<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1995.
REGISTRATION STATEMENT NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED STATIONERS SUPPLY CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
ILLINOIS 5112 36-2431718
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
THOMAS W. STURGESS
CHAIRMAN OF THE BOARD
750 N. ST. PAUL STREET, SUITE 1200
DALLAS, TEXAS 75201
(214) 720-1313
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
LAWRENCE D. STUART, JR.
WEIL, GOTSHAL & MANGES
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201-6950
(214) 746-7700
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED PER UNIT (1) PRICE (1) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Senior
Subordinated Notes
Due 2005.............. $150,000,000 100% $150,000,000 $51,724.14
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNITED STATIONERS SUPPLY CO.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE LOCATION IN
THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Cover Page of Registration Statement; Outside
Front Cover Page of Prospectus
2.Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front and Outside Back Cover Pages of
Prospectus
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges. Prospectus Summary; Risk Factors; The Company;
Selected Consolidated Financial Data
4.Use of Proceeds...................... Use of Proceeds
5.Determination of Offering Price...... Not Applicable
6.Dilution............................. Not Applicable
7.Selling Security Holders............. Not Applicable
8.Plan of Distribution................. Front Cover Page of Prospectus; The Exchange
Offer; Plan of Distribution
9.Description of Securities to be
Registered......................... Description of the New Notes
10.Interests of Named Experts and
Counsel............................ Not Applicable
11.Information with Respect to the
Registrant......................... Cover Page of Registration Statement; Prospectus
Summary; Risk Factors; The Company; The
Acquisition; Capitalization; Selected
Consolidated Financial Data; Pro Forma Combined
Financial Information; Management's Discussion
and Analysis of Financial Condition and Results
of Operations; Business; Management; Certain
Transactions; Financing the Acquisition;
Description of Capital Stock; Ownership of
Voting Securities; Legal Matters
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 2, 1995
LOGO
[LOGO OF UNITED STATIONERS APPEARS HERE]
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR SUBORDINATED NOTES DUE 2005
IN EXCHANGE FOR
12 3/4% SENIOR SUBORDINATED NOTES DUE 2005
OF
UNITED STATIONERS SUPPLY CO.
--------------
United Stationers Supply Co. (the "Company"), an Illinois corporation which
is the direct operating subsidiary of United Stationers Inc. ("United"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount of its 12
3/4% Senior Subordinated Notes due 2005 (the "New Notes") for each $1,000
principal amount of its 12 3/4% Senior Subordinated Notes due 2005 (the "Old
Notes"), of which an aggregate principal amount of $150,000,000 is outstanding.
The form and terms of the New Notes are identical to the form and terms of the
Old Notes except that (i) interest on the New Notes shall accrue from the last
date on which interest was paid on the Old Notes, (ii) certain provisions
relating to an increase in the stated rate of interest on the Old Notes shall
be eliminated and (iii) the New Notes have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and will not bear any legends
restricting the transfer thereof. 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 governing the Old Notes. The New Notes will be unconditionally
guaranteed on a senior subordinated basis (the "Guarantees") by United and any
future domestic Restricted Subsidiary of the Company. 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 Old Notes and
the New Notes are sometimes referred to collectively herein as the "Notes."
Interest on the Notes will be payable semiannually on May 1 and November 1 of
each year, commencing November 1, 1995. The Notes will be redeemable at the
option of the Company, in whole or in part, at any time on or after May 1, 2000
at the redemption prices set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In addition, on or prior to May 1,
1998, the Company may redeem up to $50.0 million principal amount of the Notes
with the proceeds of one or more Public Equity Offerings at 112.75% of the
aggregate principal amount thereof, together with accrued and unpaid interest,
if any, to the date of redemption; provided that Notes having an aggregate
principal amount of at least $100.0 million remain outstanding immediately
after any such redemption. Upon the occurrence of a Change of Control, each
holder of the Notes may require the Company to repurchase all or a portion of
such holder's Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of repurchase. See
"Description of New Notes -- Certain Covenants."
The Notes and the Guarantees will be subordinated to all Senior Indebtedness
of the Company and Senior Guarantor Indebtedness of each Guarantor,
respectively. After giving pro forma balance sheet effect to the Acquisition
and the refinancing of certain debt and, assuming necessary consents are
obtained, the redemption of certain preferred stock to be effected with the
proceeds of the Old Notes as if all such transactions had occurred on March 31,
1995, there would have been approximately $435.7 million of Senior Indebtedness
and Senior Guarantor Indebtedness of United 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; in addition, after taking into
account approximately $68.1 million of outstanding letters of credit, there
would have been approximately $32.8 million available to be drawn by the
Company as secured Senior Indebtedness under the revolving credit portion of
the New Credit Facilities, which amount would have been secured Senior
Guarantor Indebtedness of United.
The Company 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 , 1995, unless
extended (as so extended, 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 received New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The letter of transmittal
accompanying this Prospectus (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 that, for a period of 180 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."
Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, the New Notes could trade
at a discount from their principal amount. 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.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH HOLDERS OF OLD
NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 , 1995.
<PAGE>
AVAILABLE INFORMATION
United is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information filed by United with the Commission may be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10007 and at Northwestern Atrium Center, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661-2551. Copies of such material can also be obtained from
the principal office of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
Regardless of whether 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, file with the Commission the annual reports, quarterly
reports and other documents which United or 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 so to file such documents
if United and the Company were so subject. United and the Company will also in
any event (x) within 15 days of each Required Filing Date transmit by mail to
all holders of the Notes and file with the trustee under the Indenture 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 so
subject and (y) if filing such documents by United and the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request, supply copies of such documents to any prospective holder of the
Notes. In addition, for so long as any of the Old Notes remain outstanding,
United has agreed to make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by paragraph (d)(iv) of Rule 144A under the Securities
Act.
UNTIL , 1995 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, (i) references to "ASI"
herein include Associated Stationers, Inc. and the predecessor thereof as
constituted prior to the merger thereof with and into the Company (the
"Subsidiary Merger"), with the Company as the surviving corporation, (ii)
references to "Associated" herein include Associated Holdings, Inc. and ASI and
the respective predecessors thereof as constituted prior to the merger of
Associated with and into United (the "Merger" and, together with the Subsidiary
Merger, the "Mergers"), with United as the surviving corporation, (iii)
references to the "Company" herein include the Company, as the surviving
corporation in the Subsidiary Merger, and its consolidated subsidiaries as
constituted after consummation of the Subsidiary Merger or, prior to the
consummation of the Subsidiary Merger of ASI with and into the Company, the
Company and its consolidated subsidiaries as constituted prior to the
Subsidiary Merger, and (iv) references to "United" herein are to United, as the
surviving corporation in the Merger, and its consolidated subsidiaries
(including the Company) as constituted after consummation of the Merger or,
prior to consummation of the Merger of Associated with and into the United,
United and its consolidated subsidiaries (including the Company) as constituted
prior to the Merger. The Company is currently engaged in implementing its
consolidation plan to integrate the two separate office products wholesale
businesses conducted by the Company and ASI prior to the Acquisition (as
hereinafter defined). See "Business -- Consolidation Plan and Benefits of the
Acquisition" and "Risk Factors -- Implementation of Consolidation Plan."
Operating data presented herein for 1994 on a pro forma basis includes calendar
year 1994 data for Associated and data for the twelve months ended November 30,
1994 for United. Operating data presented herein for the three months ended
March 31, 1995 on a pro forma basis includes three months ended March 31, 1995
data for Associated and three months ended February 28, 1995 data for United.
THE COMPANY
OVERVIEW
The Company is the largest office products wholesaler in the United States.
As a result of the merger of the Company with ASI on March 30, 1995, the
Company's net sales on a pro forma basis for 1994 were approximately $2.0
billion and for the three months ended March 31, 1995 were approximately $0.6
billion. Through its extensive office products catalogs, the Company markets a
full line of over 25,000 (post-consolidation) branded and private brand office
and other related business products ("office products"), including traditional
office supplies; office furniture and desk accessories; office machines,
equipment and supplies; computer hardware, peripherals and supplies; and
facilities management supplies, including sanitation products and janitorial
items. These products are offered through a network of 39 (post-consolidation)
strategically located distribution centers to over 14,000 resellers, consisting
principally of commercial dealers and contract stationers, retail dealers,
superstores, mail order companies and mass merchandisers.
Although the office products distribution industry has seen many changes over
the past decade, including the growth of national superstores and a
consolidation among wholesalers, dealers and contract stationers, large
national wholesalers have continued to perform a significant role in the
distribution of office products. For manufacturers, the wholesaler provides
wide market coverage, assumes credit risk, carries inventory and processes
smaller orders than manufacturers can economically service. In addition,
wholesalers provide resellers with prompt service and delivery, a source for
filling small quantity orders and the opportunity to obtain credit, minimize
investment in inventory and access marketing resources and technical support.
3
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
. Largest Office Products Wholesaler. As the largest office products
wholesaler in the United States, the Company has substantial purchasing
power and can realize significant economies of scale. The Company obtains
products from over 500 manufacturers, for many of whom the Company
believes it is a significant customer. The Company's size also enables it
to seek cost-effective sourcing of product in the United States and, in
many cases, worldwide. In addition, the Company's size allows it to
maintain a broad and deep product selection, permitting resellers to hold
less inventory while still providing end users with a high level of
service.
. High Level of Customer Service. The Company provides its customers with a
broad product selection, a high degree of product availability,
expeditious distribution and comprehensive customer assistance. The
Company seeks to base its business decisions on an "If I were the
customer . . ." approach. With over 25,000 products being offered, the
Company believes that it has the broadest selection of office products
available in the industry, enabling resellers in most cases to do "one
stop shopping" for all of their office products needs. The Company's
broad product selection, inventory procurement and management procedures
and state-of-the-art distribution facilities enable it to achieve an
order fill rate (i.e., the percentage of orders filled in accordance with
the reseller's order specifications) in excess of 90%. The Company makes
substantially all of its orders nationwide available by next day delivery
to assist resellers in successfully meeting end users' demands. The
Company publishes a wide array of product catalogs ranging from its full-
line catalogs to specialty catalogs to meet end user needs for
information on specific product offerings. In addition, the Company
provides its customers with a variety of support services such as its
"wrap and pack" program which offers resellers the option to receive
orders packaged in accordance with the specifications of particular end
users. This service allows resellers to lower their inventory investment
and minimize double handling costs while continuing to offer a wide
product range. The Company also provides its resellers a variety of
electronic order entry systems, pricing software programs and business
management and marketing training programs.
. Diverse Customer Base. With over 14,000 resellers as customers, the
Company has one of the broadest customer bases in the industry. The
Company's customers include full-line office products resellers, such as
commercial dealers and contract stationers, retail dealers, office
products superstores, mail order houses and mass merchandisers, as well
as specialized resellers, such as office furniture, janitorial and
computer dealers. No single reseller accounted for more than 3.2% of the
Company's net sales in 1994 on a pro forma basis.
. State-of-the-Art Distribution Capabilities. The Company's network of 39
(post-consolidation) distribution centers located throughout the United
States employs state-of-the-art technology to efficiently distribute
products to customers. In 1994 on a pro forma basis, approximately 85% of
all of the Company's orders were received electronically. The Company
also uses a computer-based system to enhance fill rates by automatically
searching alternative distribution centers for products and routing those
products for shipment. In addition, the Company's advanced communication
system with many of its resellers is intended to enhance the Company's
ability to efficiently manage and distribute its inventory.
. Growth of Private Brand Products. The Company offers a growing line of
over 1,300 private brand products under the Universal(TM) brand name,
which the Company believes is the broadest private brand product offering
in the industry. Universal brand products represented approximately 9% of
the Company's net sales in 1994 on a pro forma basis. Prior to the
Merger, the Universal private brand line was offered only by the Company
but will now also be marketed
4
<PAGE>
to ASI's customers. The Company believes its private brand products offer
significant benefits both to the reseller, by providing an alternative to
branded products that offers similar quality at a moderate price, and to
the manufacturer, by enabling the manufacturer to increase sales without
diluting its brand name pricing structure.
. Experienced Management Team. The Company's senior management team
("Management") comprises individuals who combine many years of experience
in the office products distribution industry. Management also has had
significant experience in acquiring and integrating companies in the
office products industry through United's acquisition (the "SDC
Acquisition") of Stationers Distributing Company, Inc. ("SDC") and
Associated's acquisition (the "Lynn-Edwards Acquisition") of Lynn-Edwards
Corp. ("Lynn-Edwards"), each in 1992.
BUSINESS STRATEGY
The Company's business strategy is to seek to improve its competitive
position and grow its revenues and profitability through (i) the continuation
of a high level of customer service, (ii) expanding the breadth of both its
product line and its customer base and (iii) continuing an emphasis on cost
effective operations.
. High Level of Customer Service. Customer service has been an important
factor in the Company's business strategy in the increasingly competitive
office products industry. The Company intends to continue its efforts to
differentiate itself from competitors by providing its customers with a
broad product selection, a high degree of product availability,
expeditious distribution and a variety of customer services.
. Expanding Product Line and Customer Base. The Company's product line
expansion plans include growing its ancillary product lines, such as
office furniture, computer hardware, peripherals and supplies and
facilities management supplies, which the Company believes allow it to
gain incremental sales from its existing resellers and thereby strengthen
its position with resellers as a "one-stop shop." In addition, ancillary
products allow the Company to enter additional distribution channels and,
by adding new types of resellers beyond full-line office products dealers
alone, to expand its customer base. The Company also expects to expand
its private brand product offerings within these new product lines and to
begin marketing private brand items to ASI's customers. In addition, the
Company plans to evaluate opportunities for growth in market share in
connection with the trend toward direct delivery of products to end users
through arrangements with various resellers seeking to minimize inventory
investment. The Company believes that there is opportunity to capture a
portion of the sizeable percentage of total shipments by office products
manufacturers currently sold directly to resellers or end users without
wholesaler involvement.
. Cost Effective Operations. The Company intends to continue to actively
seek cost reductions at both the corporate and operating levels in order
to continue to operate in a cost effective manner. Examples of such cost
reductions include (i) reduced merchandise costs through suppliers'
incentives, (ii) continued efforts to increase inventory turnover without
lowering service levels, (iii) reduced payroll and benefits costs through
improved labor allocation, (iv) reduced freight costs through ongoing
refinements to delivery systems, (v) increased sourcing of certain
products off-shore, (vi) continued development of computer systems and
(vii) streamlining of work practices and procedures.
CONSOLIDATION PLAN AND BENEFITS OF THE ACQUISITION
Consistent with its business strategy, since the consummation of the
Acquisition on March 30, 1995, the Company has been engaged in implementing its
consolidation plan to integrate its business with the business of ASI. Through
the integration of distribution facilities and product lines in a manner
5
<PAGE>
designed to enable the Company to offer its customers better service and
selection, the Company expects to improve its competitive position. In
addition, the Company plans to achieve cost savings and other benefits from the
elimination of redundant or overlapping functions and facilities and by
minimizing overlapping products. Elements of the consolidation plan include (i)
consolidating the product offerings of ASI and the Company by minimizing
overlapping products while at the same time adding more niche products, (ii)
qualifying for improved terms with vendors as a result of placing higher volume
purchases among fewer suppliers, (iii) consolidating distribution centers by
eliminating eight redundant facilities and achieving more efficient operations
in the four market areas that will continue to have two facilities, (iv)
reducing corporate overhead, (v) eliminating redundant sales representatives
and (vi) increasing sales of private brand products and off-shore sourcing of
these and other products. Management anticipates that the implementation of its
consolidation plan should result in significant cost savings and synergies
which will enhance the Company's financial and operational performance.
Management estimates that, upon phase-in of its consolidation plan over a 12-
month period following the Acquisition, the Company expects to realize
approximately $26.0 million per year in savings as a result of a successful
implementation of its consolidation plan, although the Acquisition is also
likely to result in a reduction in the rate of revenue growth for some period
following the Acquisition as a result of the loss of some customers to
competition. See "Business -- Consolidation Plan and Benefits of the
Acquisition," "Risk Factors -- Implementation of Consolidation Plan" and "Pro
Forma Combined Financial Information."
