; and
(x) any other relative powers, preferences, participation
rights, options or other special rights, and the qualifications,
limitations or restrictions thereof, of shares of such series.
COMMON STOCK
Subject to all of the rights of the Preferred Stock, and except as
may be expressly provided with respect to the Preferred Stock herein, by law
or by the Board of Directors pursuant to this Article 4:
(a) Common Stock may be issued from time to time for such
consideration as may be fixed from time to time by the Board of Directors
of the Corporation. Except as otherwise provided herein, all shares of
Common Stock shall be identical and shall entitle the holders thereof to
the same rights and privileges; and
<PAGE>
-6-
(b) dividends may be declared and paid or set apart for payment
upon the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
(c) the holders of Common Stock shall have the exclusive right
to vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and
(d) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall
be distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests.
PREEMPTIVE RIGHTS
No current or future holder of any stock of the Corporation, whether
heretofore or hereafter issued, shall be entitled as such, as a matter of
right, to subscribe for or purchase any part of any new or additional issue
of stock of any class whatsoever of the Corporation, or of securities
(including bonds and debentures) convertible into stock of any class
whatsoever, whether now or hereafter authorized, or whether issued for cash
or other consideration or by way of dividend.
<PAGE>
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Article 5: The name and mailing address of the sole incorporator
is David A. Garbus, Esq., c/o Hodgson, Russ, Andrews, Woods & Goodyear, 1800
One M&T Plaza, Buffalo, New York 14203.
Article 6: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to
adopt, amend or repeal the by-laws of the corporation.
Article 7: Election of directors need not be by written ballot
unless the by-laws of the corporation shall so provide.
Article 8: The Board of Directors of the Corporation may make
By-laws and from time to time may alter, amend or repeal By-laws.
Article 9: 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 this
certificate of incorporation, and all rights conferred upon stockholders
herein are granted subject to this reservation.
Article 10: No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for
<PAGE>
-8-
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
The undersigned, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, does make this certificate, hereby declaring and
certifying that this is his act and deed and the facts herein stated are
true, and accordingly has hereunto set his hand this 29th day of July, 1986.
/s/ David A. Garbus
-----------------------------
David A. Garbus
<PAGE>
AMENDED AND RESTATED
BY-LAWS
of
DATAREX SYSTEMS INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders of the
corporation for the election of directors and for the transaction of other
business shall be held at such time and such place within or without the State
of Delaware as shall be determined by the Board of Directors or the President
and stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. SPECIAL MEETINGS. A special meeting of stockholders may be
called by the Board of Directors or the President, and shall be called by the
President, the Secretary or an Assistant Secretary at the request in writing
of one-third or more of the Directors then in office, or at the request in
writing of the holders of record of 20% or more of the outstanding shares of
the stock of the corporation entitled to vote at the meeting. Each special
meeting of stockholders shall be held at such time and place within or
without the State of Delaware as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof. Business transacted at
any special meeting of stockholders shall be limited to the purpose or
purposes stated in the notice of the meeting.
SECTION 3. NOTICE AND PURPOSE OF MEETINGS. Written notice at each
meeting of stockholders stating the place, date and hour of the meeting and, in
the case
<PAGE>
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of a special meeting, in general terms, the purpose or purposes for which the
meeting is called, shall be given not less than ten nor more than sixty days
before the meeting to each stockholder of record entitled to vote at the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, with first-class postage thereon prepaid, directed to
each stockholder at his address as it appears on the records of the
corporation.
SECTION 4. PROCEDURE. At each meeting of stockholders the order of
business and all other matters of procedure may be determined by the person
presiding at the meeting.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten 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 of the stock of the
corporation registered in the name of each stockholder. Such list shall be
open to examination of any stockholder for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is
to be held, 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. QUORUM. Except as otherwise required by law or the
certificate of incorporation, a quorum at all meetings of stockholders shall
consist of
<PAGE>
- 3 -
the holders of record of not less than a majority of the outstanding shares
of the stock of the corporation entitled to vote at the meeting, present in
person or represented by proxy, except when the stockholders are required to
vote by class, in which event the holders of record of not less than a
majority of the outstanding shares of the appropriate class shall be present
in person or represented by proxy.
SECTION 7. ADJOURNMENTS. The stockholders entitled to vote who
are present in person or represented by proxy at any meeting of stockholders,
whether or not a quorum shall be present at the meeting, shall have power by
a majority of the votes cast to adjourn the meeting from time to time without
notice other than announcement at the meeting of the time and place to which
the meeting is adjourned. At any adjourned meeting held without notice at
which a quorum shall be present any business may be transacted that might
have been transacted on the original date of the meeting. If the adjournment
is for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned
meeting.
SECTION 8. VOTING; PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder of record shall be entitled
at every meeting of stockholders to one vote for each share of the stock of
the corporation standing in his or her own name on the record of stockholders
on the record date fixed for the meeting or, if no record date for the
meeting was fixed, on the date of the meeting. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may act in person or persons or
may authorize another person to act for him or her by proxy, but no proxy
shall be
<PAGE>
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voted or acted upon after three years from its date unless it provides for a
longer period.
Directors elected at any meeting of stockholders shall, except as
otherwise required by law, be elected by a plurality of the votes cast. All
other corporate action to be taken by vote of stockholders shall, except as
otherwise required by law, the certificate of incorporation or these by-laws,
be authorized by a majority of the votes cast. Unless otherwise provided in
the certificate of incorporation, the vote for directors shall be by ballot,
but the vote upon any other question before a meeting of stockholders shall
not be by ballot unless required by law or unless the person presiding at
such meeting shall so direct or unless any stockholder present in person or by
proxy and entitled to vote thereon shall so demand.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the certificate of incorporation, any action required
to be taken at any annual or special meeting of stockholders, or any action
(including, without limitation, adoption, amendment or repeal of by-laws)
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares of the stock of the corporation having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
<PAGE>
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SECTION 10. WAIVER OF NOTICE. Whenever notice is required by
law or these by-laws to be given to any stockholder, a written waiver
thereof, signed by such stockholder in person or by proxy, whether before or
after the time stated therein, shall be deemed equivalent to notice. The
attendance of any stockholder at a meeting in person or by proxy shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any annual or special meeting of the stockholders need be
specified in any written waiver of notice.
SECTION 11. INSPECTORS OF ELECTION. The Board of Directors
may, in advance of any meeting of the stockholders, appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors
are not so appointed in advance of the meeting, the person presiding at such
meeting may, and on the request of any stockholder entitled to vote thereat
shall, appoint one or more inspectors. In case any inspector appointed fails
to appear or act, the vacancy may be filled by appointment made by the Board
of Directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, before entering upon the discharge of his
or her duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the
best of his or her ability. No person who is a candidate for the office of
director of the corporation shall act as an inspector at any meeting of the
stockholders at which directors are elected.
<PAGE>
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SECTION 12. DUTIES OF INSPECTORS OF ELECTION. When ever one
or more inspectors of election may be appointed as provided in these by-laws,
he, she or they shall determine the number of shares outstanding and entitled
to vote, the shares represented at the meeting, the existence of a quorum,
and the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots, or
consents, determine the result, and do such acts as are proper to conduct
the election or vote with fairness to all stockholders.
ARTICLE II
DIRECTORS
SECTION 1. GENERAL POWERS. The property, business and affairs
of the corporation shall be managed by or under the direction of its Board of
Directors.
SECTION 2. NUMBER AND QUALIFICATIONS. The Board of Directors
shall consist of one or more members. The exact number of directors shall be
fixed from time to time by action of the stockholders or by vote of a
majority of the entire Board of Directors.
SECTION 3. ELECTION AND TERM OF OFFICE. Except as otherwise
required by law or these by-laws, each director shall be elected at the
annual meeting of stockholders of the corporation and shall hold office until
the next annual meeting of stockholders and until his or her successor has
been elected and qualified, or until his or her earlier death, resignation or
removal.
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SECTION 4. RESIGNATION. Any director may resign at any time by
giving written notice to the corporation. Such resignation shall take effect
at the time specified therein; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. REMOVAL OF DIRECTORS. Except as otherwise provided by
law, any director or the entire Board of Directors may be removed, with or
without cause, by the holders of sixty-six and two-thirds percent (66-2/3%) of
the shares of the stock of the corporation then entitled to vote at an
election of directors.
SECTION 6. VACANCIES. Newly created directorships and vacancies
in the Board of Directors, including vacancies resulting from the resignation
of directors effective immediately or at a future date or from the removal of
directors, with or without cause, may be filled by vote of the stockholders,
by vote of a majority of the directors then in office (including directors
whose resignations are effective at a future date), although less than a
quorum, or by the sole remaining director. Each director so chosen shall hold
office until the next annual meeting of stockholders and until his or her
successor has been elected and qualified, or until his or her earlier death,
resignation or removal. A vote to fill a vacancy or vacancies created by the
resignation or resignations of a director or directors effective at a future
date shall take effect when the resignation or resignations become effective.
SECTION 7. FIRST MEETING OF NEWLY ELECTED DIRECTORS. The first
meeting of the newly elected Board of Directors may be held immediately after
the annual meeting of stockholders and at the same place as the annual
meeting of stockholders, provided a quorum be present, and no notice of the
meeting shall be necessary. In the
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event the first meeting of the newly elected Board of Directors is not held
at said time and place, it shall be held as provided in Section 8 or 9 of
this Article II.
SECTION 8. REGULAR MEETINGS OF DIRECTORS. Regular meetings of
the Board of Directors may be held without notice at such time and such place
within or without the State of Delaware as may be fixed from time to time by
resolution of the Board of Directors. If any day fixed for a regular meeting
shall be a legal holiday at a place where the meeting is to be held, then the
meeting which would otherwise be held on that day shall be held at the same
hour on the next succeeding business day.
SECTION 9. SPECIAL MEETINGS OF DIRECTORS. A special meeting of
the Board of Directors may be called by the President, or, in the absence or
disability of the President, any Vice President, or by any two directors or
if there is only one director by that one director. Each special meeting of
the Board of Directors may be held at such time and such place within or
without the State of Delaware as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
SECTION 10. NOTICE OF SPECIAL MEETINGS. Notice of each special
meeting of the Board of Directors, stating the time and place thereof, shall
be given by the President, any Vice President, the Secretary, any Assistant
Secretary or any member of the Board of Directors, to each member of the
Board of Directors (a) not less than three days before the meeting by
depositing the notice in the United States mail, with first-class postage
thereon prepaid, directed to each member of the Board of Directors at the
address designated by him or her for such purpose (or, if none is designated,
at his or her last known address), or (b) not less than twenty-four hours
before the meeting by either (i) delivering the same to each member of the
Board of Directors personally,
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(ii) sending the same by telephone, telegraph, cable or wireless to the
address designated by him or her for such purpose (or, if none is designated,
to his or her last known address) or (iii) delivering the notice to the
address designated by him or her for such purpose (or, if none is
designated, to his or her last known address). The notice of any meeting of
the Board of Directors need not specify the purpose or purposes for which the
meeting is called, except as otherwise required by law or these by-laws.
SECTION 11. QUORUM AND ACTION BY THE BOARD. At all meetings of the
Board of Directors, except as otherwise required by law or these by-laws, a
quorum shall be required for the transaction of business and shall consist of
not less than a majority of the entire Board of Directors, and the vote of a
majority of the directors present shall decide any question that may come
before the meeting. A majority of the directors present, whether or not a
quorum is present, may adjourn any meeting to another time or place without
notice other than announcement at the meeting of the time and place to which
the meeting is adjourned.
SECTION 12. PROCEDURE. The order of business and all other matters
of procedure at every meeting of directors may be determined by the person
presiding at the meeting.
SECTION 13. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by vote of a majority of the entire Board of Directors,
designate one or more committees, each committee to consist of one or more of
its 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. In the absence or
disqualification of any member or alternate member
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of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member or
alternate member. 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 property,
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority of the Board of Directors in
reference to amending the certificate of incorporation, adopting any
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 to the stockholders a dissolution of the
corporation or a revocation of a dissolution, amending the by-laws of the
corporation, declaring a dividend or authorizing the issuance of stock. Each
such committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. A majority vote of all the
members of any such committee may fix its rules or procedure, determine its
action and fix the time and place within or without the State of Delaware for
its meetings and specify the number of members required to constitute a
quorum and what notice thereof, if any, shall be given, unless the Board of
Directors shall otherwise provide. The Board of Directors may at any time
fill vacancies in, change the membership of or discharge any such committee.
SECTION 14. COMPENSATION OF DIRECTORS. The Board of Directors shall
have the authority to fix the compensation of directors. The directors may be
paid
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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 committees of the Board of
Directors may be allowed like compensation for attending committee meetings.
SECTION 15. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Board of Directors or any committee thereof may
be taken without a meeting if all members of the Board of Directors or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board of Directors or committee shall be filed with the minutes of the
proceedings of the Board of Directors or committee.
SECTION 16. PRESENT AT MEETING BY TELEPHONE. Members of the Board
of Directors or any committee thereof may participate in a meeting of the
Board of Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting by such means shall
constitute presence in person at the meeting.
SECTION 17. WAIVER OF NOTICE. Whenever notice is required by law
or these by-laws to be given to any director, a written waiver thereof,
signed by such director, whether before or after the time stated therein,
shall be deemed equivalent to notice.
<PAGE>
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ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The Board of Directors shall annually, at the
first meeting of the Board of Directors after the annual meeting of
stockholders, elect a President, one or more Vice Presidents, a Secretary,
and a Treasurer. The Board of Directors may from time to time elect or
appoint such additional officers as it may determine. Such additional
officers shall have such authority and perform such duties as the Board of
Directors may for time to time prescribe.
SECTION 2. TERM OF OFFICE. The President, each Vice-President, the
Secretary and the Treasurer shall each, unless otherwise determined by the
Board of Directors, hold office until the first meeting of the Board of
Directors following the next annual meeting of stockholders and until his or
her successor has been elected and qualified, or until his or her earlier death,
resignation or removal. Each additional officer appointed or elected by the
Board of Directors shall hold office for such term as shall be determined
from time to time by the Board of Directors and until his or her successor
has been elected or appointed and qualified, or until his or her earlier
death, resignation or removal.
SECTION 3. REMOVAL. Any officer may be removed or have his or her
authority suspended by the Board of Directors at any time, with or without
cause.
SECTION 4. RESIGNATION. Any officer may resign at any time by
giving written notice to the corporation. Such resignation shall take effect
at the time specified therein; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
<PAGE>
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SECTION 5. VACANCIES. A vacancy in any office arising for any reason
may be filled by the Board of Directors.
SECTION 6. THE PRESIDENT. The President shall be the chief executive
officer of the corporation. He or she shall preside at all meetings of
stockholders and of the Board of Directors. He or she shall have the powers and
duties of immediate supervision and management of the corporation which usually
pertain to his or her office, and shall perform all such other duties as are
properly required of him or her by the Board of Directors.
SECTION 7. THE VICE PRESIDENTS. The Vice Presidents may be
designated by such title or titles as the Board of Directors may determine, and
each Vice President in such order of seniority as may be determined by the Board
of Directors shall, in the absence or disability of the President, or at his or
her request, perform the duties and exercise the powers of the President. Each
of the Vice Presidents also shall have such powers as usually pertain to his or
her office and shall perform such duties as usually pertain to his or her office
or as are properly required of him or her by the Board of Directors.
SECTION 8. THE SECRETARY AND ASSISTANT SECRETARIES. The Secretary
shall issue notices of all meetings of stockholders and of the Board of
Directors where notices of such meetings are required by law or the by-laws. He
or she shall attend meetings of stockholders and of the Board of Directors and
keep the minutes thereof in a book or books to be provided for that purpose. He
or she shall affix the corporate seal to and and sign such instruments as
require the seal and his or her signature and shall perform such other duties as
usually pertain to his or her office or as are properly required of him or her
by the Board of Directors.
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The Assistant Secretaries may, in the absence or disability of the
Secretary, or at his or her request or the request of the President, perform the
duties and exercise the powers of the Secretary, and shall perform such other
duties as the Board of Directors shall prescribe.
SECTION 9. THE TREASURER AND ASSISTANT TREASURERS. The Treasurer
shall have the care and custody of all the moneys and securities of the
corporation. He or she shall cause to be entered in books of the corporation to
be kept for that purpose full and accurate accounts of all moneys received by
him or her and paid by him or her on account of the corporation. He or she
shall make and sign such reports, statements and instruments as may be required
of him or her by the Board of Directors or by the Laws of the United States or
of any state, country or other jurisdiction in which the corporation transacts
business, and shall perform such other duties as usually pertain to his or her
office or as are properly required of him or her by the Board of Directors.
The Assistant Treasurers may, in the absence or disability of the
Treasurer, or at his or her request or the request of the President, perform the
duties and exercise the powers of the Treasurer, and shall perform such other
duties as the Board of Directors shall prescribe.
SECTION 10. OFFICERS HOLDING TWO OR MORE OFFICES. Any two or more
offices may be held by the same person but no officer shall execute, acknowledge
or verify any instrument in more than one capacity if such instrument be
required by law or otherwise to be executed or verified by two or more officers.
<PAGE>
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SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the
absence or disability of any officer of the corporation, or in case of a
vacancy in any office or for any other reason that the Board of Directors may
deem sufficient, the Board of Directors, except as otherwise provided by law,
may temporarily delegate the powers or duties of any officer to any other
officer or to any director.
SECTION 12. COMPENSATION. The compensation of all officers shall
be determined by the Board of Directors. The compensation of all other
employees shall be fixed by the President within such limits as may be
prescribed by the Board of Directors.
SECTION 13. SECURITY. The corporation may secure the fidelity of
any or all of its officers or agents by bond or otherwise, as may be required
from time to time by the Board of Directors.
ARTICLE IV
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. RIGHT OF INDEMNIFICATION. Every person now or hereafter
serving as a director or officer of the corporation and every such director
or officer serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, shall be indemnified by the corporation in accordance
with and to the fullest extent permitted by law for the defense of, or in
connection with, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
<PAGE>
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SECTION 2. EXPENSES. Expenses incurred by an officer or director
in defending a civil or criminal action, suit or proceeding may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the corporation as authorized in
this Article IV.
SECTION 3. OTHER RIGHTS OF INDEMNIFICATION. The right of
indemnification herein provided shall not be deemed exclusive of any other
rights to which any such director or officer may now or hereafter be entitled
under any by-law, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such person.
ARTICLE V
SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES. Every stockholder of the corporation
shall be entitled to a certificate or certificates, to be in such form as the
Board of Directors shall prescribe, certifying the number of shares of the
stock of the corporation owned by him or her.
SECTION 2. ISSUANCE OF CERTIFICATES. Certificates representing
shares of stock of the corporation shall be numbered in the order in which
they are issued and shall be signed by the President or any Vice President
and the Treasurer or an Assistant
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Treasurer or the Secretary or an Assistant Secretary of the corporation. Any of
or all the signatures on the certificate may be a facsimile. In case any
officer of the corporation who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer before such
certificate is issued, such certificate may nevertheless be issued by the
corporation with the same effect as if he or she were such officer at the date
of issue.