THE ACQUISITION
On March 30, 1995, pursuant to an Agreement and Plan of Merger dated as of
February 13, 1995 (the "Merger Agreement"), and in accordance with the terms of
Associated's related Offer to Purchase dated February 21, 1995 (the "Offer to
Purchase"), Associated purchased (together with the Mergers, the "Acquisition")
92.5% of the outstanding shares of common stock, $0.10 par value (the
"Shares"), of United for $15.50 per Share, or approximately $266.6 million in
the aggregate, pursuant to a tender offer (the "Offer") that expired on March
22, 1995. Immediately thereafter, the Mergers were consummated, with Associated
and ASI merging with and into United and the Company, respectively, and United
and the Company continuing as the respective surviving corporations. As a
result of share conversions in the Merger, immediately after the Merger, the
former holders of Associated Common Stock (as hereinafter defined) and warrants
or options to purchase Associated Common Stock owned Shares and warrants or
options to purchase Shares constituting in the aggregate approximately 80% of
the Shares on a fully diluted basis, while pre-Merger holders of Shares (other
than Associated-Owned Shares and Treasury Shares (each as hereinafter defined))
owned in the aggregate approximately 20% of the Shares on a fully diluted
basis. See "The Acquisition."
To finance the Offer, refinance existing debt of ASI, United and the Company,
redeem United stock options and pay related fees and expenses, Associated, ASI,
United and the Company entered into (i) the New Credit Facilities (as
hereinafter defined) with a group of banks and financial institutions led by
The Chase Manhattan Bank (National Association) ("Chase Bank") providing for
term loan borrowings of $200.0 million and revolving loan borrowings of up to
$300.0 million and (ii) a senior subordinated bridge loan facility with The
Roebling Fund, whose investors comprise a group of banks and financial
institutions, including Chase Bank, in the aggregate principal amount of $130.0
million (the "Subordinated Bridge Facility"). In addition, simultaneously with
the consummation of the Offer, Associated obtained $12.0 million from the sale
of additional shares of Associated Common Stock primarily to certain existing
holders of Associated Common Stock, which proceeds were used to finance the
purchase of a portion of Shares pursuant to the Offer. The Company used a
portion of the net proceeds of the Old Notes to refinance the Subordinated
Bridge Facility. See "Financing the Acquisition."
6
<PAGE>
The following table sets forth the approximate aggregate sources and uses of
funds necessary to consummate the Acquisition:
<TABLE>
<CAPTION>
SOURCES: (DOLLARS IN THOUSANDS)
<S> <C>
New Credit Facilities (1)......................... $416,537
Subordinated Bridge Facility (2).................. 130,000
Equity Investment................................. 12,000
--------
Total Sources................................... $558,537
========
USES:
Purchase Shares in Offer.......................... $266,629
Refinance Existing Company Debt................... 180,752
Refinance Existing ASI Debt....................... 78,856
Estimated Fees and Expenses (3)................... 29,300
Other (4)......................................... 3,000
--------
Total Uses...................................... $558,537
========
</TABLE>
- --------
(1) Borrowings under the New Credit Facilities at the time the Acquisition was
consummated consisted of term loan borrowings of $200.0 million and
revolving loan borrowings of approximately $206.8 million. Also included is
approximately $9.7 million of additional revolving loan borrowings drawn to
pay fees and expenses after consummation of the Acquisition.
(2) Refinanced with a portion of the net proceeds of the Old Notes.
(3) Excludes approximately $2.6 million borrowed by the Company and $3.2
million borrowed by ASI prior to closing of the Offer to pay fees and
expenses in connection with consummation of the Acquisition. These amounts
are included under "Refinance Existing Company Debt" and "Refinance
Existing ASI Debt," respectively, above. Estimated Fees and Expenses
include the discount received by Chase Securities, Inc. ("Chase Securities"
or the "Initial Purchaser") on the Old Notes.
(4) This amount was used to redeem United stock options. This amount excludes
approximately $3.2 million borrowed by the Company prior to closing of the
Offer to discharge compensation and other liabilities in connection with
consummation of the Acquisition. This latter amount is included under
"Refinance Existing Company Debt" above.
7
<PAGE>
The Exchange Offer applies to $150,000,000 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 the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. 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. See "Description of the New Notes."
THE EXCHANGE OFFER
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, $150,000,000 aggregate
principal amount of the Old Notes are
outstanding. The terms of the New Notes and the
Old Notes are substantially identical.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to unrelated 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 and otherwise transferred by
any person receiving such New Notes, whether or
not such person is the holder (other than any
such holder or such other person which is an
"affiliate" of the Company within the meaning of
Rule 405 promulgated under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that (i) such New Notes are
acquired in the ordinary course of business of
such holder or such other person, (ii) neither
the holder nor such other person is engaging in
or intends to engage in a distribution of such
New Notes and (iii) neither such holder nor such
other person has an arrangement or understanding
with any person to participate in the
distribution of such New Notes. See "The Exchange
Offer -- Purpose and Effect."
Registration Agreement...... The Old Notes were sold by the Company on May 3,
1995 in a private placement. In connection
therewith, the Company entered into a
Registration Rights Agreement with the Initial
Purchaser (the "Registration Agreement")
providing for 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, on , 1995, or such later
date and time to which it is extended.
Withdrawal.................. The tender of 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.
8
<PAGE>
Conditions to the Exchange The Exchange Offer is subject to certain
Offer...................... customary conditions, certain of which may be
waived by the Company. See "The Exchange Offer --
Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes and any other
required documentation, to the Exchange Agent at
the address set forth herein. By executing the
Letter of Transmittal, each holder will represent
to the Company 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 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 promulgated under the Securities Act, of the
Company. Pursuant to the Registration Agreement,
the Company is required to file a registration
statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of
the Old Notes of any holder that indicates in the
Letter of Transmittal that it cannot make such
representations to the Company and that it wishes
to have its Old Notes registered under the
Securities Act. 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 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
in connection with the Exchange Offer.
Federal Income Tax
Consequences............... The exchange pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
9
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the exchange pursuant to
the Exchange Offer. The proceeds received by the Company from the offer of the
Old Notes were used (i) to repay the loan (the "Bridge Loan") under the
Subordinated Bridge Facility (plus accrued interest thereon) and (ii) to pay
down the Term Loan Facilities (as hereinafter defined). If the necessary
consents are obtained, the Company may pay a dividend to United in an amount
sufficient to redeem all of the outstanding shares of Series B Preferred Stock
(as hereinafter defined) with a portion of the proceeds from the Old Notes. See
"Financing the Acquisition."
TERMS OF THE NEW NOTES
Maturity Date............... May 1, 2005.
Interest Payment Dates...... May 1 and November 1 of each year, commencing
November 1, 1995.
Optional Redemption......... The Notes will be redeemable at the option of the
Company at any time on or after May 1, 2000, in
whole or in part, at redemption prices set forth
herein plus accrued and unpaid interest, if any,
to the date of redemption. In addition, on or
prior to May 1, 1998, the Company may redeem up
to $50.0 million aggregate principal amount of
the Notes with the proceeds of one or more Public
Equity Offerings (as hereinafter defined) at
112.75% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the
date of redemption; provided that Notes having an
aggregate principal amount of $100.0 million
remain outstanding immediately after any such
redemption. See "Description of the New Notes --
Optional Redemption."
Change of Control........... Upon the occurrence of a Change of Control (as
defined), each holder of the Notes may require
the Company to repurchase all or a portion of
such holder's Notes at 101% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of the New Notes -- Certain
Covenants."
Subordination............... The Notes and the Guarantees will be subordinated
to all Senior Indebtedness of the Company and
Senior Guarantor Indebtedness of each Guarantor,
respectively, which will include, without
limitation, all indebtedness incurred under the
New Credit Facilities. After giving pro forma
balance sheet effect to the Acquisition and the
refinancing of certain debt and, assuming
necessary consents are obtained, the redemption
of certain preferred stock that may be effected
with a portion of the proceeds from the Old Notes
as if all such transactions had occurred on March
31, 1995, there would have been approximately
$435.7 million of Senior Indebtedness and Senior
Guarantor Indebtedness of United outstanding on
such date, substantially all of which would have
10
<PAGE>
been secured by substantially all of the assets
of the Company; in addition, after taking into
account approximately $68.1 million of
outstanding letters of credit, there would have
been approximately $32.8 million available to be
drawn by the Company as secured Senior
Indebtedness under the revolving credit portion
of the New Credit Facilities, which amount would
have been secured Senior Guarantor Indebtedness
of United. See "Risk Factors -- High Leverage"
and "-- Subordination" and "Capitalization."
Guarantees.................. The Notes will be unconditionally guaranteed on a
senior subordinated basis as to payment of
principal, premium, if any, and interest by
United and by any future domestic Restricted
Subsidiary (as hereinafter defined) of the
Company.
Certain Covenants........... The indenture governing the Notes (the
"Indenture") 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, transfers 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 the New Notes -- Certain
Covenants."
Exchange Offer;Registration
Rights..................... Pursuant to the Registration Agreement, United
and the Company have agreed to use their best
efforts to (i) file with the Securities and
Exchange Commission (the "Commission") on or
prior to June 2, 1995, and cause to become
effective on or prior to August 31, 1995, a
registration statement (the "Exchange Offer
Registration Statement") with respect to a
registered offer under the Securities Act to
exchange the New Notes for the Old Notes in
accordance with the terms of the Exchange Offer
and (ii) cause such Exchange Offer to be
consummated on or prior to September 30, 1995.
In the event that either (i) the Exchange Offer
Registration Statement is not filed with the
Commission on or prior to June 2, 1995, (ii) the
Exchange Offer Registration Statement is not
declared effective on or prior to August 31,
1995, (iii) the Exchange Offer is not consummated
on or prior to September 30, 1995 or (iv) changes
in law or the applicable interpretation of the
Commission staff do not permit the Company to
effect the Exchange Offer and a shelf
registration statement pursuant to the Securities
Act (a "Shelf Registration Statement") with
respect to the Old Notes is not declared
effective under the Securities Act on or prior to
the later of (x) August 31, 1995 and (y) the 45th
calendar day after the publication of the change
in law or interpretation, the interest rate borne
by the Old Notes shall be increased by one-half
of one percent per annum following the relevant
date described in clause (i), (ii), (iii) or
11
<PAGE>
(iv), as applicable. The aggregate amount of such
increase from the original interest rate pursuant
to these provisions will in no event exceed one-
half of one percent per annum. See "The Exchange
Offer -- Adjustment to Old Notes." Such increase
will cease to be effective on the date of filing
of the Exchange Offer Registration Statement,
effectiveness of the Exchange Offer Registration
Statement, consummation of the Exchange Offer or
the effectiveness of a Shelf Registration
Statement, as the case may be. See "The Exchange
Offer."
RISK FACTORS
Investment in the Notes involves a high degree of risk. For a discussion of
certain considerations relevant to an investment in the Notes, see "Risk
Factors."
12
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below and on the following three pages is summary pro forma
information for United and summary historical financial information for United
and Associated. United, which has no operations independent of those of the
Company, unconditionally guarantees the Notes on a senior subordinated basis.
Associated had no operations independent of those of ASI.
UNITED -- PRO FORMA
The unaudited pro forma combined financial data set forth below should be
read in conjunction with the unaudited Pro Forma Combined Financial Statements
included elsewhere herein, which are based on the historical financial
statements of Associated and United after giving effect to: (i) the purchase
accounting and other merger related adjustments relating to the Acquisition and
(ii) the refinancing of certain debt and redemption of certain preferred stock
assumed to be effected with the proceeds of the offering of Old Notes, as
described in the notes thereto. The unaudited pro forma combined financial data
is intended for informational purposes only and is not necessarily indicative
of the future financial position or future results of operations of United
after the Acquisition, or of the financial position or results of operations of
United that would have actually occurred had the Acquisition occurred on the
date or been in effect for the period presented. The unaudited pro forma
combined financial data should be read in conjunction with, and is qualified in
its entirety by, the historical consolidated financial statements of United and
Associated, including the related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 MARCH 31, 1995
---------------------- ----------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA (1)(2):
Net sales........................ $1,982,070 $568,912
Cost of sales (3)................ 1,535,609 443,777
---------- --------
Gross profit..................... 446,461 125,135
Warehouse, distribution, selling,
general and administrative ex-
penses (3)...................... 370,517 98,391
---------- --------
Income from operations........... 75,944 26,744
Interest expense, net (4)........ (48,825) (14,298)
Other income, net................ 86 20
---------- --------
Income before income taxes....... 27,205 12,466
Income taxes..................... 10,467 4,894
---------- --------
Net income....................... $ 16,738 $ 7,572
========== ========
OPERATING AND OTHER DATA (1):
EBITDA (5)....................... $ 109,571 $ 35,076
EBITDA margin (6)................ 5.5% 6.2%
Depreciation and amortization.... $ 33,541 $ 8,312
Capital expenditures, net........ 10,509 3,244
Ratio of EBITDA to interest ex-
pense........................... 2.2x 2.5x
BALANCE SHEET DATA (AT PERIOD
END) (1):
Working capital.................. $347,285
Total assets..................... 975,949
Total debt and capital leases
(7)............................. 585,720
Redeemable preferred stock....... 17,037
Redeemable warrants.............. 11,879
Stockholders' equity (excluding
redeemable preferred stock and
redeemable warrants)............ 45,459
</TABLE>
See footnotes on following page.
13
<PAGE>
- --------
(1) The unaudited pro forma income statement and operating and other data is
presented giving effect to (i) the Acquisition as if it had been
consummated on January 1, 1994 and (ii) the refinancing of certain debt and
the redemption of certain United preferred stock assumed to be effected
with the proceeds of the Old Notes as if such refinancing and redemption
had been consummated one month thereafter. The unaudited pro forma balance
sheet data is presented giving effect to the Acquisition and the
refinancing of certain debt and the redemption of certain United preferred
stock assumed to be effected with the proceeds of the Old Notes as if all
such transactions had been consummated on March 31, 1995. 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. Accordingly, the pro forma income statement for the
year ended December 31, 1994 combines Associated for its fiscal year ended
December 31, 1994 with United for its twelve month period ended November
30, 1994 (the date of its fiscal quarter ending nearest to December 31,
1994), the pro forma income statement for the three months ended March 31,
1995 combines Associated for the three months ended March 31, 1995 with
United for the three months ended February 28, 1995 and the pro forma
balance sheet data as of March 31, 1995 and the historical balance sheet as
of March 31, 1995 for United includes the preliminary purchase price
allocation, which may be revised at a later date, and other merger related
adjustments. United's historical statement of income previously reported on
a fiscal year ended August 31, 1994 has been adjusted to reflect the twelve
month period ended November 30, 1994.
(2) The pro forma income statement data excludes (i) the extraordinary non-
recurring write-off 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 retirement of debt, (ii) a non-recurring charge for
restructuring of approximately $9.8 million ($5.9 million net of tax
benefit of $3.9 million), for costs expected to be incurred in connection
with integration and transition (e.g., severance and the cost of closing
certain facilities operated by Associated prior to the Merger) and (iii)
compensation expense relating to employee stock options of approximately
$1.5 million ($0.9 million net of tax benefit of $0.6 million).
Approximately $14.6 million of additional integration and transition costs
(e.g., severance and the cost of closing facilities operated by United
prior to the Merger) will be recorded as additional costs of the Merger, in
accordance with the purchase method of accounting. The above-referenced
restructuring reserve and the purchase accounting reserve relating to the
integration and transition expenses total $24.4 million and are reflected
as a reserve in the Pro Forma Combined Balance Sheet. See "Pro Forma
Combined Financial Information."
(3) Includes estimated cost savings of $26.0 million for the year ended
December 31, 1994 and $6.5 million for the three months ended March 31,
1995 that United expects to realize from the actions that Management has
committed to undertake pursuant to its consolidation plan that has been
approved by the Board of Directors of the Company, as if the consolidation
plan had been implemented in full as of January 1, 1994. United plans to
implement its consolidation plan over a 12-month period following the
Acquisition. See "Business -- Consolidation Plan and Benefits of the
Acquisition" and "Risk Factors -- Implementation of Consolidation Plan."
(4) Pro forma interest expense is based on historical interest rates in effect
during the year ended December 31, 1994 and the three months ended March
31, 1995 in calculating the basis for variable rates. Average 30-day LIBOR
in effect for the year ended December 31, 1994 ranged from 3.15% to 6.09%
and for the three months ended March 31, 1994 was 6.125%. The average prime
rate during January 1994 was 6.0% and for the three months ended March 31,
1995 ranged from 8.50% to 9.0%. At March 31, 1995, 30-day LIBOR was 6.125%
and the prime rate was 9.0%. If the March 31, 1995 interest rates were used
as base interest rates instead of the historical rates, pro forma interest
expense for United would amount to $56.1 million instead of $48.8 million
for the year ended December 31, 1994. Each 1/8 of 1% change in the base
interest rate for variable rate debt has a $521 thousand effect on annual
pro forma interest expense for United. In April 1995, the Company entered
into three-year interest rate protection arrangements totaling $200,000,000
pursuant to which the Company (i) is protected to the extent that the 3-
month LIBOR interest rate exceeds 8.0% and (ii) is liable to the extent
that such interest rate drops below 6.0%.