SECTION 3. MORE THAN ONE CLASS OF STOCK. If the corporation shall
be authorized to issue more than one class of stock or more than one series
of any class, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitation 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, except for
restrictions on transfer of stock (as provided in Section 202 of the General
Corporation Law of Delaware). 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 4. STOCK LEDGER. A record shall be kept by the Secretary, by
the transfer agent, or by any other officer, employee or agent designated by the
Board of Directors, of the name of the individual, firm or corporation holding
the shares of the
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stock of the corporation represented by each certificate, the number of shares
represented by such certificate, the date of issue thereof and, in case of
cancellation, the date of cancellation thereof.
SECTION 5. TRANSFER OF SHARES. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate representing shares of
the stock of the corporation duly endorsed or accompanied by proper evidence of
succession, assignment 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. Whenever any
transfer of shares shall be made for collateral security, and not absolutely, it
shall be so expressed in the entry of the transfer if, when the certificates are
presented to the corporation for transfer, both the transferor and transferee
request the corporation to do so.
SECTION 6. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares of the stock of the corporation to receive dividends, and to
vote as such owner, and to hold liable for call and assignments a person
registered on its books as the owner of such shares, and shall not be bound to
recognize any equitable or other claim to or interest in such 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.
SECTION 7. REGULATIONS. The Board of Directors may make such rules
and regulations as it may deem expedient, not inconsistent with law, the
certificate of incorporation or these by-laws, concerning the issue, transfer
and registration of certificates representing shares of the stock of the
corporation. It may appoint, or
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authorize any officer or officers to appoint, one or more transfer clerks or
one or more transfer agents or one or more registrars, and may require all
such certificates to bear the signature or signatures of any of them.
SECTION 8. LOST, STOLEN AND DESTROYED CERTIFICATES. The Board of
Directors may in its discretion cause a new certificate representing shares
of the stock of the corporation to be issued in place of any certificate
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon satisfactory proof of that fact by the person claiming the
certificate to have been lost, stolen or destroyed: but the Board of
Directors may in its discretion refuse to issue a new certificate except upon
the order of a court having jurisdiction to such matters. When authorizing
such issue of a new certificate, 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 his legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
SECTION 9. FIXING OF RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
of the stock of the corporation, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a
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record date, which shall not be more than sixty or less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
Only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to notice of and to vote at such meeting of
stockholders and any adjournment thereof, or to receive payment of such
dividend or such other distribution or such allotment of rights, or to
exercise such rights in respect of any such change, conversion or exchange of
shares of the stock of the corporation, or to participate in such other
action, or to give such consent, as the case may be, notwithstanding any
transfer of any shares of the stock of the corporation on the books of the
corporation after any such record date so fixed. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
If no record date is fixed by the Board of Directors, (a) the
record date for determining stockholders entitled to notice of or to vote at
any meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held, (b) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed, and (c) the record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto.
<PAGE>
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ARTICLE VI
FINANCES
SECTION 1. CORPORATE FUNDS. The funds of the corporation shall be
deposited in its name with such banks, trust companies or other depositories
as the Board of Directors may from time to time designate. All checks, notes,
drafts and other negotiable instruments of the corporation shall be signed by
such officer or officers, employee or employees, agent or agents as the Board
of Directors may from time to time designate. No officers, employees or
agents of the corporation, alone or with others, shall have power to make any
checks, notes, drafts or other negotiable instruments in the name of the
corporation or to bind the corporation thereby, except as provided in this
Section 1.
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be
the calendar year unless otherwise provided by the Board of Directors.
SECTION 3. DIVIDENDS RESERVES. Dividends upon the stock of the
corporation, payable out of funds legally available therefor, may be declared
by the Board of Directors at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the stock of the corporation.
Before declaring any dividend, the Board of Directors may set aside out of
any funds of the corporation legally available for dividends such sum or sums
as the Board of Directors from time to time in its discretion shall deem
proper as a reserve for working capital, for contingencies, for equalizing
dividends or for such other purpose or purposes as the Board of Directors
shall deem conducive to the interests of the corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it
was created.
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SECTION 4. LOANS TO EMPLOYEES AND OFFICERS. The corporation may lend
money to, or guarantee any obligation of, or otherwise assist any officer or
other employee of the corporation, including any officer or employee who is
also a director of the corporation, whenever in the judgment of the Board of
Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with
or without interest, and may be unsecured, or secured in such manner as the
Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation.
ARTICLE VII
CORPORATE SEAL
SECTION 1. FORM OF SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its incorporation and the
words "Corporate Seal" and "Delaware", and shall otherwise be in such form as
shall be prescribed from time to time by the Board of Directors.
SECTION 2. USE OF SEAL. The corporate seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced in any manner.
ARTICLE VIII
AMENDMENTS
SECTION 1. PROCEDURES FOR AMENDING BY LAWS. By-laws of the
corporation may be adopted, amended or repealed (a) at any meeting of
stockholders, notice of which shall have referred to the proposed action, by
the holders of sixty-six and two-thirds percent (66-2/3%) of the shares of
the corporation then entitled to vote at
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an election of directors, or (b), if the power to adopt, amend or repeal
by-laws shall have been conferred upon the directors in the certificate of
incorporation, at any meeting of the Board of Directors, notice of which
shall have referred to the proposed action, by the vote of a majority of the
entire Board of Directors.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
POSITIVE ID WHOLESALE INC.
ARTICLE 1: The name of the Corporation is POSITIVE ID WHOLESALE INC.
ARTICLE 2: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE 3: The purpose of the Corporation is to engage in any lawful
act or activities for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE 4: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,125 of which 1,000 shall be
common stock, with a par value of $.01 per share ("Common Stock"), and of which
125 shares shall be preferred stock, with a par value of $.01 per share
("Preferred Stock"), issuable in one or more series.
The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions of the shares of each class or
stock are, so far as not inconsistent
<PAGE>
with the provisions of this Certificate of Incorporation or the General
Corporation Law of the State of Delaware, as follows:
PREFERRED STOCK
(a) The Preferred Stock may be issued from time to time in one or
more series. All shares of Preferred Stock shall be identical and of equal rank
except in respect to the particulars that may be fixed by the Board of Directors
as provided herein, and all shares of each series of Preferred Stock shall be
identical and of equal rank except as to the time from which cumulative
dividends, if any, thereof shall be cumulative.
(b) Subject to the limitations set forth herein and any limitations
prescribed by law, the Board of Directors is expressly authorized, prior to
issuance of any series of Preferred Stock, to fix by resolution or resolutions
providing for the issue of any series the number of shares included in such
series and the designation, relative powers, preferences and rights and the
qualifications, limitations or restrictions of such series. Pursuant to the
foregoing general authority vested in the Board of Directors, but not in
limitation of the powers conferred on the Board of Directors thereby and by the
General Corporation Law of the State of Delaware, the Board of Directors is
expressly authorized to determine with respect to each series of Preferred
Stock:
(i) the designation or designations of such series and the
number of shares (which number from time to time may
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<PAGE>
be decreased by the Board of Directors, but not below the number of such shares
then outstanding, or may be increased by the Board of Directors, but not above
any number or limit specified in such series) constituting such series;
(ii) the rate or amount and times at which, and preferences and
conditions under which, dividends shall be payable on shares of such series, the
status of such dividends as cumulative or noncumulative, the date or dates from
which dividends, if cumulative, shall accumulate, and the status of such shares
as participating or nonparticipating after the payment of dividends as to which
such shares are entitled to any preference;
(iii) the rights and preferences, if any, of the holders of
shares of such series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the Corporation, which
amount may vary depending upon whether such liquidation, dissolution or winding
up is voluntary or involuntary and, if voluntary, may vary at different dates,
and the status of the shares of such series as participating or nonparticipating
after the satisfaction of any such rights and preferences;
(iv) the full or limited voting rights, if any, to be provided
for shares of such series, in addition to the voting rights provided by law;
(v) the times, terms and conditions, if any, upon which shares
of such series shall be subject to redemption,
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<PAGE>
including the amount the holders of shares of such series shall be entitled to
receive upon redemption (which amount may vary under different conditions or at
different redemption dates);
(vi) the amount, terms, conditions and manner of operation of
any purchase, retirement or sinking fund to be provided for the shares of such
series;
(vii) the rights, if any, of holders of shares of such series to
convert such shares into, or to exchange such shares for, shares of any other
class or classes or of any other series of the same class, the prices or rates
of conversion or exchange, and adjustments thereto, and any other terms and
conditions applicable to such conversion or exchange;
(viii) the limitations, if any, applicable while such series is
outstanding on the payment or dividends or making of distributions on, or the
acquisition or redemption of, Common Stock or any other class of shares ranking
junior as to dividends or upon liquidation, to the shares of such series;
(ix) the conditions or restrictions, if any, upon the issuance
of any additional shares (including additional shares of such series or any
other series or of any other class) ranking on a parity with or prior to the
shares of, such series either as to dividends or upon liquidation; and
(x) any other relative powers, preferences, participation
rights, options or other special rights, and the
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<PAGE>
qualifications, limitations or restrictions thereof, of shares of such series.
COMMON STOCK
Subject to all of the rights of the Preferred Stock, and except as may be
expressly provided with respect to the Preferred Stock herein, by law or by the
Board of Directors pursuant to this Article 4:
(a) Common Stock may be issued from time to time for such
consideration as may be fixed from time to time by the Board of Directors of the
Corporation. Except as otherwise provided herein, all shares of Common Stock
shall be identical and shall entitle the holders thereof to the same rights and
privileges;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends;
(c) the holders of Common Stock shall have the exclusive right to
vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and
(d) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
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<PAGE>
PREEMPTIVE RIGHTS
No current or future holder of any stock of the Corporation, whether
heretofore or hereafter issued, shall be entitled as such, as a matter of right,
to subscribe for or purchase any part of any new or additional issue of stock of
any class whatsoever of the Corporation, or of securities (including bonds and
debentures) convertible into stock of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of dividend.
ARTICLE 5: The name and mailing address of the sole incorporator are
Colleen A. Van Gelder, Esq., c/o Jaeckle, Fleischmann & Mugel, 800 Fleet Bank
Building, 12 Fountain Plaza, Buffalo, New York 14202.
ARTICLE 6: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to adopt,
amend or repeal the by-laws of the Corporation.
ARTICLE 7: Election of directors need not be by written ballot unless
the by-laws of the Corporation shall so provide.
ARTICLE 8: 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 this Certificate of
Incorporation, and all rights
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<PAGE>
conferred upon stockholders herein are granted subject to this reservation.
ARTICLE 9: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
The undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is her act and deed and the facts herein stated are true, and
accordingly has hereunto set her hand this 17th day of January 1996.
/s/ Colleen A. Van Gelder
-----------------------------------
Colleen A. Van Gelder
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<PAGE>
BY-LAWS
OF
POSITIVE ID WHOLESALE INC.
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders, for
the election of Directors and for the transaction of such other business as may
properly come before the meeting, shall be held at such place and time as the
Board of Directors shall each year fix.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the Board of Directors or the President and must be called by the
President upon written request of the holders of not less than a majority of all
the shares of stock entitled to vote. Special meetings called by the Directors
shall be held at a time and place to be designated by such Directors. All other
special meetings of the stockholders shall be held at a time and place to be
designated by the President of the Corporation.
SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, personally or by mail,
not less than ten nor more than sixty days before the date on which the meeting
is to be held, to each stockholder who does not waive such notice in writing and
who is entitled to vote at such meeting, except as otherwise required by law.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority of all of the shares of stock entitled to vote at the meeting, present
in person or by proxy,
<PAGE>
shall constitute a quorum for all purposes, unless or except to the extent that
the presence of a larger number may be required by law or by the Certificate of
Incorporation.
SECTION 5. ADJOURNED MEETINGS. If a quorum shall fail to attend any
meeting, the holders of a majority of the shares of the stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date, and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than thirty days or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given as provided in the
foregoing paragraph.
SECTION 6. ORGANIZATION. The Chairman of the Board or in the absence of
such officer, the highest ranking officer of the Corporation who is present
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary of
the meeting shall be such person as the chairman appoints.
SECTION 7. VOTING. Each stockholder shall have one vote for every share
of stock entitled to vote which is registered in his name on the record date for
the meeting and may vote in person or by proxy authorized by an instrument in
writing filed in accordance with the procedure established for the meeting. All
voting may be by a voice vote.
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<PAGE>
SECTION 8. STOCK LIST. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his name, shall be open to the examination of any such
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 city where the meeting is to be held, 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 stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
SECTION 9. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken at any meeting of the stockholders may be taken without a meeting by a
consent in writing, setting forth such action, signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt written notice of such action taken
without a meeting shall be given to each stockholder who has not consented in
writing to such action.
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<PAGE>
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. NUMBER. The number of Directors of the Corporation shall
be such number as is fixed from time to time by the Board of Directors by vote
of a majority of the entire Board. The "entire Board" means the total number of
Directors the Corporation would have if there were no vacancies. Until further
action by the Board of Directors, the number of Directors shall be one (1).
SECTION 2. ELECTION. The Directors shall be chosen at the annual
stockholders' meeting by a plurality of the votes cast, and each of such
Directors shall serve until the next annual meeting of stockholders and until
such Director's successor has been elected and qualified. Any vacancy occurring
in the Board of Directors by reason of death, resignation, removal (with or
without cause) or disqualification of a Director or increase in the number of
Directors, or for any other reason, shall be filled by a majority of the
Directors remaining: and such Director shall serve until the next annual meeting
of stockholders and until such Director's successor is elected. A Director need
not he a stockholder.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall he held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all Directors. A notice of each regular meeting shall not be
required.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors will he held upon the call of the President or the Secretary; and such
call shall be issued whenever requested in writing by any two Directors. Notice
of meetings shall be by telegram or by
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<PAGE>
any written communication, but no notice shall be required in the case of any
Director who waives the same. If such notice is served personally or by
telegram, it must be so served not less than two days prior to the meeting; and,
if mailed, it must be mailed not less than five days prior to the meeting.
SECTION 5. QUORUM. At any meeting of the Board of Directors, a majority
of the entire Board shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof.
SECTION 6. ACTION BY WRITTEN CONSENT. 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 of
Directors or committee, as the case may be, consent thereto in writing and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board of Directors or committee by means of conference
telephone or similar communications equipment that enables all persons
participating in the meeting to hear each other. Such participation shall
constitute presence in person at such meeting.
SECTION 8. COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services
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<PAGE>
as Directors, including, without limitation, their services as members of
committees of the Directors.
SECTION 9. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the entire Board of Directors, may from
time to time designate committees of the Board of Directors, with such powers
and duties as the Board of Directors shall determine in accordance with law, to
serve at the pleasure of the Board of Directors and shall elect one or more
Directors to serve as members of each such committee. Each committee may
determine the procedural rules for notices and conduct of its meetings.
ARTICLE III - OFFICERS
SECTION 1. GENERALLY. The officers of the Corporation shall consist
of a Chairman of the Board, a President, a Treasurer and a Secretary and such
other officers as may from time to time be determined by the Board of Directors.
Officers shall be elected by the Board of Directors. Each officer shall hold his
office until his successor is elected and qualified or until his earlier
resignation or removal and shall receive compensation as determined by the
Board.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the chief executive officer of the Corporation. The Chairman of the Board shall
supervise and control the business of the Corporation, shall have authority to
fix compensation of all employees of the Corporation other than the officers,
shall be generally in charge of all of the affairs of the Corporation, and shall
see that all orders and resolutions of the Board of Directors are carried into
effect.
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<PAGE>
SECTION 3. PRESIDENT. The President shall be the chief
administrative officer of the Corporation. The President shall assist the
Chairman of the Board in the supervision and control of the business and affairs
of the Corporation and shall perform such other duties as may be properly
required by the Chairman of the Board and the Board of Directors. The President,
during the absence or incapacity of the Chairman of the Board, shall perform the
duties of that office.
SECTION 4. VICE PRESIDENT. The Vice President or, if more than one, the
Vice Presidents in the order determined by the Board of Directors, in the
absence or incapacity of the President, shall perform the duties of that
officer; and shall perform such duties as the Board and the President may from
time to time prescribe.
SECTION 5. TREASURER. The Treasurer shall maintain the financial
records of the Corporation. He shall make such disbursements of the funds of the
Corporation as are proper and shall render from time to time an account of all
such transactions and of the financial condition of the Corporation.
SECTION 6. SECRETARY. The Secretary shall issue authorized notices
for and shall keep minutes of all meetings of the stockholders and the Board of
Directors. He shall have charge of the corporate books.
SECTION 7. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
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<PAGE>
ARTICLE IV - INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, trust or other
enterprise, including service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or hereafter may be amended (but, in the
case of any amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said Law permitted
the Corporation to provide prior to such amendment) against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. Such right shall
include the right to be paid by the Corporation expenses incurred in defending
any such Proceeding in advance of its final disposition; provided, however, that
the payment of such expenses incurred by a director or officer in his capacity
as a director or officer (and not in any other capacity in which service was or
is rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of
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<PAGE>
the final disposition of such Proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this section or
otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section
1 of this Article IV is not paid in full by the Corporation within 90 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 be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Corporation) that the
claimant has not met the standard of conduct which makes it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant had not met the applicable standard of conduct.
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<PAGE>
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on a
person by Sections 1 and 2 of this Article IV shall not be exclusive of any
other right which such person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any such director, officer, employee or agent
of the Corporation or another corporation, partnership, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE V - STOCK
SECTION 1. CERTIFICATE OF STOCK. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by, the President
or Vice President, and by the Secretary or the Treasurer certifying the number
of shares owned by him. Any of or all the signatures on the certificate may be
facsimile.
SECTION 2. TRANSFERS OF STOCK. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of this Article, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
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<PAGE>
SECTION 3. RECORD DATE. The Board of Directors may fix a record
date, which shall not be more than sixty nor less than ten days before the date
of any meeting of stockholders, nor more than sixty days prior to the time for
the other action hereinafter described, as of which there shall be determined
the stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate action
in writing without a meeting; to receive payment of any dividend or other
distribution or allotment of any rights; or to exercise any rights with respect
to any change, conversion or exchange of stock or with respect to any other
lawful action.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such requirements as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
ARTICLE VI - MISCELLANEOUS
SECTION 1. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal containing the name of the Corporation, which seal shall be in
the charge of the Secretary.
SECTION 2. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each Director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
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<PAGE>
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
as fixed by the Board of Directors.
ARTICLE VII - AMENDMENTS
SECTION 1. AMENDMENTS. These By-laws may be added to, amended or
repealed by action taken in accordance with these By-Laws by the Board of
Directors or by the stockholders.
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<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/18/1995
960233945 - 2549345
CERTIFICATE OF INCORPORATION
OF
AP SUPPORT SERVICES INCORPORATED
Article 1: The name of the Corporation is AP SUPPORT SERVICES
INCORPORATED.
Article 2: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
Article 3: The purpose of the Corporation is to engage in any lawful
act or activities for which corporations may be organized under the General
Corporation Law of the State of Delaware.
Article 4: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,125 of which 1,000 shall be
common stock, with a par value of $.01 per share ("Common Stock"), and of which
125 shares shall be preferred stock, with a par value of $.01 per share
("Preferred Stock"), issuable in one or more series.