(5) 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.
14
<PAGE>
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.
(6) EBITDA margin represents EBITDA as a percentage of net sales.
(7) Total debt and capital leases includes current maturities.
UNITED -- HISTORICAL
The summary financial information of United set forth below for each of the
fiscal years in the five-year period ended August 31, 1994 has been derived
from the financial statements of United, which have been audited by Arthur
Andersen LLP, independent public accountants. The summary financial
information for the six-month periods ended February 28, 1994 and 1995 is
unaudited and in the opinion of Management reflects all adjustments considered
necessary for a fair presentation of such data. The results of operations for
any interim period are not necessarily indicative of results of operations for
the fiscal year and should be read in conjunction with, and is qualified in
its entirety by, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Historical Results of Operations of United" and
"-- Historical Liquidity and Capital Resources of United" and the financial
statements of United included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED AUGUST 31, FEBRUARY 28,
------------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- ---------- ---------- ---------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $993,178 $951,109 $1,094,275 $1,470,115 $1,473,024 $740,585 $833,838
Gross profit on sales... 224,230 218,708 245,687 344,519 322,901 167,334 175,586
Operating expenses...... 195,863 195,694 219,285 298,405 286,607 145,739 145,469
Income from operations.. 28,367 23,014 26,402 46,114 36,294 21,595 30,117
Interest expense, net... 7,350 6,082 6,503 9,550 10,461 4,984 6,226
Income before income
taxes.................. 21,361 16,918 20,263 36,919 26,058 16,697 23,953
Income taxes............ 8,523 7,008 8,899 15,559 10,309 6,929 9,648
Net income.............. 12,838 9,910 11,364 21,360 15,749 9,768 14,305
OPERATING AND OTHER
DATA:
EBITDA (1).............. $ 43,851 $ 41,912 $ 46,645 $ 67,712 $ 57,755 $ 32,089 $40,949
EBITDA margin (2)....... 4.4% 4.4% 4.3% 4.6% 3.9% 4.3% 4.9%
Depreciation and
amortization........... $ 15,140 $ 18,912 $ 19,879 $ 21,243 $ 21,236 $ 10,408 $10,770
Net capital
expenditures........... 15,067 15,765 8,291 29,958 10,499 3,312 4,812
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $134,420 $135,347 $ 214,611 $ 216,074 $ 239,827 $287,308 $262,725
Total assets............ 401,661 409,958 601,465 634,786 618,550 655,029 700,235
Total debt and capital
leases(3).............. 73,683 73,123 150,728 150,251 155,803 209,955 198,485
Stockholders'
investment............. 177,777 181,584 223,387 237,697 246,010 243,831 256,541
</TABLE>
- -------
(1) 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.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
(3) Total debt and capital leases includes current maturities but excludes
original issue discount.
15
<PAGE>
ASSOCIATED -- HISTORICAL
The summary financial information of Associated set forth below with respect
to the years ended December 31, 1994 and 1993 and the period from January 31,
1992 (when certain of the assets and certain liabilities of ASI were acquired
(the "Boise Transaction") from the Wholesale Division of Boise Cascade Office
Products Corporation ("BCOP")) through December 31, 1992 has been derived from
and should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Historical Results of Operations of Associated" and "--
Historical Liquidity and Capital Resources of Associated" and the financial
statements of Associated included elsewhere in this Prospectus, which have been
audited by Arthur Andersen LLP, independent public accountants. The data at and
for the years ended December 31, 1990 and 1991 and the one month ended January
31, 1992 are derived from the unaudited financial statements of BCOP for such
periods. Associated has accounted for the Boise Transaction using the purchase
method of accounting. There are material operational and accounting differences
between BCOP and Associated resulting from the Boise Transaction. Accordingly,
the historical financial data of BCOP may not be comparable in all material
respects with data of Associated. The data at and for the three months ended
March 31, 1994 and 1995 are unaudited and in the opinion of Management reflect
all adjustments considered necessary for a fair presentation of such data. On
March 30, 1995, Associated merged with 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, operating and other data for the
three months ended March 31, 1994 and 1995 reflect the financial information of
Associated only. The balance sheet data at March 31, 1995 reflect the
consolidated balances of Associated and United including the preliminary
purchase price allocation, which may be revised at a later date, and other
Merger-related adjustments. The balance sheet data at March 31, 1994 reflect
Associated only.
<TABLE>
<CAPTION>
PREDECESSOR(1)(2) ASSOCIATED
------------------------------- ---------------------------------------------------
JANUARY 1 JANUARY 31
YEAR ENDED TO TO YEAR ENDED THREE MONTHS
DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------------ ----------- ------------ ------------------ ------------------
1990(3) 1991(4) 1992(5) 1992 1993 1994 1994 1995
-------- -------- ----------- ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $443,547 $411,343 $39,016 $365,944 $462,531 $477,445 $123,850 $137,272
Gross profit............ 112,324 103,253 9,142 89,398 112,280 120,169 29,688 33,704
Operating
expenses (6)........... 90,773 88,374 7,723 79,889 102,274 103,020 26,752 38,708
Income (loss) from
operations............. 21,551 14,879 1,419 9,509 10,006 17,149 2,936 (5,004)
Interest expense........ -- -- -- 4,782 6,263 6,753 1,732 2,203
Income (loss) before
income taxes and
extraordinary item..... -- -- -- 4,727 3,743 10,396 1,204 (7,207)
Income taxes (benefit).. -- -- -- 1,777 781 3,993 462 (2,973)
Income (loss) before ex-
traordinary item....... -- -- -- 2,950 2,962 6,403 742 (4,234)
Extraordinary item...... -- -- -- -- -- -- -- (1,449)
Net income (loss)....... -- -- -- 2,950 2,962 6,403 742 (5,683)
OPERATING AND OTHER
DATA:
EBITDA (7).............. $ 24,511 $ 18,028 $ 1,661 $ 14,875 $ 16,481 $ 23,505 $ 4,525 $ 6,228
EBITDA margin (8)....... 5.5% 4.4% 4.3% 4.1% 3.6% 4.9% 3.7% 4.5%
Depreciation and
amortization........... $ 2,960 $ 3,149 $ 242 $ 5,366 $ 6,475 $ 6,356 $ 1,589 $ 1,473
Capital expenditures,
net.................... 8,129 273 (36) 4,289 3,273 554 242 182
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1) ASSOCIATED
----------------- --------------------------------------------
AT DECEMBER 31, AT MARCH 31,
-------------------------------------------- -----------------
1990(3) 1991(4) 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 60,726 $ 54,373 $ 46,396 $ 57,302 $ 56,454 $ 56,878 $340,626
Total assets............ 151,432 140,756 179,069 190,979 192,479 172,250 975,949
Total debt and capital
leases (9)............. -- -- 78,297 86,350 64,623 70,523 572,857
Redeemable preferred
stock.................. -- -- 18,949 20,996 23,189 21,530 23,761
Redeemable warrants..... -- -- 1,435 1,435 1,650 1,667 11,879
Total stockholders' or
predecessor division
equity................. 102,871 93,642 10,466 11,422 24,775 20,611 45,459
</TABLE>
- --------
(1) The capital structure and accounting basis of the assets and liabilities of
the predecessor of ASI, BCOP, differ from those of Associated and ASI.
Accordingly, certain of the financial information for periods before
January 31, 1992 is not comparable to that for periods after January 31,
1992 and therefore is not presented in this table.
(2) The Predecessor operated as a segment of BCOP. BCOP did not allocate income
tax or interest expense to the Predecessor. Accordingly, actual operating
results for the Predecessor reflect only income from operations before
interest expense and income taxes.
(3) Derived from the unaudited financial statements of BCOP at and for the year
ended December 31, 1990.
(4) Derived from the unaudited financial statements of BCOP at and for the year
ended December 31, 1991.
(5) Derived from the unaudited financial statements of BCOP for the one month
ended January 31, 1992.
(6) Includes restructuring charge of $9.8 million for the three months ended
March 31, 1995.
(7) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and restructuring charge and extraordinary item, and is
presented because it is commonly used by certain investors and analysts to
analyze and compare companies on the basis of operating performance and to
determine a company's ability to service and incur debt. EBITDA should not
be considered in isolation from or as a substitute for net income, cash
flows from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(8) EBITDA margin represents EBITDA as a percentage of net sales.
(9) Total debt and capital leases is defined as long-term debt including
current maturities but excluding original issue discount, plus deferred
obligations due to the holder of the Associated Class B redeemable
preferred stock.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Notes offered hereby.
HIGH LEVERAGE
As a result of the Acquisition and the refinancing of certain debt and,
assuming necessary consents are obtained, the redemption of certain preferred
stock which may be effected with the proceeds of the Old Notes, the Company has
significant debt and debt service obligations. As of the consummation of the
Acquisition and the refinancing of certain debt and redemption of certain
preferred stock assumed to be effected with the proceeds of the Old Notes,
assuming the Acquisition and such refinancing and redemption had occurred on
March 31, 1995, and after giving effect to the debt, redeemable preferred stock
and redeemable warrants of United "pushed down" to the accounts of the Company,
(i) the Company would have had $585.7 million of long-term indebtedness
(including current maturities), $17.0 million of redeemable preferred stock,
$11.9 million of redeemable warrants, and $45.5 million of common stock and
other stockholders' equity; (ii) the Company would have had a long-term
indebtedness to redeemable preferred stock, redeemable warrants and total
stockholders' equity ratio of 7.9 to 1; and (iii) the Company would have had a
long-term indebtedness, redeemable preferred stock and redeemable warrants to
total stockholders' equity ratio of 13.5 to 1. See "Pro Forma Combined
Financial Information." By contrast, after giving effect to "push-down"
accounting, the Company's historical long-term indebtedness, redeemable
preferred stock and redeemable warrants to stockholders' equity ratio as of
March 31, 1995 was 13.4 to 1 and its historical long-term indebtedness to
redeemable preferred stock plus redeemable warrants plus stockholders' equity
ratio as of March 31, 1995 was 7.1 to 1.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, 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 will be payable at variable rates. 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, including principal and interest
payments on the Notes, when due. However, if the Company cannot generate
sufficient cash flow from operations to meet its debt service obligations,
defaults may occur thereunder and the Company might be required to refinance
its indebtedness. There is no assurance that refinancings could be effected on
satisfactory terms or would be permitted by the terms of the New Credit
Agreement.
SUBORDINATION
The indebtedness evidenced by the 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
liquidation of United or the Company, or in the case of certain events of
default with respect to the
18
<PAGE>
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. After giving pro forma effect to the Acquisition and the
refinancing of certain debt and redemption of certain preferred stock assumed
to be effected with the proceeds of this offering as if all such transactions
had occurred on March 31, 1995, there would have been approximately $435.7
million of Senior Indebtedness and Senior Guarantor Indebtedness of United
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; in addition,
after taking into account approximately $68.1 million of outstanding letters of
credit, there would have been approximately $32.8 million available to be drawn
by the Company as secured Senior Indebtedness under the revolving credit
portion of the New Credit Facilities, which amounts would have been secured
Senior Guarantor Indebtedness of United. See "Pro Forma Combined Financial
Information." 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 GUARANTEES BY UNITED
United unconditionally guarantees, on a senior subordinated basis, all
payments of principal, premium, if any, and interest on the Notes. However,
since at present United's only significant asset is the capital stock of the
Company (and such asset is pledged to the lenders under the New Credit
Facilities), if the Company should be unable to meet its payment obligations
with respect to the Notes, it is unlikely that United would be able to do so.
RESTRICTIVE COVENANTS
The Indenture and the credit agreement (as amended, the "New Credit
Agreement") for the New Credit Facilities contain numerous restrictive
covenants that will limit the discretion of Management with respect to certain
business matters. These covenants place significant restrictions on, among
other things, the ability of the Company to incur additional indebtedness, to
create liens or other encumbrances, to make certain payments, investments,
loans and guarantees and to sell or otherwise dispose of assets and merge or
consolidate with another entity. The New Credit Agreement also contains a
number of financial covenants that require the Company to meet certain
financial ratios and tests. See "Financing the Acquisition." A failure to
comply with the obligations in the New Credit Agreement or the Indenture could
result in an event of default under the New Credit Agreement, or an Event of
Default (as hereinafter defined) under the Indenture, which, if not cured or
waived, could permit acceleration of the indebtedness thereunder and
acceleration of indebtedness under other instruments that may contain cross-
acceleration or cross-default provisions. Other indebtedness of the Company and
its subsidiaries that may be incurred in the future may contain financial or
other covenants more restrictive than those applicable under the New Credit
Agreement. The New Credit Agreement restricts the prepayment, purchase,
redemption, defeasance or other payment of any of the principal of the Notes so
long as any loans remain outstanding under the New Credit Agreement.
IMPLEMENTATION OF CONSOLIDATION PLAN
The Company's future operations and earnings will be largely dependent upon
the Company's ability to integrate the businesses separately conducted by ASI
and the Company prior to the Merger. The Company must, among other things,
eliminate approximately 10,000 overlapping items from its catalogs to be
distributed in the fourth calendar quarter of 1995, close redundant
distribution centers
19
<PAGE>
effectively, while at the same time maximizing retention of the related
business, and eliminate certain corporate and sales positions and otherwise
reduce combined administrative costs and expenses. There can be no assurance
that the Company will successfully integrate the former separate businesses of
ASI and the Company, and a failure to do so would have a material adverse
effect on the Company's results of operations and financial condition.
Additionally, although the Company does not currently have any acquisition
plans, the need to focus Management's attention on integration of the former
businesses and implementation of the Company's consolidation plan may limit the
Company's ability to successfully pursue acquisitions or other opportunities
related to its business for the foreseeable future.
As discussed under "Business -- Consolidation Plan and Benefits of the
Acquisition" and as presented under "Pro Forma Combined Financial Information,"
Management estimates that the Company expects to realize significant cost
savings as a result of a successful implementation of its consolidation plan.
The achievement of these savings is significantly dependent on the successful
implementation of such plan. There can be no assurances, however, that such
savings will be achieved or sustained. In addition, the Company believes that
the Acquisition is likely to result in a reduction in the rate of revenue
growth for some period following the Acquisition as a result of the loss of
customers to competition.
COMPETITION
The Company operates in a highly competitive environment. The Company
competes to obtain reseller purchases both with office products manufacturers
and with other national, regional and specialty wholesalers of office products,
office furniture, computers and related items. A trend toward consolidation has
occurred in recent years throughout the office products industry. Although as
the result of such consolidations at the national full-line wholesale level
only one competitor (S.P. Richards) remains, consolidation of commercial
dealers and contract stationers has also resulted in an increased ability of
those resellers to buy goods directly from manufacturers. In addition, over the
last decade, office products superstores (which largely buy directly from
manufacturers) have entered virtually every major metropolitan market and
commercial dealers, contract stationers and retail dealers have formed buying
groups to purchase directly from manufacturers on a collective basis. Increased
competition in the office products industry has also led to heightened price
awareness among consumers, making purchasers of commodity type office products
extremely price sensitive and requiring the Company to increase its efforts to
convince resellers of the continuing advantages of its competitive strengths
(as compared to those of manufacturers and other wholesalers), such as
marketing and catalog programs, speed of delivery, and the ability to offer
resellers a broad line of business products from multiple manufacturers with
lower minimum order quantities on a "one-stop shop" basis. See "Business --
Competition."
CHANGING END USER DEMANDS
The Company's sales and profitability are largely dependent on its ability to
continually enhance its product offerings to meet changing end user demands.
End users' traditional demands for office products have changed over the last
several years as a result of (i) increased recycling efforts, (ii) efforts by
various businesses to establish "paperless" work environments, (iii) the
widespread use of computers and other technological advances, resulting in the
elimination or reduction in use of traditional office supplies and (iv) a trend
toward non-traditional offices, such as home-offices. The Company's ability to
continually monitor and react to such trends and changes in end user demands
will be necessary to avoid adverse effects on its sales and profitability.