The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions of the shares of each class of
stock are, so far as not inconsistent
<PAGE>
with the provisions of this Certificate of Incorporation or the General
Corporate Law of the State of Delaware, as follows:
PREFERRED STOCK
(a) The Preferred Stock may be issued from time to time in one or more
series. All shares of Preferred Stock shall be identical and of equal rank
except in respect to the particulars that may be fixed by the Board of Directors
as provided herein, and all shares of each series of Preferred Stock shall be
identical and of equal rank except as to the time from which cumulative
dividends, if any, thereof shall be cumulative.
(b) Subject to the limitations set forth herein and any limitations
prescribed by law, the Board of Directors is expressly authorized, prior to
issuance of any series of Preferred Stock, to fix by resolution or resolutions
providing for the issue of any series the number of shares included in such
series and the designation, relative powers, preferences and rights and the
qualifications, limitations or restrictions of such series. Pursuant to the
foregoing general authority vested in the Board of Directors, but not in
limitation of the powers conferred on the Board of Directors thereby and by the
General Corporation Law of the State of Delaware, the Board of Directors is
expressly authorized to determine with respect to each series of Preferred
Stock:
(i) the designation or designations of such series and the number
of shares (which number from time to time may be
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<PAGE>
decreased by the Board of Directors, but not below the number of such shares
then outstanding, or may be increased by the Board of Directors, but not above
any number or limit specified in such series) constituting such series;
(ii) the rate or amount and times at which, and the preferences and
conditions under which, dividends shall be payable on shares of such series, the
status of such dividends as cumulative or noncumulative, the date or dates from
which dividends, if cumulative, shall accumulate, and the status of such shares
as participating or nonparticipating after the payment of dividends as to which
such shares are entitled to any preference;
(iii) the rights and preferences, if any, of the holders of shares of
such series upon the liquidation, dissolution or winding up of the affairs of,
or upon any distribution of the assets of, the Corporation, which amount may
vary depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates, and the
status of the shares of such series as participating or nonparticipating after
the satisfaction of any such rights and preferences;
(iv) the full or limited voting rights, if any, to be provided for
shares of such series, in addition to the voting rights provided by law;
(v) the times, terms and conditions, if any, upon which shares of
such series shall be subject to redemption,
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<PAGE>
including the amount the holders of shares of such series shall be entitled to
receive upon redemption (which amount may vary under different conditions or at
different redemption dates);
(vi) the amount, terms, conditions and manner of operation of any
purchase, retirement or sinking fund to be provided for the shares of such
series;
(vii) the rights, if any, of holders of shares of such series to
convert such shares into, or to exchange such shares for, shares of any other
class or classes or of any other series of the same class, the prices or rates
of conversion or exchange, and adjustments thereto, and any other terms and
conditions applicable to such conversion or exchange;
(viii) the limitations, if any, applicable while such series is
outstanding on the payment of dividends or making of distributions on, or the
acquisition or redemption of, Common Stock or any other class of shares ranking
junior as to dividends or upon liquidation, to the shares of such series;
(ix) the conditions or restrictions, if any, upon the issuance of
any additional shares (including additional shares of such series or any other
series or of any other class) ranking on a parity with or prior to the shares of
such series either as to dividends or upon liquidation; and
(x) any other relative powers, preferences, participation rights,
options or other special rights, and the
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<PAGE>
qualifications, limitations or restrictions thereof, of shares of such series.
COMMON STOCK
Subject to all of the rights of the Preferred Stock, and except as may be
expressly provided with respect to the Preferred Stock herein, by law or by the
Board of Directors pursuant to this Article 4:
(a) Common Stock may be issued from time to time for such consideration as
may be fixed from time to time by the Board of Directors of the Corporation.
Except as otherwise provided herein, all shares of Common Stock shall be
identical and shall entitle the holders thereof to the same rights and
privileges; and
(b) dividends may be declared and paid or set apart for payment upon the
Common Stock out of any assets or funds of the Corporation legally available for
the payment of dividends;
(c) the holders of Common Stock shall have the exclusive right to vote for
the election of directors and on all other matters requiring stockholder action,
each share being entitled to one vote; and
(d) upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the net assets of the Corporation shall be distributed
pro rata to the holders of the Common Stock in accordance with their respective
rights and interests.
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<PAGE>
PREEMPTIVE RIGHTS
No current or future holder of any stock of the Corporation, whether
heretofore or hereafter issued, shall be entitled as such, as a matter of right,
to subscribe for or purchase any part of any new or additional issue of stock of
any class whatsoever of the Corporation, or of securities (including bonds and
debentures) convertible into stock of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of dividend.
Article 5: The name and mailing address of the sole incorporator are
Colleen A. Van Gelder, Esq., c/o Jaeckle, Fleischmann & Mugel, 800 Fleet Bank
Building, 12 Fountain Plaza, Buffalo, New York 14202.
Article 6: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to adopt, amend or
repeal the by-laws of the Corporation.
Article 7: Election of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
Article 8: 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 this Certificate of
Incorporation, and all rights
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<PAGE>
conferred upon stockholders herein are granted subject to this reservation.
Article 9: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
The undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is her act and deed and the facts herein stated are true, and
accordingly has hereunto set her hand this 11th day of October 1995.
/s/ Colleen A. Van Gelder
-----------------------------------
Colleen A. Van Gelder
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<PAGE>
BY-LAWS
OF
AP SUPPORT SERVICES INCORPORATED
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders,
for the election of Directors and for the transaction of such other business as
may properly come before the meeting, shall be held at such place and time as
the Board of Directors shall each year fix.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the Board of Directors or the President and must be called by the
President upon written request of the holders of not less than a majority of all
the shares of stock entitled to vote. Special meetings called by the Directors
shall be held at a time and place to be designated by such Directors. All other
special meetings of the stockholders shall be held at a time and place to be
designated by the President of the Corporation.
SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, personally or by mail,
not less than ten nor more than sixty days before the date on which the meeting
is to be held, to each stockholder who does not waive such notice in writing and
who is entitled to vote at such meeting, except as otherwise required by law.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of
a majority of all of the shares of stock entitled to vote at the meeting,
present in person or by proxy,
<PAGE>
shall constitute a quorum for all purposes, unless or except to the extent that
the presence of a larger number may be required by law or by the Certificate of
Incorporation.
SECTION 5. ADJOURNED MEETINGS. If a quorum shall fail to attend any
meeting, the holders of a majority of the shares of the stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date, and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than thirty days or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given as provided in the
foregoing paragraph.
SECTION 6. ORGANIZATION. The Chairman of the Board or in the absence
of such officer, the highest ranking officer of the Corporation who is present
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary of
the meeting shall be such person as the chairman appoints.
SECTION 7. VOTING. Each stockholder shall have one vote for every
share of stock entitled to vote which is registered in his name on the record
date for the meeting and may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting. All voting may be by a voice vote.
- 2 -
<PAGE>
SECTION 8. STOCK LIST. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his name, shall be open to the examination of any such
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 city where the meeting is to be held, 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 stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
SECTION 9. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the stockholders may be taken without a
meeting by a consent in writing, setting forth such action, signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt written notice of
such action taken without a meeting shall be given to each stockholder who has
not consented in writing to such action.
- 3 -
<PAGE>
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. NUMBER. The number of Directors of the Corporation shall
be such number as is fixed from time to time by the Board of Directors by vote
of a majority of the entire Board. The "entire Board" means the total number of
Directors the Corporation would have if there were no vacancies. Until further
action by the Board of Directors, the number of Directors shall be one (1).
SECTION 2. ELECTION. The Directors shall be chosen at the annual
stockholders' meeting by a plurality of the votes cast, and each of such
Directors shall serve until the next annual meeting of stockholders and until
such Director's successor has been elected and qualified. Any vacancy occurring
in the Board of Directors by reason of death, resignation, removal (with or
without cause) or disqualification of a Director or increase in the number of
Directors, or for any other reason, shall be filled by a majority of the
Directors remaining; and such Director shall serve until the next annual
meeting of stockholders and until such Director's successor is elected. A
Director need not be a stockholder.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all Directors. A notice of each regular meeting shall not be
required.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors will be held upon the call of the President or the Secretary; and such
call shall be issued whenever requested in writing by any two Directors. Notice
of meetings shall be by telegram or by
- 4 -
<PAGE>
any written communication, but no notice shall be required in the case of any
Director who waives the same. If such notice is served personally or by
telegram, it must be so served not less than two days prior to the meeting; and,
if mailed, it must be mailed not less than five days prior to the meeting.
SECTION 5. QUORUM. At any meeting of the Board of Directors, a
majority of the entire Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
SECTION 6. ACTION BY WRITTEN CONSENT. 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 of
Directors or committee, as the case may be, consent thereto in writing and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board of Directors or committee by means of conference
telephone or similar communications equipment that enables all persons
participating in the meeting to hear each other. Such participation shall
constitute presence in person at such meeting.
SECTION 8. COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services
- 5 -
<PAGE>
as Directors, including, without limitation, their services as members of
committees of the Directors.
SECTION 9. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the entire Board of Directors, may from
time to time designate committees of the Board of Directors, with such powers
and duties as the Board of Directors shall determine in accordance with law, to
serve at the pleasure of the Board of Directors and shall elect one or more
Directors to serve as members of each such committee. Each committee may
determine the procedural rules for notices and conduct of its meetings.
ARTICLE III - OFFICERS
SECTION 1. GENERALLY. The officers of the Corporation shall consist
of a Chairman of the Board, a President, a Treasurer and a Secretary and such
other officers as may from time to time be determined by the Board of Directors.
Officers shall be elected by the Board of Directors. Each officer shall hold his
office until his successor is elected and qualified or until his earlier
resignation or removal and shall receive compensation as determined by the
Board.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the chief executive officer of the Corporation. The Chairman of the Board shall
supervise and control the business of the Corporation, shall have authority to
fix compensation of all employees of the Corporation other than the officers,
shall be generally in charge of all of the affairs of the Corporation, and shall
see that all orders and resolutions of the Board of Directors are carried into
effect.
- 6 -
<PAGE>
SECTION 3. PRESIDENT. The President shall be the chief
administrative officer of the Corporation. The President shall assist the
Chairman of the Board in the supervision and control of the business and affairs
of the Corporation and shall perform such other duties as may be properly
required by the Chairman of the Board and the Board of Directors. The President,
during the absence or incapacity of the Chairman of the Board, shall perform the
duties of that office.
SECTION 4. VICE PRESIDENT. The Vice President or, if more than one,
the Vice Presidents in the order determined by the Board of Directors, in the
absence or incapacity of the President, shall perform the duties of that
officer; and shall perform such duties as the Board and the President may from
time to time prescribe.
SECTION 5. TREASURER. The Treasurer shall maintain the financial
records of the Corporation. He shall make such disbursements of the funds of the
Corporation as are proper and shall render from time to time an account of all
such transactions and of the financial condition of the Corporation.
SECTION 6. SECRETARY. The Secretary shall issue authorized notices
for and shall keep minutes of all meetings of the stockholders and the Board of
Directors. He shall have charge of the corporate books.
SECTION 7. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
- 7 -
<PAGE>
ARTICLE IV - INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, trust or other
enterprise, including service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or hereafter may be amended (but, in the
case of any amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said Law permitted
the Corporation to provide prior to such amendment) against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. Such right shall
include the right to be paid by the Corporation expenses incurred in defending
any such Proceeding in advance of its final disposition; provided, however, that
the payment of such expenses incurred by a director or officer in his capacity
as a director or officer (and not in any other capacity in which service was or
is rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of
- 8 -
<PAGE>
the final disposition of such Proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this section or
otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section
1 of this Article IV is not paid in full by the Corporation within 90 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 be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Corporation) that the
claimant has not met the standard of conduct which makes it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant had not met
such applicable standard of conduct, shall he a defense to the action or create
a presumption that the claimant had not met the applicable standard of conduct.
- 9 -
<PAGE>
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on a
person by Sections 1 and 2 of this Article IV shall not be exclusive of any
other right which such person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any such director, officer, employee or agent
of the Corporation or another corporation, partnership, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE V - STOCK
SECTION 1. CERTIFICATE OF STOCK. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by, the President
or Vice President, and by the Secretary or the Treasurer certifying the number
of shares owned by him. Any of or all the signatures on the certificate may be
facsimile.
SECTION 2. TRANSFERS OF STOCK. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of this Article, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
- 10 -
<PAGE>
SECTION 3. RECORD DATE. The Board of Directors may fix a record date,
which shall not be more than sixty nor less than ten days before the date of any
meeting of stockholders, nor more than sixty days prior to the time for the
other action hereinafter described, as of which there shall be determined the
stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate action
in writing without a meeting; to receive payment of any dividend or other
distribution or allotment of any rights; or to exercise any rights with respect
to any change, conversion or exchange of stock or with respect to any other
lawful action.
SECTION 4. LOST. STOLEN OR DESTROYED CERTIFICATES. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such requirements as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
ARTICLE VI - MISCELLANEOUS
SECTION 1. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal containing the name of the Corporation, which seal shall be in
the charge of the Secretary.
SECTION 2. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each Director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
- 11 -
<PAGE>
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
as fixed by the Board of Directors.
ARTICLE VII - AMENDMENTS
SECTION 1. AMENDMENTS. These By-laws may be added to, amended or
repealed by action taken in accordance with these By-Laws by the Board of
Directors or by the stockholders.
- 12 -
<PAGE>
[Weil, Gotshal & Manges LLP Letterhead]
June 12, 1998
United Stationers Inc.
United Stationers Supply Co.
Lagasse Bros., Inc.
Azerty Incorporated
Positive ID Wholesale Inc.
AP Support Services Incorporated
2200 East Golf Road
Des Plaines, Illinois 60016-1267
Ladies and Gentlemen:
We have acted as counsel to United Stationers Supply Co., an Illinois
corporation (the "Company"), and United Stationers Inc., a Delaware corporation,
Lagasse Bros., Inc., a Louisiana corporation, Azerty Incorporated, a Delaware
corporation, Positive ID Wholesale Inc., a Delaware corporation, and AP Support
Services Incorporated, a Delaware corporation (collectively, the "Guarantors"),
in connection with the preparation and filing by the Company and the Guarantors
of a Registration Statement on Form S-4 (Registration No. 333- ) (the
"Registration Statement"), filed with the Securities and Exchange Commission on
June 12, 1998 under the Securities Act of 1933, as amended (the "Act"),
relating to $100,000,000 in aggregate principal amount of 8 3/8% Senior
Subordinated Notes due 2008 (the "New Notes") of the Company that may be issued
in exchange for a like principal amount of the issued and outstanding 8 3/8%
Senior Subordinated Notes due 2008 (the "Old Notes") of the Company. The
Company proposes to offer, upon the terms set forth in the Registration
Statement, to exchange $1,000 principal amount of New Notes for each $1,000
principal amount of Old Notes (the "Exchange Offer"). The Guarantors will fully
and unconditionally guarantee (the "Guarantees") the New Notes on an unsecured,
senior subordinated basis. The New Notes and Guarantees will be offered under
an Indenture dated as of April 15, 1998, by and among the Company, the
Guarantors, and The Bank of New York, as trustee (the "Indenture"). Capitalized
<PAGE>
WEIL, GOTSHAL & MANGES LLP
United Stationers Inc.
United Stationers Supply Co.
Lagasse Bros., Inc.
Azerty Incorporated
Positive ID Wholesale Inc.
AP Support Services Incorporated
2200 East Golf Road
Des Plaines, Illinois 60016-1267
June 12, 1998
Page 2
terms defined in the Registration Statement and not otherwise defined herein are
used herein as so defined.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Indenture, the form of the New Note filed
as an exhibit to the Registration Statement and such corporate records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the Company
and the Guarantors, and have made such inquiries of such officers and
representatives as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such latter documents. As to all questions of fact material to
this opinion that have not been independently established, we have relied upon
certificates or comparable documents of officers and representatives of the
Company and the Guarantors.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
1. Assuming that the Indenture has been duly authorized, executed and
delivered by the parties thereto and that the issuance of the New Notes upon
consummation of the Exchange Offer has been duly authorized by the Company, when
(i) the New Notes upon consummation of the Exchange Offer have been duly
executed by the Company and authenticated by the trustee therefor in accordance
with the terms of the Indenture and (ii) the New Notes issuable upon
consummation of the Exchange Offer have been duly delivered against receipt of
Old Notes surrendered in exchange therefor, the New Notes issuable upon
consummation of the Exchange Offer will constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting
<PAGE>
WEIL, GOTSHAL & MANGES LLP
United Stationers Inc.
United Stationers Supply Co.
Lagasse Bros., Inc.
Azerty Incorporated
Positive ID Wholesale Inc.
AP Support Services Incorporated
2200 East Golf Road
Des Plaines, Illinois 60016-1267
June 12, 1998
Page 3
creditors' rights and remedies generally, and subject, as to enforceability,
to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), and subject to
the qualification that we express no opinion as to the effect on the New
Notes of the laws of any jurisdiction other than the State of New York,
including laws which limit the rates of interest legally chargeable or
collectible.
2. Assuming that the Indenture has been duly authorized, executed and
delivered by the parties thereto and that the Guarantees of the New Notes upon
consummation of the Exchange Offer have been duly authorized, executed and
delivered by the Guarantors, when (i) the New Notes upon consummation of the
Exchange Offer have been duly executed by the Company and authenticated by the
trustee therefor in accordance with the terms of the Indenture and (ii) the New
Notes issuable upon consummation of the Exchange Offer have been duly delivered
against receipt of Old Notes surrendered in exchange therefor, the Guarantees of
the New Notes issuable upon consummation of the Exchange Offer will constitute
the legal, valid and binding obligations of the Guarantors, enforceable against
them in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), and subject to the
qualification that we express no opinion as to the effect on the Guarantees of
the New Notes of the laws of any jurisdiction other than the State of New York,
including laws which limit the rates of interest legally chargeable or
collectible.
The opinions expressed herein are limited to the laws of the State of New
York and the federal laws of the United States, and we express no opinion as to
the effect on the matters covered by this letter of the laws of any other
jurisdiction.
<PAGE>
WEIL, GOTSHAL & MANGES LLP
United Stationers Inc.
United Stationers Supply Co.
Lagasse Bros., Inc.
Azerty Incorporated
Positive ID Wholesale Inc.
AP Support Services Incorporated
2200 East Golf Road
Des Plaines, Illinois 60016-1267
June 12, 1998
Page 4
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
ACORD Certificate of Insurance
Issue Date: April 20, 1998
Producer:
Malter Team
Mesirow Insurance Services
321 N. Clark Street, Suite 1200
Chicago, IL 60610
Insured:
United Stationers Inc. Et al
2200 East Golf Road
Des Plaines, IL 60016-1267
This certificate is issued as a matter of information only and confers no
rights upon the certificate holder. This certificate does not amend, extend
or alter the coverage afforded by the policies below.
Coverages:
This is to certify that the policies of insurance listed below have been
issued to the insured named above for the policy period indicated,
notwithstanding any requirement, term or condition of any contract or other
document with respect to which this certificate may be issued or may pertain,
the insurance afforded by the policies described herein is subject to all the
terms, exclusions and conditions of such policies. Limits shown may have been
reduced by paid claims.