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
20
<PAGE>
York City are covered by various collective bargaining agreements, which expire
at various times during the next three years. Although the Company considers
its relationships with its employees to be satisfactory, a prolonged labor
dispute could have a material adverse effect on the Company's business as well
as the Company's results of operations and financial condition. In addition,
the Company's ability to readily deliver its products could be impaired by work
stoppages by its employees. Although the Company has maintained service levels
during past work stoppages by distributing to its customers from unaffected
distribution centers, profitability has been reduced during such periods as a
result of higher distribution costs. The Company's ability to receive and
distribute products is largely dependent on the availability of trucks utilized
by both manufacturers and the Company, and therefore the occurrence of a
national trucking strike could also impair the Company's operations. The
Company's service levels would also be affected in the event of an interruption
in operation of its computers or telecommunications network on a company-wide
scale for an extended period of time, although the Company has developed
contingency plans to limit its exposure.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success largely will depend on the efforts and
abilities of its executive officers and certain other key employees,
particularly Mr. Thomas W. Sturgess, the Company's Chairman of the Board,
President and Chief Executive Officer, Mr. Michael D. Rowsey and Mr. Steven R.
Schwarz, each an Executive Vice President of the Company, and Mr. Daniel H.
Bushell, the Company's Chief Financial Officer, the loss of any of whom could
have a material adverse effect on the Company. Although all but Mr. Sturgess
have entered into employment agreements with the Company as described under
"Management," the Company is currently integrating two formerly separate
management teams and any officer could choose to resign at any time. On May 31,
1995, Jeffrey K. Hewson resigned as President and Chief Executive Officer of
United and the Company, and Thomas W. Sturgess, Chairman of the Board of United
and the Company, assumed such responsibilities.
CONTROL BY WINGATE PARTNERS
As of June 2, 1995, approximately 75% of the outstanding Shares were
controlled by the Voting Trust (as hereinafter defined), the five trustees of
which hold all voting power to vote such Shares and may act by majority vote of
the trustees. Three of the five trustees serve as indirect general partners of
Wingate Partners, L.P. ("Wingate Partners") or Wingate Partners II, L.P.
("Wingate II"), each of which is a Delaware limited partnership and a private
investment firm located in Dallas, Texas. In addition, the trustees are
obligated to nominate and vote for a board of directors of United of which
directors designated by Wingate Partners comprise a majority. Four of the
current nine directors of United are indirect general partners of Wingate
Partners or Wingate II. The Company is a wholly owned subsidiary of United.
Consequently, Wingate Partners and Wingate II and their indirect general
partners will control United and, through control of United, the Company and,
thus, will have the power to elect a majority of the directors thereof and to
approve any action requiring stockholder approval. See "Management --Directors
and Executive Officers," "Certain Transactions" and "Ownership of Voting
Securities."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Substantially all of the net proceeds of the offering of the Old Notes were
used to refinance the Bridge Loan under the Subordinated Bridge Facility, repay
approximately $6.5 million outstanding under the Term Loan Facilities and, upon
receipt of necessary consents, may be used to pay a dividend to United to
redeem the outstanding shares of Series B Preferred Stock. In addition,
pursuant to the Merger, United assumed all of the obligations of Associated;
pursuant to the Subsidiary Merger, the Company assumed all obligations of ASI;
and, pursuant to the Indenture, each future domestic Restricted Subsidiary of
the Company will guarantee the Notes. Accordingly, the obligations of the
Company under the Notes and the obligations of United and any future Restricted
Subsidiary under the Guarantees may be subject to review under relevant federal
and state fraudulent conveyance statutes
21
<PAGE>
("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, United or future Restricted Subsidiary. If a
court were to find under relevant fraudulent conveyance statutes that, at the
time of issuance, incurrence or assumption by any debtor of obligations under
the Notes, Guarantees, the Bridge Loan or the term or revolving loans ("Senior
Loans") under the New Credit Facilities, (a) such debtor incurred such
obligation with the intent of hindering, delaying or defrauding current or
future creditors or (b)(i) such debtor received less than reasonably equivalent
value or fair consideration for incurring such obligation and (ii)(A) was
insolvent or was rendered insolvent by reason of such incurrence, (B) was
engaged, or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, or (C) intended to incur, or believed
that it would incur, obligations beyond its ability to pay as such obligations
matured (as all of the foregoing terms are defined in or interpreted under such
fraudulent conveyance statutes), such court could subordinate such obligations
to presently existing and future indebtedness of such debtor, as the case may
be, and take other action detrimental to the holders of the Notes, including,
under certain circumstances, invalidating the Notes or the Guarantees.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, a
company would be considered insolvent for purposes of the foregoing if, at the
time it incurs any given obligation, the sum of the company's debts (including
unliquidated or contingent debt) is greater than all the company's property at
a fair valuation, or if the present fair saleable value of the company's assets
is less than the amount that will be required to pay its probable liability on
its existing debts (including unliquidated or contingent debt) as they become
absolute and matured.
On the basis of the historical financial information of United and Associated
and other factors, Management believes that (i) each obligation of each debtor
was and is being incurred for proper purposes and in good faith and (ii) (A)
after giving effect to the Acquisition, the Mergers, the Bridge Loan, the
Senior Loans and related transactions, each such prior or current debtor
received or is receiving reasonably equivalent value and fair consideration for
incurring such obligation and (B) each such prior or current debtor was, is and
will be solvent under the foregoing standards, had, has and will have
sufficient capital for carrying on their businesses, was, is and will be able
to pay their debts as they mature, and had, has and will have sufficient assets
to satisfy any probable money judgment against it in any pending action. There
can be no assurance, however, as to whether a court would concur in such view.
LIQUIDITY OF THE NOTES
The New Notes are being offered to the holders of the Old Notes. Although the
Initial Purchaser currently makes a market in the Old Notes and has informed
the Company that it currently intends to make a market in the New Notes, it is
not obligated to do so, and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes. The Company does not
intend to apply for listing of the Notes on any securities exchange or for
quotation through the Nasdaq National Market System.
22
<PAGE>
THE COMPANY
The Company is the largest office products wholesaler in the United States.
As a result of the Merger of the Company with ASI on March 30, 1995, the
Company's net sales on a pro forma basis for 1994 were approximately $2.0
billion and for the three months ended March 31, 1995 were approximately $0.6
billion. Through its extensive office products catalogs, the Company markets a
full line of over 25,000 (post-consolidation) branded and private brand office
products, including traditional office supplies; office furniture and desk
accessories; office machines, equipment and supplies; computer hardware,
peripherals and supplies; and facilities management supplies, including
sanitation products and janitorial items. These products are offered through a
network of 39 (post-consolidation) strategically located distribution centers
to over 14,000 resellers, consisting principally of commercial dealers and
contract stationers, retail dealers, superstores, mail order companies and mass
merchandisers.
Although the office products distribution industry has seen many changes over
the past decade, including the growth of national superstores and a
consolidation among wholesalers, dealers and contract stationers, large
national wholesalers have continued to perform a significant role in the
distribution of office products. For manufacturers, the wholesaler provides
wide market coverage, assumes credit risk, carries inventory and processes
smaller orders than manufacturers can economically service. In addition,
wholesalers provide resellers with prompt service and delivery, a source for
filing small quantity orders and the opportunity to obtain credit, minimize
investment in inventory and access marketing resources and technical support.
The Company is currently engaged in implementing its consolidation plan to
integrate the two separate office products wholesale businesses conducted by
the Company and ASI prior to the Acquisition. See "Business -- Consolidation
Plan and Benefits of the Acquisition" and "Risk Factors --Implementation of
Consolidation Plan." The Company is a wholly owned subsidiary of United, which
has no operations independent of those of the Company.
The Company was incorporated in Illinois in 1922, and United was incorporated
in Delaware in 1981. The principal executive offices of the Company and United
are each located at 2200 East Golf Road, Des Plaines, Illinois 66016-1267,
telephone number (708) 699-5000.
USE OF PROCEEDS
There will be no cash proceeds to the Company or United from the exchange
pursuant to the Exchange Offer. The net proceeds to the Company from the sale
of the Old Notes were $144.5 million (after approximately $5.5 million in
estimated fees and expenses related to the offering). Such net proceeds were
used (i) to repay the Bridge Loan in the principal amount of $130.0 million,
plus accrued interest thereon of approximately $1.6 million, (ii) to repay
approximately $6.5 million of the outstanding amounts under the Term Loan
Facilities and (iii) for general corporate purposes. In the event the necessary
consents are obtained, the Company is permitted under its lending arrangements
to dividend to United an amount sufficient to redeem the Series B Preferred
Stock of United. A portion of the proceeds from the sale of the Old Notes would
be used if the Company determines to make such a dividend. The lenders under
the Bridge Loan were The Roebling Fund, a statutory business trust, and Chase
Bank, each of which is an affiliate of the Initial Purchaser. The lenders under
the Term Loan Facility and the Revolving Credit Facility also include Chase
Bank. For further information regarding the Bridge Loan and the New Credit
Facilities, see "Financing the Acquisition."
23
<PAGE>
THE ACQUISITION
On March 30, 1995, pursuant to the Merger Agreement and in accordance with
the terms of the Offer to Purchase, Associated purchased 92.5% of the
outstanding Shares at a purchase price of $15.50 per share, or approximately
$266.6 million in the aggregate, pursuant to the Offer that expired on March
22, 1995. On March 30, 1995, at the time (the "Effective Time") the Mergers
were consummated, Associated and ASI merged with and into United and the
Company, respectively, and United and the Company continued as the respective
surviving corporations. For a discussion of the financing of the Acquisition,
see "Financing the Acquisition" and "Ownership of Voting Securities."
At the Effective Time of the Merger, (i) each Share (other than those Shares
owned by Associated or its affiliates (the "Associated-Owned Shares"), Shares
held by United or its subsidiaries (the "Treasury Shares") (which were
canceled) and Shares as to which statutory appraisal rights were validly
exercised and perfected in respect of the Merger and not withdrawn (the
"Dissenting Shares")) remained outstanding and unaffected by the Merger, (ii)
each share of Class A Common Stock, $0.01 par value, and Class B Common Stock,
$0.01 par value (collectively, the "Associated Common Stock"), of Associated
outstanding immediately prior to the Merger was converted into 3.446286 Shares
and each warrant or option to acquire shares of Associated Common Stock
outstanding immediately prior to the Merger was converted into the right to
purchase 3.446286 Shares for each share of Associated Common Stock into which
such warrant or option was exercisable immediately prior to the Merger, (iii)
each outstanding share of Class A Preferred Stock, $0.01 par value, of
Associated was converted into one share of Series A Preferred Stock, $0.01 par
value (the "Series A Preferred Stock"), of United, (iv) each outstanding share
of Class B Preferred Stock, $0.01 par value, of Associated was converted into
one share of Series B Preferred Stock, $0.01 par value (the "Series B Preferred
Stock"), of United, and (v) each outstanding share of Class C Preferred Stock,
$0.01 par value, of Associated was converted into one share of Series C
Preferred Stock, $0.01 par value (the "Series C Preferred Stock"), of United.
In addition, prior to consummation of the Merger, the Company made adjustments
to all stock options held by executive officers and directors of United such
that such options were redeemed at the Effective Time, with the holders thereof
being entitled to receive cash in settlement thereof. As used herein, the term
"Shares" includes shares of Nonvoting Common Stock, $0.01 par value, of United,
which are immediately convertible into Shares for no additional consideration.
Immediately following the Merger, the number of outstanding Shares was
5,998,077 (or 6,973,720 on a fully-diluted basis), of which (i) the former
holders of Associated Common Stock and warrants or options to purchase
Associated Common Stock in the aggregate owned 4,603,333 Shares constituting
approximately 76.8% of the outstanding Shares and outstanding warrants or
options for 975,643 Shares (collectively 80.0% on a fully-diluted basis) and
(ii) pre-Merger holders of Shares (other than Associated-Owned Shares and
Treasury Shares) in the aggregate owned 1,394,744 Shares constituting
approximately 23.2% of the outstanding Shares (or 20.0% on a fully-diluted
basis).
Upon consummation of the Merger, seven of the nine directors of United
serving prior thereto were replaced by nominees designated by Associated. Such
directors designated by Associated comprise the persons who were the directors
of Associated prior to the Acquisition. See "Management."
Prior to the Acquisition, Associated, through its wholly owned subsidiary,
ASI, was engaged in the wholesale distribution of a broad line of office
products. Associated and ASI were formed in January 1992 and August 1991,
respectively, by Wingate Partners.
24
<PAGE>
CAPITALIZATION
The following table sets forth the historical short-term debt and
capitalization of United as of March 31, 1995 and as adjusted as of March 31,
1995 to give pro forma effect to the issuance and subsequent exchange of Old
Notes and the application of the net proceeds therefrom to repay in full the
Bridge Loan incurred in connection with the Acquisition, assuming necessary
consents are obtained, to redeem all of the outstanding shares of Series B
Preferred Stock and to reduce outstanding amounts borrowed under the Term Loan
Facilities to the extent of the remaining net proceeds. See "Use of Proceeds."
United, which has no operations independent of those of the Company,
unconditionally guarantees the Notes on a senior subordinated basis. The table
should be read in conjunction with "Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
AT MARCH 31, 1995 AT MARCH 31, 1995
----------------- -----------------
(DOLLARS IN THOUANDS)
(UNAUDITED)
<S> <C> <C>
Current maturities of long-term debt...... $ 17,138 $ 16,618
========= =========
Long-term debt, excluding current maturi-
ties:
Revolving Credit Facility............... $ 199,708 $ 199,071
Term Loan Facilities.................... 184,000 178,020
Bridge Loan............................. 130,000 --
Senior Subordinated Notes............... -- 150,000
Other Long-Term Debt.................... 42,011 42,011
--------- ---------
Total long-term debt.................. 555,719 569,102
--------- ---------
Redeemable preferred stock:
Class A/Series A........................ 6,950 6,950
Class B/Series B........................ 6,724 --
Class C/Series C........................ 10,087 10,087
--------- ---------
Total redeemable preferred stock...... 23,761 17,037
--------- ---------
Redeemable warrants....................... 11,879 11,879
--------- ---------
Total stockholders' equity................ 45,459 45,459
--------- ---------
Total capitalization...................... $ 653,956 $ 660,095
========= =========
</TABLE>
25
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Combined Financial Statements are based
on the historical financial statements of Associated and United after giving
effect to (i) the purchase accounting and other merger related adjustments
relating to the Acquisition and (ii) the issuance and sale of the Old Notes and
the application of the net proceeds therefrom to repay in full the Bridge Loan
incurred in connection with the Acquisition and, assuming necessary consents
are obtained, to redeem all of the outstanding shares of Series B Preferred
Stock and to reduce outstanding amounts borrowed under the Term Loan Facilities
to the extent of the remaining net proceeds, all as described in Notes to Pro
Forma Combined Financial Information. The Pro Forma Balance Sheet is presented
giving effect to the issuance and sale of the Old Notes and the refinancing of
certain debt and redemption of certain preferred stock to be effected with the
proceeds thereof as if all such transactions had been consummated on December
31, 1994. The Pro Forma Combined Income Statement for the year ended December
31, 1994 is presented giving effect to (i) the Acquisition as if it had been
consummated on January 1, 1994 and (ii) the refinancing of certain debt and
redemption of certain preferred stock to be effected with the proceeds from the
Old Notes as if such refinancing and redemption had been consummated one month
after consummation of the Acquisition.
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. Accordingly, the Pro Forma Balance Sheet as of March
31, 1995 for United reflects the consolidated balances of Associated and
United, including the preliminary purchase price allocation, which may be
revised at a later date, and other Merger-related adjustments, the Pro Forma
Combined Income Statement for the year ended December 31, 1994 combines
Associated for its fiscal year ended December 31, 1994 with United for its
twelve month period ended November 30, 1994 and the Pro Forma Combined Income
Statement for the three months ended March 31, 1995 combines Associated for the
three months ended March 31, 1995 with United for the three months ended
February 28, 1995. United's historical statement of income previously reported
on a fiscal year ended August 31, 1994 has been adjusted to reflect the twelve
month period ended November 30, 1994.
The unaudited Pro Forma Combined 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
Acquisition, or of the financial position or results of operations of United
that would have actually occurred had the Acquisition occurred on the date or
been in effect for the period presented.
Pro forma interest expense included in the Pro Forma Combined Income
Statement is based on historical interest rates in effect during the year ended
December 31, 1994 and the three months ended March 31, 1995 in calculating the
basis for variable rates. Average 30-day LIBOR in effect for the year ended
December 31, 1994 ranged from 3.15% to 6.09% and for the three months ended
March 31, 1995 was 6.125%. The average prime rate during the three months ended
March 31, 1994 was 6.02%. In comparison, at March 31, 1995, the prime rate was
9.0%. If the March 31, 1995 interest rates were used as base interest rates
instead of the historical rates, pro forma interest expense for United would
amount to $56.1 million instead of $48.8 million for the year ended December
31, 1994. Each 1/8 of 1% change in the base interest rate for variable rate
debt has a $521 thousand effect on annual pro forma interest expense for
United. In April 1995, the Company entered into three-year interest rate
protection arrangements totaling $200,000,000 pursuant to which the Company (i)
is protected to the extent that the 3-month LIBOR interest rate exceeds 8.0%
and (ii) is liable to the extent that such interest rate drops below 6.0%.
The Pro Forma Combined Income Statement excludes (i) the extraordinary non-
recurring write-off 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 debt retired, (ii) a non-recurring charge for restructuring of
approximately $9.8 million ($5.9 million net of tax benefit of $3.9 million)
for costs expected to be incurred in connection with integration and transition
(e.g., severance and the cost of closing certain facilities operated by
Associated prior to the Merger) and (iii) compensation expense relating to
employee stock options of approximately $1.5 million ($0.9 million net of tax
benefit of $0.6 million). Pro forma net income available to common stockholders
and net income per common and common equivalent share exclude the charge to
retained earnings to adjust Redeemable Warrants to the put value, due to the
non-recurring nature of this charge.
The unaudited Pro Forma Combined Financial Statements and the accompanying
notes should be read in conjunction with, and are qualified in their entirety
by, the historical consolidated financial statements of United and Associated,
including the related notes thereto, included elsewhere herein.
26
<PAGE>
UNITED STATIONERS INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNITED
STATIONERS INC.
AT MARCH 31, PRO FORMA PRO
1995 ADJUSTMENTS FORMA
--------------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 21,611 $ -- $ 21,611
Accounts receivable.................... 201,056 -- 201,056
Inventories............................ 396,085 -- 396,085
Other current assets................... 25,135 -- 25,135
-------- ------ --------
Total current assets................. 643,887 -- 643,887
Property, plant and equipment............ 222,330 -- 222,330
Goodwill................................. 71,628 -- 71,628
Other assets............................. 38,104 -- 38,104
-------- ------ --------
TOTAL ASSETS............................. $975,949 $ -- $975,949
======== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $183,994 $ -- $183,994
Accrued and other current liabilities.. 102,129 (6,139)(a) 95,990
Short-term debt and current maturities
of
long-term debt........................ 17,138 (520)(b) 16,618
-------- ------ --------
Total current liabilities............ 303,261 (6,659) 296,602
Deferred income taxes.................... 31,469 -- 31,469
Other liabilities........................ 4,401 -- 4,401
Total long-term debt..................... 555,719 13,383 (b) 569,102
Total redeemable preferred stock......... 23,761 (6,724)(c) 17,037
Redeemable warrants...................... 11,879 -- 11,879
Stockholders' equity..................... 45,459 -- 45,459
-------- ------ --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $975,949 $ -- $975,949
======== ====== ========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
27
<PAGE>
ASSOCIATED HOLDINGS, INC. AND UNITED STATIONERS INC.
PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSOCIATED UNITED
HOLDINGS, INC. STATIONERS INC.
FOR THE YEAR FOR THE TWELVE
ENDED MONTHS ENDED
DECEMBER 31, NOVEMBER 30, PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS COMBINED
-------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............... $ 477,445 $1,504,625 $ -- $1,982,070
Cost of sales........... 357,276 1,181,541 (3,208)(d) 1,535,609
--------- ---------- ------- ----------
Gross profit............ 120,169 323,084 3,208 446,461
Warehouse, distribution,
selling, general and
administrative
expenses............... 103,020 284,484 (16,987)(e) 370,517
--------- ---------- ------- ----------
Income from operations.. 17,149 38,600 20,195 75,944
Interest expense, net... (6,753) (11,155) (30,917)(f) (48,825)
Other income, net....... -- 86 -- 86
--------- ---------- ------- ----------
Income before income
taxes.................. 10,396 27,531 (10,722) 27,205
Income taxes............ 3,993 10,763 (4,289)(g) 10,467
--------- ---------- ------- ----------
Net income.............. 6,403 16,768 (6,433) 16,738
Preferred Stock
dividends issued and
accrued................ 2,193 -- (566)(h) 1,627
--------- ---------- ------- ----------
Net income available to
common stockholders.... $ 4,210 $ 16,768 $(5,867) $ 15,111
========= ========== ======= ==========
Net income per common
and common equivalent
share:
Primary............... $ 3.51 $ 0.90 $ 2.21
========= ========== ==========
Fully diluted......... $ 3.49 $ 0.90 $ 2.21
========= ========== ==========
Weighted average common
and common equivalent
shares:
Primary............... 1,199,000 18,589,209 6,844,597
========= ========== ==========
Fully diluted......... 1,205,000 18,589,209 6,844,597
========= ========== ==========
OPERATING AND OTHER
DATA:
EBITDA*............... $ 23,505 $ 60,100 $25,966 $ 109,571
EBITDA margin**....... 4.9% 4.0% -- 5.5%
Depreciation and
amortization......... $ 6,356 $ 21,414 $ 5,771 $ 33,541
Capital expenditures,
net.................. 554 9,955 -- 10,509
Ratio of EBITDA to
interest expense..... 3.5x 5.3x -- 2.2x
Ratio of earnings to
fixed charges***...... 2.4x 3.0x -- 1.5x
</TABLE>
- --------
* 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.
** EBITDA margin represents EBITDA as a percentage of net sales.
*** For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges. Fixed
charges consist of interest expense, net of interest income, including
amortization of discount and financing costs and one-third of the operating
rental expense which Management believes is representative of the interest
component of rent expense.
See accompanying notes to Pro Forma Combined Financial Information.
28
<PAGE>
ASSOCIATED HOLDINGS, INC. AND UNITED STATIONERS INC.
PRO FORMA COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSOCIATED UNITED
HOLDINGS, INC. STATIONERS INC.
FOR THE FOR THE THREE
THREE MONTHS MONTHS ENDED
ENDED FEBRUARY 28, PRO FORMA PRO FORMA
MARCH 31, 1995 1995 ADJUSTMENTS COMBINED
-------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............... $ 137,272 $ 431,640 $ -- $ 568,912
Cost of sales........... 103,568 341,011 (802)(d) 443,777
--------- ---------- ------- ---------
Gross profit............ 33,704 90,629 802 125,135
Warehouse, distribution,
selling, general
and administrative
expenses............... 28,949 75,191 (5,749)(i) 98,391
Restructuring charge.... 9,759 -- (9,759)(j) --
--------- ---------- ------- ---------
Income (loss) from
operations............. (5,004) 15,438 16,310 26,744
Interest expense, net... (2,203) (3,191) (8,904)(k) (14,298)
Other income, net....... -- 20 -- 20
--------- ---------- ------- ---------
Income (loss) before
income taxes and
extraordinary item..... (7,207) 12,267 7,406 12,466
Income taxes (benefit).. (2,973) 4,905 2,962 (g) 4,894
--------- ---------- ------- ---------
Income (loss) before
extraordinary item..... (4,234) 7,362 4,444 7,572
Extraordinary item...... (1,449) -- 1,449 (l) --
--------- ---------- ------- ---------
Net income (loss)....... (5,683) 7,362 $ 5,893 7,572
Preferred Stock
dividends issued and
accrued................ 573 -- (142)(h) 431
--------- ---------- ------- ---------
Net income (loss)
available to common
stockholders $ (6,256) $ 7,362 $ 6,035 $ 7,141
========= ========== ======= =========
Net income (loss) per
common and common
equivalent share
(primary and fully
diluted):
Income (loss) before
extraordinary item.... $ (0.80) $ 0.40 $ 1.04
Extraordinary item..... (0.24) -- --
--------- ---------- ---------
Net income (loss) per
common and common
equivalent share...... $ (1.04) $ 0.40 $ 1.04
========= ========== =========
Weighted average common
and common equivalent
shares:
Primary................ 5,998,077 18,595,600 6,894,076
========= ========== =========
Fully diluted.......... 5,998,077 18,595,600 6,898,757
========= ========== =========
OPERATING AND OTHER
DATA:
EBITDA*................ $ 6,228 $ 20,855 $17,752 $ 35,076
EBITDA margin**........ 4.5% 4.8% -- 6.2%
Depreciation and
amortization.......... $ 1,473 $ 5,397 $ 1,442 $ 8,312
Capital expenditures,
net................... 182 3,062 -- $ 3,244
Ratio of EBITDA to
interest expense...... 2.8x 6.5x -- 2.5x
Ratio of earnings to
fixed charges***...... 2.0x 4.2x -- 1.8x
</TABLE>
- --------
* EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and restructuring charge and extraordinary item and is
presented because it is commonly used by certain investors and analysts to
analyze and compare companies on the basis of operating performance and to
determine a company's ability to service and incur debt. EBITDA should not
be considered in isolation from or as a substitute for net income, cash
flows from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
** EBITDA margin represents EBITDA as a percentage of net sales.
*** For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and extraordinary item plus
restructuring and fixed charges. Fixed charges consist of interest expense,
net of interest income, including amortization of discount and financing
costs and one-third of the operating rental expense which Management
believes is representative of the interest component of rent expense.
See accompanying notes to Pro Forma Combined Financial Information.
29
<PAGE>
ASSOCIATED HOLDINGS, INC. AND UNITED STATIONERS INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The Pro Forma Combined Financial Statements have been prepared giving
effect to the following:
(1) Associated acquired 92.5% of United's outstanding Shares for $15.50 per
Share, or an aggregate of approximately $266.6 million.
(2) Outstanding options to purchase United's Shares were retired for $15.50
per share less the exercise price, or an aggregate of approximately
$3.0 million.
(3) Certain pre-Merger stockholders of Associated purchased 340,158 new
shares of Associated Common Stock for $12.0 million prior to the
Merger.
(4) As a result of the Acquisition, stockholders of United whose Shares
were not acquired in the Offer hold a 20.0% ownership interest in
United after the Merger on a fully diluted basis. Chase Manhattan
Investment Holdings, Inc. ("CMIHI") received a 2.0% ownership interest
in United on a fully diluted basis and received an additional 2.0%
ownership interest shortly after the issuance of the Old Notes. The
remaining 76.0% of Shares of United on a fully diluted basis were
allocated pro rata to pre-Merger holders of Associated Common Stock and
warrants or options exercisable for Associated Common Stock. Shares of
Associated Common Stock were converted into Shares of United in the
Merger.
(5) The total purchase price for United, including the ownership interest
held by the pre-Merger stockholders of United, based on the per share
price of $15.50, plus transaction costs of $6.2 million was
approximately $294.5 million. The purchase price has been preliminarily
allocated to the net assets of United based on 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 on a preliminary basis is as follows:
<TABLE>
<S> <C>
Purchase price:
Price of United Shares purchased by Associated................ $ 266,629
Fair value of United Shares not acquired in Offer............. 21,618
Transaction costs ............................................ 6,225
---------
Total purchase price........................................ $ 294,472
=========
Allocation of purchase price on a preliminary basis:
Current assets................................................ $ 509,610
Property, plant and equipment................................. 178,005
Goodwill...................................................... 71,076
Other assets.................................................. 9,253
Liabilities assumed........................................... (473,472)
---------
Total purchase price........................................ $ 294,472
=========
</TABLE>
(6) The accrual by United on a pre-Merger basis of severance payments to be
made to United's management personnel under existing employment
contracts is assumed to have totaled $17.9 million. The non-recurring
charge to net income recorded by United on a pre-Merger basis (i.e., in
the period immediately preceding the period covered by the Pro Forma
Combined Income Statement) for severance payments, the retirement of
outstanding options to purchase Shares of United, transaction related
costs incurred by United, fees for letters of credit related to
severance payments, and prepayment penalties related to certain debt of
United is assumed to have totaled $17.1 million, net of the tax
benefit.
30
<PAGE>
ASSOCIATED HOLDINGS, INC. AND UNITED STATIONERS INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(UNAUDITED)
(7) For purposes of determining the put value of Lender Warrants
("Redeemable Warrants") and the value of employee stock options
("Options"), the quoted market price of Shares of United at the date of
the Acquisition is assumed to have been $15.50 per share.
(8) The net proceeds from the offering of Old Notes are assumed to have
been used to refinance the Subordinated Bridge Facility in full and to
reduce outstanding amounts under the Term Loan Facilities. On the
assumption that necessary consents are obtained, the remaining net
proceeds are assumed to have been used to redeem all outstanding shares
of Series B Preferred Stock.
(9) Pro forma interest expense has been calculated based upon pro forma
debt levels and the applicable interest rates. The Subordinated Bridge
Facility, which carries a variable interest rate based on the prime
rate, is assumed to be outstanding for one month after the consummation
of the Merger. Pro forma interest expense on the Subordinated Bridge
Facility was calculated using an average prime rate of 6.0%. One month
after the closing date, the Subordinated Bridge Facility is assumed to
have been refinanced with a portion of the proceeds from the Old Notes
carrying an assumed fixed interest rate of 12.75%. For the Term Loan
Facilities and the Revolving Credit Facility, pro forma interest
expense was calculated on a monthly basis using as a base interest rate
the average historical 30-day LIBOR in effect for the month. Average
monthly LIBOR in effect for the year ended December 31, 1994 ranged
from 3.15% to 6.09% and for the three months ended March 31, 1995 was
6.125%. Using 30-day LIBOR and the prime rate each as of March 31, 1995
(6.125% and 9.0%, respectively) as the base interest rates would
increase pro forma interest expense by $7.3 million for the year ended
December 31, 1994. Each 1/8 of 1% change in the base interest rate for
variable rate debt has a $521 thousand effect on annual pro forma
interest expense.
(10) Estimated cost savings of $26 million that the Company expects to
realize from the actions that Management has committed to undertake
pursuant to its consolidation plan that has been approved by the Board
of Directors of the Company have been reflected in the Pro Forma
Combined Income Statement as if the Company's consolidation plan had
been implemented in full as of January 1, 1994. The Company plans to
implement its consolidation plan over a 12-month period following the
Acquisition. See footnotes (d), (e) and (i) below. See "Business --
Consolidation Plan and Benefits of the Acquisition" and "Risk
Factors -- Consolidation Plan."
(11) Income taxes have been provided for all adjustments at an assumed rate
of 40.0%.
(12) In computing per share information, dividends on preferred stock are
assumed to have been paid in preferred shares at the rate of 13.0% per
annum for Series A Preferred Stock and 10.0% per annum for Series B
and Series C Preferred Stock. Series B Preferred Stock is assumed to
have been outstanding for only one month. The preferred stock
dividends reduce the net income available to common stockholders by
$1.6 million for the year ended December 31, 1994 and $0.4 million for
the three months ended March 31, 1995.
31
<PAGE>
ASSOCIATED HOLDINGS, INC. AND UNITED STATIONERS INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(UNAUDITED)
Pro forma adjustments have been made to the Pro Forma Balance Sheet to
reflect the following (in thousands):
(a) Reflects payment of accrued interest on debt retired and financing
costs related to the offering of the Old Notes.
<TABLE>
<S> <C>
Accrued interest................................................... $1,639
Offering costs..................................................... 4,500
------
$6,139
======
</TABLE>
(b) Reflects retirement of historical debt and issuance of new debt in
connection with the Old Notes Offering and exchange of the Notes for Old
Notes.
<TABLE>
<S> <C>
Current maturities of long-term debt retired with a portion
of the proceeds from the Old Notes offering................. $ (520)
=========
Debt retired with proceeds from the Old Notes offering....... $(136,617)
Issuance and subsequent exchange of Old Notes................ 150,000
---------
Adjustments to long-term debt.............................. $ 13,383
=========
</TABLE>
(c) Reflects redemption of Series B Preferred Stock (assuming necessary
consents are obtained).
Pro forma adjustments have been made to the Pro Forma Combined Income
Statement to reflect the following (in thousands):
(d) Reflects estimated cost savings due to an increase in credits
received from vendors as a result of increased purchase volumes with such
vendors.
(e) Reflects (i) estimated cost savings as a result of actions that
United expects to undertake pursuant to a plan that has been approved by
the Board of Directors of the Company and (ii) incremental depreciation and
amortization. United's plan to achieve the cost savings includes
eliminating eight redundant distribution centers, reducing corporate
overhead and eliminating redundant sales representatives. The Company is
committed to effect this plan within one year of the acquisition. See "Risk
Factors -- Implementation of Consolidation Plan."