Companies affording coverage:
A. FEDERAL INSURANCE COMPANY
Type of Insurance: Directors & Officers Liability
Policy Number: 8146-03-32
Policy Effective Date: 4/01/98
Policy Expiration Date: 4/01/00
Limits: $20,000,000
$250,000 Deductible
B. GREAT AMERICAN INSURANCE COMPANY
Type of Insurance: Excess Directors & Officers Liability
Policy Number: DFX0009370
Policy Effective Date: 4/01/98
Policy Expiration Date: 4/01/99
Limits: $15,000,000
Description of operations/locations/vehicles/special items:
None
<PAGE>
Certificate Holder:
United Stationers Inc.
2200 East Golf Road
Des Plaines, IL 60016
Cancellation:
Should any of the above described policies be canceled before the expiration
date thereof, the issuing company will endeavor to mail 30 days written
notice to the certificate holder named to the left, but failure to mail such
notice shall impose no obligation or liability of any kind upon the company,
its agents or representatives.
Authorized Representative:
James C. Styer
<PAGE>
Exhibit 12.1
United Stationers Inc.
Ratio of Earning to Fixed Charges
<TABLE>
Year Ended December 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before income tax and
extraordinary item $ 3,743 $10,396 $11,371 $ 55,548 $ 81,418
Fixed charges 8,135 8,725 50,919 63,723 58,344
------- ------- ------- -------- --------
Total $11,878 $19,121 $62,290 $119,271 $139,762
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Interest expense $ 7,235 $ 7,725 $46,186 $ 57,456 $ 51,511
One-third of operating rental expense 900 1,000 4,733 6,267 6,833
------- ------- ------- -------- --------
Fixed charges $ 8,135 $ 8,725 $50,919 $ 63,723 $ 58,344
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Ratio of earnings to fixed charges 1.5x 2.2x 1.2x 1.9x 2.4x
------- ------- ------- -------- --------
------- ------- ------- -------- --------
</TABLE>
Note: Income before income tax and extraordinary item exclude $67.4 million
of non-recurring charges.
<PAGE>
EXHIBIT 15.1
June 11, 1998
To the Stockholders and Board of Directors of
United Stationers Inc.
We are aware of the incorporation by reference in the Registration
Statement (Form S-4) of United Stationers Supply Co. dated June 12, 1998 for
the registration of $100,000,000 of 8-3/8% Senior Subordinated Notes due 2008
of our report dated April 24, 1998 relating to the unaudited condensed
consolidated interim financial statements of United Stationers Inc. that are
included in its Form 10-Q for the quarter ended March 31, 1998.
/s/ Ernst & Young LLP
<PAGE>
Subsidiaries of the Co-Registrants
SUBSIDIARIES OF UNITED STATIONERS INC.
United Stationers Supply Co. (Illinois)
SUBSIDIARIES OF UNITED STATIONERS SUPPLY CO.
United Stationers Hong Kong Limited (Hong Kong)
United Worldwide Limited (Hong Kong)
Lagasse Bros., Inc. (Louisiana)
Azerty Incorporated (Delaware)
Positive ID Wholesale Inc. (Delaware)
AP Support Services Incorporated (Delaware)
Azerty de Mexico, S.A. de C.V. (Mexico)
CJS/GT Corp. (Georgia)
SAH, Inc. (Illinois)
USS Receivables Company, Ltd. (Grand Cayman)
LAGASSE BROS., INC.
None
AZERTY INCORPORATED
None
POSITIVE ID WHOLESALE INC.
None
AP SUPPORT SERVICES INCORPORATED
None
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
January 27, 1998 in the Registration Statement (Form S-4) and related
Prospectus of United Stationers Supply Co. dated June 12, 1998 for the
registration of 8-3/8% Senior Subordinated Notes due 2008.
We also consent to the incorporation by reference therein of our report
dated January 27, 1998 with respect to the consolidated financial statements
of United Stationers Inc. included in United Stationers Inc.'s Annual Report
(Form 10-K) for the year ended December 31, 1997 filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
June 11, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF CHARTERED ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of United Stationers Inc. of our report
dated January 31, 1998 relating to the financial statements of The U.S. and
Mexican Office Products Operations of Abitibi-Consolidated Inc., which appears
in such Prospectus. We also consent to the references to us under the
headings "Experts" in such Prospectus.
/s/ Price Waterhouse
Toronto, Canada
June 12, 1998
<PAGE>
CONFORMED COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [__]
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
UNITED STATIONERS SUPPLY CO.
(Exact name of obligor as specified in its charter)
Illinois 36-2431718
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
TABLE OF CO-REGISTRANTS
United Stationers Inc. Delaware 36-3141189
Lagasse Bros., Inc. Louisiana 72-0514669
Azerty Incorporated Delaware 16-1187791
Positive ID Wholesale Inc. Delaware 16-1501732
AP Support Services Incorporated Delaware 16-1496499
2200 East Golf Road
Des Plaines, Illinois 60016
(Address of principal executive offices) (Zip code)
--------------------
8-3/8% Senior Subordinated Notes due 2008
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 27th day of April, 1998.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
--------------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
-4-
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business December 31, 1997, published in accordance
with a call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ..... $ 5,742,986
Interest-bearing balances .............................. 1,342,769
Securities:
Held-to-maturity securities ............................ 1,099,736
Available-for-sale securities .......................... 3,882,686
Federal funds sold and Securities purchased under
agreements to resell ..................................... 2,568,530
Loans and lease financing receivables:
Leans and leases, net of unearned income .....35,019,608
LESS: Allowance for loan and lease losses ......627,350
LESS: Allocated transfer risk reserve ................0
Loans and leases, net of unearned income, allowance
and reserve ........................................... 34,392,258
Assets held in trading accounts ........................... 2,521,451
Premises and fixed assets (including capitalized leases)... 659,209
Other real estate owned ................................... 11,992
Investments in unassociated subsidiaries and associated
companies ................................................ 226,263
Customer's liability to this bank on acceptances
outstanding .............................................. 1,187,449
Interest assets ........................................... 781,684
Other assets .............................................. 1,736,574
-----------
Total assets .............................................. $56,153,587
-----------
-----------
LIABILITIES
Deposits
In domestic offices .................................... $27,031,382
Non-interest bearing .........................11,899,507
Interest bearing .............................15,131,855
In foreign cities Edge and Agreement subsidiaries
and IBFs .............................................. 13,794,449
Non-interest bearing ............................590,999
Interest bearing .............................13,203,450
Federal funds purchased and Securities sold under
agreements to repurchase ................................. 2,338,881
Demand notes issued to the U.S. Treasury .................. 172,851
Trading liabilities ....................................... 1,695,216
Other borrowed money
With remaining maturity of one year or less ............ 1,905,330
With remaining maturity of more than one year through
three years ........................................... 0
With remaining maturity of more than three years ....... 26,654
Banks equity on acceptances executed and outstanding ...... 1,195,923
Subordinated notes and securities ......................... 1,012,940
Other facilities .......................................... 2,018,950
-----------
Total liabilities ......................................... 51,192,576
-----------
-----------
EQUITY CAPITAL
Common stock .............................................. 1,135,284
Surplus ................................................... 731,319
Undivided profits and capital reserves .................... 3,093,726
Net unrealized holding gains (losses) on available-
for-sale securities ...................................... 36,866
Cumulative foreign currency transaction adjustments ....... (36,184)
-----------
Total equity capital ................. 4,961,011
-----------
Total liabilities and equity capital ...................... $56,153,587
-----------
-----------
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has
been prepared in conformance with the instructions issued by the Board
of Governors of the Federal Reserve System and is true to the best of
my knowledge and belief.
Robert E. Keilman
We the undersigned directors attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true
and correct.
Thomas A. Reny )
Alan R. Griffin ) Directors
J. Carter Bacot )
- -------------------------------------------------------------------------------
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
UNITED STATIONERS SUPPLY CO.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , , 1998 (THE "EXPIRATION DATE"),
UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclays Street 101 Barclays Street
Floor 7-E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attn: Reorganization Section, New York, New York 10286
Marcia Brown Attn: Reorganization Section,
(212) 815-3428 Marcia Brown
(212) 815-3428
</TABLE>
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
FOR INFORMATION OR
CONFIRMATION BY TELEPHONE:
(212) 815-6333
(Originals of all documents sent by facsimile should be sent promptly by
registered
or certified mail, by hand, or by overnight delivery service).
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
The undersigned acknowledges that it has received the Prospectus, dated
, 1998 (the "Prospectus"), of United Stationers Supply Co., an
Illinois corporation (the "Company"), and this Letter of Transmittal, which
together constitute the Company's offer (the "Exchange Offer") to exchange an
aggregate principal amount of up to $100,000,000 of its 8 3/8% Senior
Subordinated Notes due 2008, which have been registered under the Securities Act
of 1933, as amended (the "Securities Act") (the "New Notes") of the Company for
a like principal amount of the issued and outstanding 8 3/8% Senior Subordinated
Notes due 2008 (the "Old Notes") of the Company.
IF YOU WISH TO EXCHANGE 8 3/8% SENIOR SUBORDINATED NOTES DUE 2008 FOR AN
EQUAL AGGREGATE PRINCIPAL AMOUNT OF 8 3/8% SENIOR SUBORDINATED NOTES DUE 2008,
PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT WITHDRAW) OLD
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING
THIS LETTER OF TRANSMITTAL.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus.