<TABLE>
<S> <C>
Decrease in selling expenses due to reductions in combined
sales force................................................... $ (3,840)
Decrease in warehouse and distribution expenses due to closing
of duplicate facilities....................................... (8,873)
Decrease in general and administrative expenses due to
elimination of duplicate corporate overhead................... (10,045)
--------
Aggregate decrease in expenses................................. (22,758)
Incremental amortization of goodwill........................... 662
Incremental depreciation of plant, property and equipment...... 5,109
--------
$(16,987)
========
</TABLE>
32
<PAGE>
ASSOCIATED HOLDINGS, INC. AND UNITED STATIONERS INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONCLUDED)
(UNAUDITED)
(f) Adjusts interest expense for the following:
<TABLE>
<S> <C>
Incremental interest expense on debt........................... $(28,737)
Amortization of financing costs and original issue discount
relating to retired debt...................................... 1,277
Amortization of financing costs................................ (2,593)
Accretion of interest on liability recorded relating to
severance payments to be made to United's management personnel
under existing employment contracts........................... (864)
--------
$(30,917)
========
</TABLE>
(g) Reflects income tax effect of the pro forma adjustments.
(h) Reflects adjustment of preferred stock dividends to reflect
retirement of Series B Preferred Stock.
(i) Reflects (i) estimated cost savings as a result of actions that
United expects to undertake pursuant to a plan that has been approved by
the Board of Directors of the Company, (ii) incremental depreciation and
amortization. United's plan to achieve the cost savings includes
eliminating eight redundant distribution centers, reducing corporate
overhead and eliminating redundant sales representatives and (iii)
elimination of the effect of compensation expense relating to employee
stock options. The Company is committed to effect this plan within one year
of the acquisition. See "Risk Factors -- Implementation of Consolidation
Plan."
<TABLE>
<S> <C>
Decrease in selling expenses due to reductions in combined sales
force.......................................................... $ (960)
Decrease in warehouse and distribution expenses due to closing
of duplicate facilities........................................ (2,218)
Decrease in general and administrative expenses due to
elimination of duplicate corporate overhead.................... (2,511)
-------
Aggregate decrease in expenses.................................. (5,689)
Incremental amortization of goodwill............................ 165
Incremental depreciation of plant, property and equipment....... 1,277
Compensation expense related to employee stock options.......... (1,502)
-------
$(5,749)
=======
</TABLE>
(j) Eliminates effect of a non-recurring charge for restructuring costs
expected to be incurred in connection with integration and transition
(e.g., severance and the cost of closing certain facilities operated by
Associated prior to the Merger).
(k) Adjusts interest expense for the following:
<TABLE>
<S> <C>
Incremental interest expense on debt............................ $(8,359)
Amortization of financing costs and original issue discount
relating to retired debt....................................... 319
Amortization of financing costs................................. (648)
Accretion of interest on liability recorded relating to
severance payments to be made to United's management personnel
under existing employment contracts............................ (216)
-------
$(8,904)
=======
</TABLE>
(l) Eliminates effect of the non-recurring write-off of financing costs
and original issue discount relating to debt which was retired.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below and on the next page is selected historical financial
information for United and Associated. United, which has no operations
independent of the Company, unconditionally guarantees the Notes on a senior
subordinated basis. Associated had no operations independent of those of ASI.
UNITED -- HISTORICAL
The selected consolidated financial information of United set forth below for
each of the fiscal years in the five-year period ended August 31, 1994 has been
derived from the financial statements of United, which have been audited by
Arthur Andersen LLP, independent public accountants. The summary financial
information for the six-month periods ended February 28, 1994 and 1995 is
unaudited and in the opinion of Management reflects all adjustments considered
necessary for a fair presentation of such data. The results of operations for
any interim period are not necessarily indicative of results of operations for
the fiscal year and should be read in conjunction with, and is qualified in its
entirety by, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Historical Results of Operations of United" and "--
Historical Liquidity and Capital Resources of United" and the financial
statements of United included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED AUGUST 31, FEBRUARY 28,
------------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- ---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $993,178 $951,109 $1,094,275 $1,470,115 $1,473,024 $740,585 $833,838
Cost of sales........... 768,948 732,401 848,588 1,125,596 1,150,123 573,251 658,252
-------- -------- ---------- ---------- ---------- -------- --------
Gross profit on sales.. 224,230 218,708 245,687 344,519 322,901 167,334 175,586
Operating expenses...... 195,863 195,694 219,285 298,405 286,607 145,739 145,469
-------- -------- ---------- ---------- ---------- -------- --------
Income from operations. 28,367 23,014 26,402 46,114 36,294 21,595 30,117
Interest expense, net... 7,350 6,082 6,503 9,550 10,461 4,984 6,226
Other income (expense),
net.................... 344 (14) 364 355 225 86 62
-------- -------- ---------- ---------- ---------- -------- --------
Income before income
taxes................. 21,361 16,918 20,263 36,919 26,058 16,697 23,953
Income taxes............ 8,523 7,008 8,899 15,559 10,309 6,929 9,648
-------- -------- ---------- ---------- ---------- -------- --------
Net income............. $ 12,838 $ 9,910 $ 11,364 $ 21,360 $ 15,749 $ 9,768 $ 14,305
======== ======== ========== ========== ========== ======== ========
Net income per common
share.................. $ 0.83 $ 0.64 $ 0.71 $ 1.15 $ 0.85 $ 0.53 $ 0.77
Cash dividends declared
per share.............. 0.40 0.40 0.40 0.40 0.40 0.20 0.20
OPERATING AND OTHER
DATA:
EBITDA (1).............. $ 43,851 $ 41,912 $ 46,645 $ 67,712 $ 57,755 $ 32,089 $ 40,949
EBITDA margin (2)....... 4.4% 4.4% 4.3% 4.6% 3.9% 4.3% 4.9%
Depreciation and
amortization........... $ 15,140 $ 18,912 $ 19,879 $ 21,243 $ 21,236 $ 10,408 $ 10,770
Net capital
expenditures........... 15,067 15,765 8,291 29,958 10,499 3,312 4,812
Ratio of earnings to
fixed charges (3)...... 3.5x 3.3x 3.4x 4.0x 3.0x 3.6x 4.2x
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $134,420 $135,347 $ 214,611 $ 216,074 $ 239,827 $287,308 $262,725
Total assets............ 401,661 409,958 601,465 634,786 618,550 655,029 700,235
Total debt and capital
leases(4).............. 73,683 73,123 150,728 150,251 155,803 209,955 198,485
Stockholders'
investment............. 177,777 181,584 223,387 237,697 246,010 243,831 256,541
</TABLE>
- --------
(1) 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.
(2) EBITDA margin represents EBITDA as a percentage of net sales.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges. Fixed
charges consist of interest expense, net, including amortization of
discount and financing costs and one-third of the operating rental expense
which Management believes is representative of the interest component of
rent expense.
(4) Total Debt and Capital Leases is defined as long-term debt including
current maturities but excluding original issue discount.
34
<PAGE>
ASSOCIATED -- HISTORICAL
The selected consolidated financial information of Associated set forth
below with respect to the years ended December 31, 1994 and 1993 and the
period from January 31, 1992 (when certain of the assets and certain
liabilities of ASI were acquired (the "Boise Transaction") from the Wholesale
Division of Boise Cascade Office Products Corporation ("BCOP")) through
December 31, 1992 has been derived from and should be read in conjunction
with, and is qualified in its entirety by, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Historical
Results of Operations of Associated" and "-- Historical Liquidity and Capital
Resources of Associated" and the financial statements of Associated included
elsewhere in this Prospectus, which have been audited by Arthur Andersen LLP,
independent public accountants. The data at and for the years ended December
31, 1990 and 1991 and the one month ended January 31, 1992 are derived from
the unaudited financial statements of BCOP for such periods. Associated has
accounted for the Boise Transaction using the purchase method of accounting.
There are material operational and accounting differences between BCOP and
Associated resulting from the Boise Transaction. Accordingly, the historical
financial data of BCOP may not be comparable in all material respects with
data of Associated. The data at and for the three months ended March 31, 1994
and 1995 are unaudited and in the opinion of Management reflect all
adjustments considered necessary for a fair presentation of such data. On
March 30, 1995, Associated was merged with 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 data for the three months ended March 31, 1994 and
1995 reflect the financial information of Associated only. The data at March
31, 1995 reflect the consolidated balances of Associated and United. The data
at March 31, 1994 reflect Associated only.
<TABLE>
<CAPTION>
PREDECESSOR(1)(2) ASSOCIATED
------------------------------- ---------------------------------------------------
JANUARY 1 JANUARY 31
YEAR ENDED TO TO YEAR ENDED THREE MONTHS
DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------------ ----------- ------------ ------------------ ------------------
1990(3) 1991(4) 1992(5) 1992 1993 1994 1994 1995
-------- -------- ----------- ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT (DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA) PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $443,547 $411,343 $39,016 $365,944 $462,531 $477,445 $123,850 $137,272
Cost of goods sold...... 331,223 308,090 29,874 276,546 350,251 357,276 94,162 103,568
-------- -------- ------- -------- -------- -------- -------- --------
Gross profit........... 112,324 103,253 9,142 89,398 112,280 120,169 29,688 33,704
Operating expenses(6)... 90,773 88,374 7,723 79,889 102,274 103,020 26,752 38,708
-------- -------- ------- -------- -------- -------- -------- --------
Income (loss) from
operations............ $ 21,551 $ 14,879 $ 1,419 9,509 10,006 17,149 2,936 (5,004)
======== ======== =======
Interest expense........ -- -- -- 4,782 6,263 6,753 1,732 2,203
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item.... -- -- -- 4,727 3,743 10,396 1,204 (7,207)
Income taxes (benefit).. -- -- -- 1,777 781 3,993 462 (2,973)
-------- -------- -------- -------- --------
Income (loss) before ex-
traordinary item....... -- -- -- 2,950 2,962 6,403 742 (4,234)
Extraordinary item...... -- -- -- -- -- -- -- (1,449)
-------- -------- -------- -------- --------
Net income (loss)...... -- -- -- $ 2,950 $ 2,962 $ 6,403 $ 742 $ (5,683)
======== ======== ======== ======== ========
Fully diluted earnings
per common share....... -- -- -- $ 1.32 $ 0.78 $ 3.51 $ 0.05 $ (1.04)
Cash dividends declared
per share.............. -- -- -- -- -- -- -- --
OPERATING AND OTHER
DATA:
EBITDA (7).............. $ 24,511 $ 18,028 $ 1,661 $ 14,875 $ 16,481 $ 23,505 $ 4,525 $ 6,228
EBITDA margin (8)....... 5.5% 4.4% 4.3% 4.1% 3.6% 4.9% 3.7% 4.5%
Depreciation and
amortization........... $ 2,960 $ 3,149 $ 242 $5,366 $6,475 $6,356 $ 1,589 $ 1,473
Capital expenditures,
net.................... 8,129 273 (36) 4,289 3,273 554 242 182
Ratio of earnings to
fixed charges (9)...... -- -- -- 1.89x 1.52x 2.35x 1.61x 2.0x
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1) ASSOCIATED
----------------- --------------------------------------------
AT DECEMBER 31, AT MARCH 31,
-------------------------------------------- -----------------
1990(3) 1991(4) 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 60,726 $ 54,373 $ 46,396 $ 57,302 $ 56,454 $ 56,878 $340,626
Total assets............ 151,432 140,756 179,069 190,979 192,479 172,250 975,949
Total debt and capital
leases (10)............ -- -- 78,297 86,350 64,623 70,523 572,857
Redeemable preferred
stock.................. -- -- 18,949 20,996 23,189 21,530 23,761
Redeemable warrants..... -- -- 1,435 1,435 1,650 1,667 11,879
Total stockholders' or
predecessor division
equity................. 102,871 93,642 10,466 11,422 24,775 20,611 45,459
</TABLE>
- -------
(1) The capital structure and accounting basis of the assets and liabilities
of the predecessor of ASI, BCOP, differ from those of Associated and ASI.
Accordingly, certain of the financial information for periods before
January 31, 1992 is not comparable to that for periods after January 31,
1992 and therefore is not presented in this table.
(2) The Predecessor operated as a segment of BCOP. BCOP did not allocate
income tax or interest expense to the Predecessor. Accordingly, actual
operating results for the Predecessor reflect only income from operations
before interest expense and income taxes.
(3) Derived from the unaudited financial statements of BCOP at and for the
year ended December 31, 1990.
(4) Derived from the unaudited financial statements of BCOP at and for the
year ended December 31, 1991.
35
<PAGE>
(5) Derived from the unaudited financial statements of BCOP for the one month
ended January 31, 1992.
(6) Includes restructuring charge of $9.8 million for the three months ended
March 31, 1995.
(7) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and restructuring charge and extraordinary item, and is
presented because it is commonly used by certain investors and analysts to
analyze and compare companies on the basis of operating performance and to
determine a company's ability to service and incur debt. EBITDA should not
be considered in isolation from or as a substitute for net income, cash
flows from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(8) EBITDA margin represents EBITDA as a percentage of net sales.
(9) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and extraordinary item plus
restructuring and fixed charges. Fixed charges consist of interest
expense, net, including amortization of discount and financing costs and
one-third of the operating rental expense which management believes is
representative of the interest component of rent expense.
(10) Total debt and capital leases is defined as long-term debt including
current maturities but excluding original issue discount, plus deferred
obligations due to the holder of the Associated Class B redeemable
preferred stock.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except as otherwise indicated, the following discussion and analysis of the
results of operations and financial condition of United and Associated covers
periods before completion of the Acquisition. Accordingly, the discussion and
analysis of such periods does not reflect the significant impact that the
Acquisition and the financing thereof will have on United after the Merger. See
"Pro Forma Combined Financial Information" and "Business -- Consolidation Plan
and Benefits of the Acquisition." United, which has no operations independent
of those of the Company, unconditionally guarantees the Notes on a senior
subordinated basis. Associated had no operations independent of those of ASI.
HISTORICAL RESULTS OF OPERATIONS OF UNITED
General
The Company was incorporated in 1922 under the name Utility Supply Co. and
has operated under its present name since 1960. As part of the Company's
business strategy, United acquired SDC in June 1992 in order to increase its
share of the office products wholesale market. On March 30, 1995, Associated
and United consummated the Acquisition.
United's results of operations, expressed as the percentage which each line
item represents of total net sales, for each of its fiscal years 1992, 1993 and
1994 and the six-month periods ended February 28, 1994 and 1995, are set forth
below:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
YEAR ENDED ENDED
AUGUST 31, FEBRUARY 28,
------------------- --------------
1992 1993 1994 1994 1995
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
NET SALES................................. 100.0% 100.0% 100.0% 100.0% 100.0%
COST OF SALES............................. 77.5 76.6 78.1 77.4 78.9
----- ----- ----- ------ ------
Gross Profit on Sales.................... 22.5 23.4 21.9 22.6 21.1
OPERATING EXPENSES:
Warehousing, Marketing and Administrative
Expenses................................ 19.5 20.3 19.4 19.7 17.5
Restructuring Charge..................... 0.6 -- -- -- --
----- ----- ----- ------ ------
Income from Operations................... 2.4 3.1 2.5 2.9 3.6
OTHER INCOME (EXPENSES)
Interest Expense......................... (0.6) (0.6) (0.7) (0.7) (0.7)
Interest Income.......................... -- -- -- -- --
Other, Net............................... -- -- -- -- --
----- ----- ----- ------ ------
Income Before Income taxes............... 1.8 2.5 1.8 2.2 2.9
INCOME TAXES.............................. 0.8 1.0 0.7 0.9 1.2
----- ----- ----- ------ ------
Net Income............................... 1.0% 1.5% 1.1% 1.3% 1.7%
===== ===== ===== ====== ======
</TABLE>
Comparison of the Six Months Ended February 28, 1995 and 1994
Net Sales. Net sales increased to $833.8 million in the first six months of
fiscal 1995 from $740.6 million in the first six months of fiscal 1994, a 12.6%
increase. This increase reflects growth in all geographic areas.
Gross Profit on Sales. Gross profit on sales increased to $175.6 million in
the first six months of fiscal 1995 from $167.3 million in the first six months
of fiscal 1994, a 4.9% increase, due to growth in sales offset in part by a
decrease in gross margin. Gross profit as a percent of net sales decreased to
21.1% in the first six months of fiscal 1995 from 22.6% in the first six months
of fiscal 1994. The decrease reflects a shift in the sale of products to items
that have lower gross margins such as computer-related products and products
offered through special promotions. The margin in the first six months of
fiscal 1995 is consistent with the margin achieved in the latter half of fiscal
1994. The higher
37
<PAGE>
rebates and allowances that affected gross profits in the first half of fiscal
1994 had become relatively stable during this period. United does not currently
expect rebates and allowances will have a material negative impact in the
foreseeable future.
Operating Expenses. Operating expenses as a percent of net sales decreased to
17.5% in the first six months of fiscal 1995 from 19.7% in the first six months
of fiscal 1994. The decrease is the result of streamlining United's work
processes and reducing payroll and freight expense.
Income From Operations. Income from operations increased to $30.1 million in
the first six months of fiscal 1995 from $21.6 million in the first six months
of fiscal 1994, a 39.5% increase. Income from operations as a percent of net
sales increased to 3.6% in the first six months of fiscal 1995 from 2.9% in the
first six months of fiscal 1994 for the reasons stated above.
Income Before Income Taxes. Income before income taxes increased to $24.0
million in the first six months of fiscal 1995 from $16.7 million in the first
six months of fiscal 1994, a 43.5% increase. Income before income taxes as a
percent of net sales increased to 2.9% in the first six months of fiscal 1995
from 2.2% in the first six months of fiscal 1994.
Net Income. Net income increased to $14.3 million in the first six months of
fiscal 1995 from $9.8 million in the first six months of fiscal 1994, an
increase of $4.5 million or 46.4%. Net income as a percentage of net sales
increased to 1.7% in the first six months of fiscal 1995 from 1.3% in the first
six months of fiscal 1994 for the reasons stated above.
Comparison of the Fiscal Years Ended August 31, 1994 and 1993
Net Sales. Net sales increased to $1,473.0 million in fiscal 1994 from
$1,470.1 million in fiscal 1993, a 0.2% increase reflecting a slight increase
in unit volume. Sales in the early part of fiscal 1994 were affected by a
temporary drop in in-stock service levels and the discontinuing of nearly
12,000 items as a final step in the consolidation process of the June 1992
acquisition of SDC. Sales were also negatively impacted by the SDC acquisition-
related operational disruptions in the west and southwest regions. Sales grew
in the fourth quarter by 3.4%, reversing the decline experienced in the prior
two quarters.
Gross Profit on Sales. Gross profit on sales decreased to $322.9 million in
fiscal 1994 from $344.5 million in fiscal 1993, a 6.3% decrease, due
principally to a decrease in gross margin. Gross margin decreased to 21.9% in
fiscal 1994 from 23.4% in fiscal 1993. The decline primarily reflects higher
levels of rebates and volume allowances earned by United's customers as a
result of ongoing consolidations. Gross margins over the last half of fiscal
1994 have been relatively stable reflecting the slowing pace of dealer
consolidations. In addition, gross margin was affected by a LIFO charge (an
increase to "cost of sales") of $2.2 million in fiscal 1994 versus LIFO income
(a decrease to "cost of sales") of $4.7 million in fiscal 1993, and a shift in
the sale of products to items that have lower gross margins.
Operating Expenses. Operating expenses decreased to $286.6 million in fiscal
1994 from $298.4 million in fiscal 1993, a 4.0% decrease. Operating expenses as
a percentage of net sales decreased to 19.4% in fiscal 1994 from 20.3% in
fiscal 1993. The decrease is the result of streamlining United's work processes
and reducing payroll and freight expense.
Income From Operations. Income from operations decreased to $36.3 million in
fiscal 1994 from $46.1 million in fiscal 1993, a 21.3% decrease, and as a
percentage of net sales was 2.5% in fiscal 1994, compared with 3.1% in fiscal
1993, for the reasons stated above.
Interest Expense. Interest expense increased to $10.7 million in fiscal 1994
from $9.8 million in fiscal 1993, an 8.9% increase, primarily due to additional
debt incurred to support working capital and other capital expenditures.
38
<PAGE>
Income Before Income Taxes. Income before income taxes decreased to $26.1
million in fiscal 1994 from $36.9 million in fiscal 1993, a 29.4% decrease, for
the reasons stated above.
Certain interim expense and inventory estimates are recognized throughout the
fiscal year relating to shrinkage, inflation and product mix. The results of
the year-end close and physical inventory reflected a favorable adjustment with
respect to such estimates, resulting in approximately $0.5 million of
additional net income, which is reflected in the fourth quarter of fiscal 1994.
Income Taxes. Income taxes decreased to $10.3 million in fiscal 1994 from
$15.6 million in fiscal 1993, a $5.3 million decrease. The effective tax rates
for 1994 and 1993 were 39.6% and 42.1%, respectively. The decrease is primarily
due to the liquidation of a foreign subsidiary and a decrease in the effective
state income tax rate, offset by an increase in the non-deductible losses in
United's foreign operation and the non-deductible amortization of goodwill.
Net Income. Net income decreased to $15.7 million in 1994 from $21.4 million
in 1993, a decrease of $5.7 million, or 26.3%. Net income as a percentage of
net sales decreased to 1.1% in 1994 from 1.5% in 1993 for the reasons stated
above.
Comparison of the Fiscal Years Ended August 31, 1993 and 1992
Net Sales. Net sales increased to $1,470.1 million in fiscal 1993 from
$1,094.3 million in fiscal 1992, a 34.3% increase. This increase was due to an
increase in sales volume substantially attributable to the June 1992
acquisition of SDC.
Gross Profit on Sales. Gross profit on sales increased to $344.5 million in
fiscal 1993 from $245.7 million in fiscal 1992, a 40.2% increase, due to an
increase in sales and gross margin. Gross margin increased to 23.4% in fiscal
1993 from 22.5% in fiscal 1992, caused by LIFO income (a decrease to "cost of
sales") of $4.7 million in fiscal 1993 versus a LIFO charge (an increase to
"cost of sales") of $2.7 million in fiscal 1992 and a favorable product mix.
Operating Expenses. Operating expenses increased to $298.4 million in fiscal
1993 from $219.3 million in fiscal 1992, a 36.1% increase. Operating expenses
as a percentage of net sales increased to 20.3% in fiscal 1993 from 20.1% in
fiscal 1992. This increase was the result of higher expense levels associated
with offering a free-freight marketing program to customers and costs related
to temporarily managing the separate product offerings of United and SDC. In
addition, United incurred delays in its SDC acquisition-related facilities
consolidations, which resulted in additional expenses. Operating expenses for
1992 include a $5.9 million pre-tax restructuring charge related to severance
payments and the closing of certain United facilities associated with the
acquisition of SDC.
Income From Operations. Income from operations increased to $46.1 million in
fiscal 1993 from $26.4 million in fiscal 1992, a 74.7% increase, and as a
percentage of net sales was 3.1% in fiscal 1993, compared with 2.4% in fiscal
1992, for the reasons stated above.
Interest Expense. Interest expense increased to $9.8 million in fiscal 1993
from $7.0 in fiscal 1992, a 41.1% increase, primarily due to the full-year
impact of the additional debt incurred in connection with the acquisition of
SDC and the debt required to meet working capital and other capital expenditure
needs.
Income Before Income Taxes. Income before income taxes increased to $36.9
million in fiscal 1993 from $20.3 million in fiscal 1992, an 82.2% increase,
for the reasons stated above.
Certain interim expense and inventory estimates are recognized throughout the
fiscal year relating to shrinkage, inflation and product mix. The results of
the year-end close and physical inventory
39
<PAGE>
reflected a favorable adjustment with respect to such estimates, resulting in
approximately $2.6 million of additional net income, which is reflected in the
fourth quarter of fiscal 1993.
Income Taxes. Income taxes increased to $15.6 million in fiscal 1993 from
$8.9 million in fiscal 1992, a $6.7 million increase. The effective tax rates
for the fiscal years ending August 31, 1993 and August 31, 1992 were 42.1% and
43.9%, respectively. The decrease is primarily due to a decline in the non-
deductible losses in United's foreign operation and a decrease in the effective
state tax rate, offset by an increase in the federal tax rate.
Net Income. Net income increased to $21.4 million in 1993 from $11.4 million
in 1992, an increase of $10.0 million, or 88.0%. Net income as a percentage of
net sales increased to 1.5% in 1993 from 1.0% in 1992 for the reasons stated
above.
HISTORICAL RESULTS OF OPERATIONS OF ASSOCIATED
General
Associated was formed by an investor group led by Wingate Partners in 1992 to
effect the Boise Transaction, in which Associated purchased the wholesale
office products operations of BCOP for approximately $87.1 million. The Boise
Transaction was consummated through a combination of bank debt and equity
financing.
As part of Associated's strategy to increase sales, management has worked to
expand Associated's geographical presence in order to increase market share. In
1992, Associated acquired Lynn-Edwards, a regional west coast office products
wholesaler, for approximately $2.4 million, plus assumed liabilities of
approximately $7.2 million. The Lynn-Edwards Acquisition added two distribution
facilities. Associated also opened two new distribution facilities in 1992 and
1993 in the Chicago and Baltimore metropolitan markets, respectively. On March
30, 1995, Associated and United consummated the Acquisition.
Associated's results of operations, expressed as the percentage which each
line item represents of total net sales, for each of the periods ended December
31, 1992, 1993 and 1994 and the three months ended March 31, 1994 and 1995, are
set forth below:
<TABLE>
<CAPTION>
11 MONTHS
FROM YEAR ENDED THREE MONTHS
INCEPTION DECEMBER ENDED
THROUGH 31, MARCH 31,
DECEMBER 31, ------------ --------------
1992 1993 1994 1994 1995
------------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
NET SALES.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
COST OF GOODS SOLD................. 75.6 75.7 74.8 76.0 75.5
----- ----- ----- ------ ------
Gross profit..................... 24.4 24.3 25.2 24.0 24.5
OPERATING EXPENSES:
Warehouse and distribution
expenses......................... 16.5 17.0 16.3 16.7 15.3
Selling, general and
administrative expenses.......... 5.3 5.1 5.3 4.9 5.8
Restructuring charge.............. -- -- -- -- 7.1
----- ----- ----- ------ ------
Income (loss) from operations.... 2.6 2.2 3.6 2.4 (3.7)
INTEREST EXPENSE................... 1.3 1.4 1.4 1.4 1.6
----- ----- ----- ------ ------
Income (loss) before income taxes
and extraordinary item.......... 1.3 0.8 2.2 1.0 (5.3)
INCOME TAXES (BENEFIT)............. 0.5 0.2 0.9 0.4 (2.2)
Extraordinary item............... -- -- -- -- (1.0)
----- ----- ----- ------ ------
Net income (loss)................ 0.8% 0.6% 1.3% 0.6% (4.1)%
===== ===== ===== ====== ======
</TABLE>
Comparison of the Three Months Ended March 31, 1995 and 1994
Net Sales. Net sales were $137.3 million for the first quarter of 1995, a
10.8% increase over net sales of $123.9 million in the comparable period in
1994. The sales growth reflects increased unit volume.
40
<PAGE>
Gross Profit. Gross profit as a percent of net sales increased to 24.6% in
the first quarter of 1995 from 24.0% in the first quarter of 1994. The increase
reflects higher levels of vendor volume allowances and increased forward-buying
efforts in anticipation of future price increases. The increase was partially
offset by a higher level of volume allowances earned by Associated's customers.
Operating Expenses. Operating expenses as a percent of net sales increased to
28.2% in the first quarter of 1995 from 21.6% in the first quarter of 1994. The
increase includes a $9.8 million Merger related restructuring charge in 1995.
The decrease in operating expenses as a percent of net sales before the
restructuring charge is primarily due to improved productivity and higher sales
volume, partially offset by merger related compensation expense relating to the
redemption of employee stock options of approximately $1.5 million ($0.9
million net of tax benefit). Operating expenses in the first quarter of 1995 as
a percent of net sales before the restructuring charge and the compensation
expense relating to the redemption of stock options were 20.0%.
Income (Loss) from Operations. Income (loss) from operations as a percent of
net sales was a negative 3.6% in the first quarter of 1995 (a positive 3.5%
before the restructuring charge) compared with a positive 2.4% in the first
quarter of 1994.
Interest Expense. Interest expense increased to $2.2 million in the first
quarter of 1995 from $1.7 million in 1994. The increase is primarily due to
higher interest rates.
Income (Loss) Before Income Taxes. Income (loss) before income taxes as a
percent of net sales was a negative 5.3% in the first quarter of 1995 compared
to a positive 1.0% in the first quarter of 1994. Net income (loss) before
extraordinary items and preferred stock dividends was a negative $4.2 million
(net income of $1.5 million before the restructuring charge) in the first
quarter of 1995 compared to a positive $0.7 million in the first quarter of
1994. An extraordinary item, the loss on early retirement of debt related to
the Merger of $2.4 million ($1.4 million after tax benefit), was recognized in
the first quarter of 1995. The net income (loss) attributable to common stock
after the extraordinary item was a negative $6.3 million (net loss of $0.5
million before the restructuring charge) in the first quarter of 1995 compared
to a positive $0.2 million in the first quarter of 1994.
Comparison of the Years Ended December 31, 1994 and 1993
Net Sales. Net sales increased to $477.4 million in 1994 from $462.5 million
in 1993, a 3.2% increase, primarily as a result of inclusion in 1994 of the
full year of sales from Associated's new Baltimore distribution facility and
increased unit sales volume to existing Associated customers as, in
management's estimation, Associated's customers channeled more of their
purchasing through Associated with the goal of reducing their internal
inventory levels.
Gross Profit. Gross profit increased to $120.2 million in 1994 from $112.3
million in 1993, a 7.0% increase, primarily due to increased unit volume as
well as Associated's lower net cost of goods, as a percentage of sales,
resulting from increased allowances granted to Associated by its suppliers.
Management of Associated believes improvement in vendor allowances was due to
competition among Associated's vendors that resulted in increased purchasing
leverage. The increase in gross profit also resulted in part from Associated's
increased forward-buying efforts, as management better identified and utilized
product pricing opportunities available in the marketplace. Gross profit
increases were partially offset by increased allowances extended by Associated
to its customers in response to increased competition.
41
<PAGE>
Warehouse and Distribution Expenses. Warehouse and distribution expenses
decreased to $77.9 million in 1994 from $78.5 million in 1993, a 0.8% decrease,
due to management's increased emphasis on improved productivity through
manpower planning programs including (i) staggered work hours, (ii) personnel
redeployment and (iii) operational analysis. An additional contributor to this
decrease was the reduction in delivery costs, as a percentage of net sales,
through the continued evaluation and refinement of delivery routes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $25.2 million in 1994 from $23.8 million
in 1993, a 5.8% increase, mostly attributable to lump-sum incentive awards
earned in 1994 by employees and management based on Associated's increased
level of profitability.
Income From Operations. Income from operations increased to $17.1 million in
1994 from $10.0 million in 1993, a 71.4% increase, and as a percentage of net
sales was 3.6% in 1994, compared with 2.2% in 1993, for the reasons stated
above.
Interest Expense. Interest expense increased to $6.8 million in 1994 from
$6.3 million in 1993, a 7.8% increase, as a result of an increase in the
weighted average interest rate on the Old Associated Revolver (as hereinafter
defined) in effect during the year from 7.75% in 1993 to 8.90% in 1994, which
was offset in part by a reduction in average revolving debt balances to $39.6
million in 1994 from $46.9 million in 1993.
Income Before Income Taxes. Income before income taxes increased to $10.4
million in 1994 from $3.7 million in 1993, a 177.7% increase, for the reasons
stated above.
Income Taxes. Income taxes increased to $4.0 million in 1994 from $0.8
million in 1993, a $3.2 million increase. The effective tax rates for 1994 and
1993 were 38.4% and 20.9%, respectively. The increase in rate was due primarily
to the effect of the change in the amount of tax valuation allowances.
Net Income. Net income increased to $6.4 million in 1994 from $3.0 million in
1993, an increase of $3.4 million, or 116.2%. Net income as a percentage of net
sales increased to 1.3% in 1994 from 0.6% in 1993 for the reasons stated above.
Comparison of Year Ended December 31, 1993
and the Eleven Month Period From Inception Through December 31, 1992
Net Sales. Net sales increased to $462.5 million in 1993 from $365.9 million
for the eleven month period ended December 31, 1992. This increase was due to
the inclusion of a full year of Associated operations in 1993, an increase in
sales volume attributable to the October 1992 acquisition of Lynn-Edwards and
an increase in unit sales volume to both existing and new Associated customers.
Gross Profit. Gross profit increased to $112.3 million in 1993 from $89.4
million for the eleven month period ended December 31, 1992, but remained
relatively stable as a percentage of net sales at 24.3% in 1993 compared to
24.4% for the eleven month period ending December 31, 1992. The integration of
Lynn-Edwards was accomplished without significant deterioration in gross margin
as management focused on cost containment and inventory assimilation.