This Letter of Transmittal is to be completed by holders of Old Notes either
if Old Notes are to be forwarded herewith or if tenders of Old Notes are to be
made by book-entry transfer to an account
<PAGE>
maintained by The Bank of New York (the "Exchange Agent") at the Depository
Trust Company (the "Book-Entry Transfer Facility" or "DTC") pursuant to the
procedures set forth in "The Exchange Offer -- Procedures for Tendering" in the
Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus.
DESCRIPTION OF TENDERED OLD NOTES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) PRINCIPAL
AS IT APPEARS ON THE 8 3/8% SENIOR SUBORDINATED NOTES DUE CERTIFICATE AMOUNT
2008 ("OLD NUMBER(S) OF OLD NOTES
NOTES") (PLEASE FILL IN, IF BLANK) OF OLD NOTES TENDERED
<S> <C> <C>
- --------------------------------------------------------------------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
TOTAL PRINCIPAL
AMOUNT OF NOTES
TENDERED
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _______________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
<PAGE>
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to United Stationers Supply Co., an
Illinois corporation (the "Company"), the 8 3/8% Senior Subordinated Notes due
2008 (the "Old Notes"), described above pursuant to the Company's offer of
$1,000 principal amount of 8 3/8% Senior Subordinated Notes due 2008 (the "New
Notes"), in exchange for each $1,000 principal amount of the Old Notes, upon the
terms and subject to the conditions contained in the Prospectus dated ,
1998 (the "Prospectus"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together with the Prospectus constitute the
"Exchange Offer").
2. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
3. The undersigned understands that the tender of the Old Notes pursuant to
any one of the procedures set forth in the Prospectus and in the instructions,
attached hereto, will, upon the Company's acceptance for exchange of such
tendered Old Notes, constitute a binding agreement between the undersigned and
the Company as to the terms and conditions set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, whether
or not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is engaging in or
intends to engage in a distribution of such New Notes;
(iii) neither the undersigned nor any such other person has an arrangement
or understanding with any person to participate in the distribution of
such New Notes; and
(iv) neither the holder nor any such other person is an "affiliate," as such
term is defined under Rule 405 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), of the Company and the
Guarantors.
5. The undersigned may, IF, AND ONLY IF, UNABLE TO MAKE ALL OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN ITEM 4 ABOVE, elect to have its Old
Notes registered in the shelf registration described in the Exchange and
Registration Rights Agreement, dated as of April 15, 1998, between the Company,
the Guarantors named therein and Chase Securities Inc. and Bear, Stearns & Co.
Inc. in the form filed as an exhibit to the Registration Statement (the
"Registration Agreement") (all terms used in this Item 5 with their initial
letters capitalized, unless otherwise defined herein, shall have the meanings
given them in the Registration Agreement). Such election may be made by checking
the box under "Special Registration Instructions" below. By making such
election, the undersigned agrees, as a Holder participating in a Shelf
Registration, to indemnify and hold harmless the Company and the Guarantors,
their affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the Company
and the Guarantors within the meaning of the Securities Act or the Exchange Act,
(collectively referred to for purposes of this indemnification provision as the
"Company"), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company and the
Guarantors may become subject, whether commenced or threatened, under the
<PAGE>
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holder's Information, and shall
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that no such Holder shall be liable for any indemnity claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement. Any such indemnification shall be governed by the
terms and subject to the conditions set forth in the Registration Agreement,
including, without limitation, the provisions regarding notice, retention of
counsel, contribution and payment of expenses set forth therein. The above
summary of the indemnification provision of the Registration Agreement is not
intended to be exhaustive and is qualified in its entirety by the Registration
Agreement.
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and delivering a prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If the undersigned is a broker-dealer and Old Notes held for its
own account were not acquired as a result of market-making or other trading
activities, such Old Notes cannot be exchanged pursuant to the Exchange Offer.
7. Unless otherwise indicated herein under "Special Delivery Instructions,"
please issue the certificates for the New Notes in the name of the undersigned.
8. Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and the undersigned waives the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after April 15,
1998.
9. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company or the Exchange Agent to be necessary or
desirable to complete the sale, assignment and transfer of the Old Notes
tendered hereby. All authority herein conferred or agreed to be conferred in
this Letter of Transmittal shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of the undersigned.
Except as stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX.
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
Mail / / Issue / / (check appropriate boxes) certificates to:
Name: _________________________________________________________________
(PLEASE PRINT)
Address: ______________________________________________________________
___________________________________
___________________________________
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old Notes
in the shelf registration described in the Registration Agreement, and (iii)
the undersigned agrees to indemnify certain entities and individuals as set
forth in Item 5 above.
/ / By checking this box the undersigned hereby (i) represents that it
is unable to make all of the representations and warranties set forth in
Item 4 above, (ii) elects to have its Old Notes registered pursuant to the
shelf registration described in the Registration Agreement, and (iii) agrees
to indemnify certain entities and individuals identified in, and to the
extent provided in, Item 5 above.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by
registered holder exactly as name appears on Old Notes. If signature is by
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
X _________________________________________________________________________
X _________________________________________________________________________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated: ____________________________________________________________________
Name(s): __________________________________________________________________
___________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: _________________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No.: ______________________________________________
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1 BELOW)
Certain Signatures Must be Guaranteed by an Eligible Institution
___________________________________________________________________________
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
__________________________________________________________________________
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)
OF FIRM)
__________________________________________________________________________
(AUTHORIZED SIGNATURE)
__________________________________________________________________________
(PRINTED NAME)
__________________________________________________________________________
(TITLE)
Dated: ____________________________________________________________________
- --------------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by an eligible guarantor institution that is a member or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or by an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Exchange Act (an "Eligible Institution") unless
the box entitled "Special Delivery Instructions" has not been completed or the
Old Notes described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY
PROCEDURES. The Old Notes, together with a properly completed and duly executed
Letter of Transmittal (or copy thereof), should be mailed or delivered to the
Exchange Agent at the address set forth above.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent prior to the
Expiration Date or (iii) who cannot complete the procedures for delivery by
book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the
Company, must be received by the Exchange Agent prior to the Expiration Date;
and (iii) the Certificates (or a Book-Entry Confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
and any other documents required by the Letter of Transmittal, must be received
by the Exchange Agent within three New York Stock Exchange, Inc. trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery prior to the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT
IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, signed by such registered holder exactly as such registered
holder's name appears on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter of Transmittal.
4. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Tendered Old Notes" is inadequate, the Certificate number(s)
and/or the principal amount of Old Notes and any other
<PAGE>
required information should be listed on a separate signed schedule which is
attached to this Letter of Transmittal.
5. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
6. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be resolved by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the absolute right to reject any or
all Old Notes not properly tendered or any Old Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities, or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent,
nor any other person shall be under any duty to give notification of defects in
such tenders or shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof, unless otherwise provided in this Letter
of Transmittal as soon as practicable following the Expiration Date.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
(LIQUIDATION AMOUNT $1,000 PER NOTE)
OF
UNITED STATIONERS SUPPLY CO.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , , 1998 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
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This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the 8 3/8% Senior Subordinated Notes due 2008 (the "Old
Notes"), of United Stationers Supply Co. (the "Company") are not immediately
available, (ii) Old Notes, the Letter of Transmittal and all other required
documents cannot be delivered to The Bank of New York (the "Exchange Agent") on
or prior to 5:00 P.M. New York City time, on the Expiration Date (as defined in
the Prospectus referred to below) or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange
Offer -- Guaranteed Delivery Procedures" in the Prospectus. In addition, in
order to utilize the guaranteed delivery procedure to tender Old Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal
relating to the Old Notes (or facsimile thereof) must also be received by the
Exchange Agent prior to 5:00 P.M. New York City time, on the Expiration Date.
Capitalized terms not defined herein have the meanings assigned to them in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
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BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclays Street 101 Barclays Street
Floor 7-E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attn: Reorganization Section, New York, New York 10286
(212) 815-3428 Attn: Reorganization Section,
(212) 815-3428
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FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
FOR INFORMATION OR
CONFIRMATION BY TELEPHONE:
(212) 815-6333
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
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Ladies and Gentlemen:
The undersigned hereby tenders to United Stationers Supply, Co. an Illinois
corporation, upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (as the same may be amended or supplemented from
time to time, the "Prospectus"), and the related Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the aggregate principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer-- Guaranteed Delivery Procedures."
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Name(s) of Registered Holder(s): ___________________________________________
Aggregate Principal Amount
Amount Tendered: $ _______________________________________________________ *
Certificate No.(s)
(if available): ____________________________________________________________
(Total Principal Amount Represented by
Old Notes Certificate(s)) __________________________________________________
$ __________________________________________________________________________
If Old Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number: ________________________________________________________
Date: ______________________________________________________________________
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* Must be in denominations of $1,000 principal amount and any integral
multiple thereof.
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All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs personal representatives, successors
and assigns of the undersigned.
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PLEASE SIGN HERE
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X
X
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
Please print name(s) and address(es)
Name(s):
Capacity:
Address(es):
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<PAGE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of or participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Signature Program, the
Stock Exchange Medallion Program or a firm or other entity identified in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker, municipal securities
dealer, government securities broker, government securities dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or learning agency; or (v) a savings association that is a
participant in a Securities Transfer Association recognized program (each of the
foregoing being referred to as an "Eligible Institution"), hereby guarantees to
deliver to the Exchange Agent, at one of its addresses set forth above, either
the Old Notes tendered hereby in proper form for transfer, or confirmation of
the book-entry transfer of such Old Notes to the Exchange Agent's account at The
Depositary Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, and any other documents required by the
Letter of Transmittal within three New York Stock Exchange, Inc. trading days
after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
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Name of Firm Authorized Signature
Address Title
Zip Code (Please Type or Print)
Area Code and Telephone No. Dated:
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NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