Warehouse and Distribution Expenses. Warehouse and distribution expenses
increased to $78.5 million in 1993 from $60.6 million for the eleven month
period ended December 31, 1992, primarily due to the inclusion of a full year
of expenses of Associated's operations in 1993 and the Lynn-Edwards
Acquisition. Additional expenses were incurred as management and general
staffing were increased during the assimilation of Lynn-Edwards's operations.
42
<PAGE>
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased to $23.8 million in 1993 from $19.3 million
for the eleven month period ended December 31, 1992, primarily due to the
inclusion of a full year of Associated's operations and the Lynn-Edwards
Acquisition, increased staffing requirements related to the Lynn-Edwards
Acquisition and a non-recurring customer sales promotion held in 1993.
Income from Operations. Income from operations increased to $10.0 million in
1993 from $9.5 million for the eleven month period ended December 31, 1992, and
as a percentage of net sales was 2.2% in 1993, compared with 2.6% for the
eleven month period ending December 31, 1992 for the reasons stated above.
Interest Expense. Interest expense increased to $6.3 million in 1993 from
$4.8 million for the eleven month period ended December 31, 1992, primarily due
to the full-year impact of additional debt incurred in connection with the
Lynn-Edwards Acquisition and indebtedness incurred to meet working capital and
capital expenditure needs. This expense was offset, in part, by lower weighted
average interest rates on the Old Associated Revolver (as hereinafter defined)
in effect during the year, which declined from 8.0% for the eleven month period
ended December 31, 1992 to 7.75% in 1993.
Income Before Income Taxes. Income before income taxes decreased to $3.7
million in 1993 from $4.7 million for the eleven month period ended December
31, 1992 for the reasons stated above.
Income Taxes. The effective tax rates for the years ended December 31, 1993
and for the eleven month period ended December 31, 1992 were 20.9% and 37.6%,
respectively. The decrease was primarily due to lower required provisions in
1993.
Net income. Net income remained level at $3.0 million for 1993 and the eleven
month period ended December 31, 1992 and as a percentage of net sales decreased
to 0.6% in 1993 from 0.8% for the eleven month period ended December 31, 1992
for the reasons stated above.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES OF UNITED
United is a holding company and, as a result, United's primary source of
funds is cash generated from operating activities of its operating subsidiary,
the Company, and bank borrowings by the Company. United's statement of cash
flows for the periods indicated is summarized below.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------
1992 1993 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Cash Provided by
(Used in) Operating
Activities............. $(2,538) $36,002 $ 8,108
Net Cash Used in
Investing Activities... (45,629) (29,958) (10,499)
Net Cash Provided by
(Used in) Financing
Activities............. 48,542 (10,097) 1,422
</TABLE>
The decrease in net cash provided by operations from $36.0 million in fiscal
1993 to $8.1 million in fiscal 1994 was primarily attributable to a decrease in
accounts payable and accrued liabilities as well as lower net income in 1994,
partially offset by a decrease in accounts receivable and inventory. The
substantial increase in net cash provided by operations from a use of cash of
$2.5 million in fiscal 1992 to $36.0 million of cash being provided in fiscal
1993 was primarily the result of an increase in accrued liabilities, net
income, accounts payable, deferred taxes and inventory, partially offset by an
increase in accounts receivable.
Net cash used in investing activities declined from $30.0 million in fiscal
1993 to $10.5 million in fiscal 1994, as a result of a commensurate decline in
capital expenditures. The $30.0 million of capital
43
<PAGE>
expenditures in fiscal 1993 includes the purchase of $16.0 million of computer
and related hardware. Net cash used in investing activities in fiscal 1992
included $37.3 million of cash as part of the purchase price of SDC. Net
capital expenditures in fiscal 1994, 1993, and 1992 were $10.5 million, $30.0
million and $8.2 million, respectively.
Net cash of $1.4 million was provided by financing activities in fiscal 1994
as compared to a net use of cash in financing activities in fiscal 1993 of
$10.1 million. Net cash provided by financing activities in fiscal 1992
primarily reflects additional debt to finance the acquisition of SDC.
The Company's credit agreement ("Old Company Credit Agreement") in effect
prior to consummation of the Offer consisted of a $130.0 million reducing
revolving credit facility ("Old Company Revolver") and a $30.0 million term
loan (the "Old Company Term Loan") (collectively, the "Old Company Credit
Facilities"). The Old Company Revolver provided for revolving credit loans up
to the amount of the commitment, which reduced upon quarterly decreases to
$83.6 million at maturity. The borrowing capacity under the Old Company
Revolver at February 28, 1995 was $119.3 million versus the total borrowed at
February 28, 1995 of $106.0 million. Interest was payable at varying rates in
the Old Company Credit Agreement. The Old Company Revolver was to mature on
August 31, 1997. The Old Company Term Loan was payable on September 30, 1995.
As of February 28, 1995, borrowings outstanding under the Old Company Term Loan
were $30.0 million. In addition, prior to the consummation of the Offer the
Company borrowed $6.0 million pursuant to a $30.0 million revolving line of
credit ("Overline Facility"). Debt maturities (other than amounts borrowed
under the Old Company Credit Facilities) were as follows: $6.3 million in
fiscal 1995, $7.4 million in fiscal 1996, $8.2 million in fiscal 1997 and $8.8
million in fiscal 1998. The Old Company Credit Facilities and the Overline
Facility were refinanced as part of the Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Post-Merger Liquidity and Capital Resources."
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES OF ASSOCIATED
Associated was a holding company and, as a result, Associated's primary
source of funds was cash generated from operating activities of its operating
subsidiary, ASI, and bank borrowings by ASI. The Old Associated Credit
Agreement (as hereinafter defined) included restrictions on the ability of ASI
to transfer cash to Associated which could be used by Associated to pay cash
dividends on its redeemable preferred stock. Associated's statement of cash
flows for the periods indicated is summarized below.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------
11 MONTH
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31,
1992 1993 1994
------------ -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Cash Provided by (Used in) Operating
Activities.................................... $19,759 $(18,192) $13,636
Net Cash Used in Investing Activities.......... (96,796) (3,276) (554)
Net Cash Provided by (Used in) Financing
Activities.................................... 85,290 14,203 (12,224)
</TABLE>
Net cash provided by operating activities for 1994 increased to $13.6 million
from a use of cash of $18.2 million in 1993. This increase in 1994 was
principally due to an increase in accounts payable, a lesser increase in
inventory levels and an increase in net income. Associated used $18.2 million
of cash in operations in 1993 as compared to operating activities being a
source of cash of $19.8 million in 1992. The decrease primarily was attributed
to (i) a reduction in accounts payable in 1993 and (ii) an increase in
inventory in 1993 due to a full year of Associated's operations, additional
inventory to support the Lynn-Edwards Acquisition and an overall increase in
sales volume. During the eleven months ended December 31, 1992, Associated
deferred payment on purchases from or services
44
<PAGE>
rendered in the amount of $9.0 million pursuant to a transition services
agreement. During 1994, Associated settled the obligation by issuing 58,653
shares of Associated Common Stock.
Net cash used in investing activities in 1994 was $0.6 million, reflecting
capital expenditures necessary to maintain existing assets. Net cash used in
investing activities in 1993 was $3.3 million stemming mostly from capital
expenditures in connection with the opening of the new Baltimore facility and
those expenditures related to the assimilation of the Lynn-Edwards Acquisition.
Net cash used in investing activities in 1992 was $96.8 million which primarily
consisted of $82.1 million of cash used for the acquisition of certain BCOP
assets. In addition, $2.7 million was incurred to effect the Lynn-Edwards
Acquisition. In 1993, the selling stockholders of Lynn-Edwards returned $0.3
million of the $2.7 million to Associated pursuant to a subsequent agreement
between the parties as to the purchase price of Lynn-Edwards. Capital
expenditures in 1992 were $4.3 million. A total of $7.7 million of acquisition
costs were incurred in 1992 in connection with the Lynn-Edwards Acquisition and
the Boise Transaction.
Net cash used in financing activities in 1994 was $12.2 million which was
attributable to the pay down of debt under the Old Associated Credit Facilities
(as hereinafter defined). Net cash provided by financing activities in 1993 was
$14.2 million due to $11.5 million of borrowings under the Old Associated
Credit Facilities and an equipment loan and cash overdrafts of $6.1 million due
to timing of payroll, partially offset by scheduled principal payments of $3.4
million. Net cash provided by financing activities in 1992 was $85.3 million
which reflects the initial capitalization of Associated in connection with its
formation and additional debt incurred to finance the Lynn-Edwards Acquisition.
Borrowings under the Old Associated Credit Facilities in 1992 were partially
offset by scheduled amortization payments of $8.1 million.
Associated's credit agreement ("Old Associated Credit Agreement") in effect
prior to consummation of the Offer consisted of a $65.0 million revolving
credit facility ("Old Associated Revolver"), a $20.0 million term loan, Tranche
A, and a $10.0 million term loan, Tranche B (together, the "Old Associated Term
Loans") (collectively, the "Old Associated Credit Facilities"). The Old
Associated Revolver provided for revolving credit loans up to the amount of the
commitment, based on eligible receivables and inventory, as defined in the Old
Associated Credit Agreement. The borrowing capacity under the Old Associated
Revolver at December 31, 1994 was $62.5 million versus the total borrowed at
December 31, 1994 of $39.9 million. Interest was payable at a rate per annum
of 1.75% plus the higher of either the prime rate or 0.5% plus the federal
funds rate, as defined in the Old Associated Credit Agreement. The Old
Associated Revolver was to mature on January 31, 1997. Prepayments were
required when cash flow, as defined in the Old Associated Credit Agreement,
exceeded specified levels. Term Loan Tranches A and B were payable in 57 and 24
monthly installments commencing on April 30, 1992 and January 31, 1997,
respectively. As of December 31, 1994, total borrowings under the Old
Associated Term Loans, excluding original issue discount, were $21.0 million.
Debt maturities, excluding the original issue discount, were as follows: $5.9
million in 1995, $7.0 million in 1996, $46.3 million in 1997 and $5.5 million
in 1998. The Old Associated Credit Facilities were refinanced as part of the
Acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Post-Merger Liquidity and Capital Resources."
POST-MERGER LIQUIDITY AND CAPITAL RESOURCES
In connection with consummation of the Acquisition, Associated received an
equity investment of $12.0 million primarily from existing stockholders and
borrowed an aggregate of $416.5 million under the New Credit Facilities and
$130.0 million under the Subordinated Bridge Facility, all as described under
"Financing the Acquisition." The proceeds of these investments and borrowings
were used to (i) finance the purchase of Shares pursuant to the Offer, (ii)
refinance certain existing indebtedness of Associated (including all amounts
outstanding under the existing Old Associated Credit Facilities) and certain
indebtedness of United and the Company (including all amounts outstanding under
the existing
45
<PAGE>
Old Company Credit Facilities), (iii) redeem United stock options and (iv) pay
fees and expenses relating to the Acquisition.
The New Credit Facilities consist of a Tranche A Facility providing for a
$125.0 million term loan requiring repayment in 20 quarterly installments, a
Tranche B Facility providing for a $75.0 million term loan requiring repayment
in 28 quarterly installments and a Revolving Credit Facility in the aggregate
amount of $300.0 million. The New Credit Agreement contains restrictions on,
among other things, dividends by the Company to United. For a more detailed
description of the payment and other terms of the New Credit Facilities, see
"Financing the Acquisition -- Loan Facilities -- New Credit Facilities."
Including amounts borrowed to consummate the Acquisition, total scheduled
mandatory principal payments due on long-term debt from 1995 through 2000 are
expected to be $156.3 million.
Quarterly dividends currently accrue on United's three outstanding series of
the Merger Preferred Stock (as hereinafter defined) at the respective rates of
10.0% (for Series A) and 9.0% (for Series B and C) per annum (or, when
dividends are not paid in cash, 13.0% (for Series A) and 10.0% (for Series B
and C)), and may be paid in the form of additional shares of the respective
series of Merger Preferred Stock (except, in the case of the Series C Preferred
Stock, for dividends payable after January 31, 1999). Based upon the Company's
anticipated operating results and the requirements under the New Credit
Agreement and the Indenture, Management expects to pay dividends on the Merger
Preferred Stock when such dividends become due and payable in kind (rather than
in cash) for the foreseeable future. If the necessary consents are obtained,
the Company may pay a dividend to United in an amount sufficient to redeem all
the outstanding shares of Series B Preferred Stock with a portion of the
proceeds from the Old Notes.
The New Credit Facilities permit capital expenditures for the Company of up
to $12.0 million for the post-merger portion of its fiscal year ending December
31, 1995. Capital expenditures will be financed from internally generated funds
and the New Credit Facilities.
Management anticipates making changes in the operations of the Company and
ASI as conducted prior to the Acquisition as described under "Business --
Consolidation Plan and Benefits of the Acquisition." Based on internally
generated funds and the expected results of these changes, Management believes
that United'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 and long term operating and capital needs of United after the
Acquisition as well as to service its debt in accordance with its terms. There
is, however, no assurance this will be accomplished.
INFLATION AND CHANGING PRICES
Inflation during the last three years has not been a significant factor to
operations. United's business is not generally governed by contracts that
establish prices substantially in advance of the receipt of goods or services.
As suppliers increase their prices for merchandise to United, United generally
seeks to increase its prices to its customers.
SEASONALITY
Although the Company's sales are generally relatively level throughout the
year, the Company's sales vary to the extent of seasonal differences in the
buying patterns of end users who purchase office products. In particular, the
Company's sales are generally higher than average during the months of January
through March when many offices begin operating under new annual budgets.
The Company experiences significant seasonality in terms of its capital
needs, with highest requirements in December and January reflecting a build up
in inventory prior to the peak sales period. In 1994, on a pro forma basis as
if the Acquisition occurred on January 1, 1994, outstanding balances on the
revolving credit facilities of the Company ranged between $236 million in
January to $138 million in September. The Company believes that its current
availability under the Revolving Credit Facility is sufficient to satisfy such
seasonal capital needs for the foreseeable future.
46
<PAGE>
BUSINESS
OVERVIEW
The Company is the largest office products wholesaler in the United States.
As a result of the Merger of the Company with ASI on March 30, 1995, the
Company's net sales on a pro forma basis for 1994 were approximately $2.0
billion for the year ended December 31, 1994 and $0.6 billion for the three
months ended March 31, 1995. Through its extensive office products catalogs,
the Company markets a full line of over 25,000 (post-consolidation) branded and
private brand products, including traditional office supplies; office furniture
and desk accessories; office machines, equipment and supplies; computer
hardware, peripherals and supplies; and facilities management supplies,
including sanitation products and janitorial items. These products are offered
through a network of 39 (post-consolidation) strategically located distribution
centers to over 14,000 resellers, consisting principally of commercial dealers
and contract stationers, retail dealers, superstores, mail order companies and
mass merchandisers.
Although the office products distribution industry has seen many changes over
the past decade, including the growth of national superstores and a
consolidation among wholesalers, dealers and contract stationers, large
national wholesalers have continued to perform a significant role in the
distribution of office products. For manufacturers, the wholesaler provides
wide market coverage, assumes credit risk, carries inventory and processes
smaller orders than manufacturers can economically service. In addition,
wholesalers provide resellers with prompt service and delivery, a source for
filling small quantity orders and the opportunity to obtain credit, minimize
investment in inventory and access marketing resources and technical support.
The Company is currently engaged in implementing its consolidation plan to
integrate the two separate office products wholesale businesses conducted by
the Company and ASI prior to the Acquisition. See "Business -- Consolidation
Plan and Benefits of the Acquisition" and "Risk Factors -- Implementation of
Consolidation Plan." The Company was originally incorporated under the name
Utility Supply Co. in 1922 and has operated under its present name since 1960.
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
Largest Office Products Wholesaler. As the largest office products wholesaler
in the United States, the Company has substantial purchasing power and can
realize significant economies of scale. The Company obtains products from over
500 manufacturers, for many of whom the Company believes it is a significant
customer. The Company's size also enables it to seek cost-effective sourcing of
product in the United States and, in many cases, worldwide. In addition, the
Company's size allows it to maintain a broad and deep product selection,
permitting resellers to hold less inventory while still providing end users
with a high level of service.
High Level of Customer Service. The Company provides its customers with a
broad product selection, a high degree of product availability, expeditious
distribution and comprehensive customer assistance. The Company seeks to base
its business decisions on an "If I were the customer. . ." approach. With over
25,000 products being offered, the Company believes that it has the broadest
selection of office products available in the industry, enabling resellers in
most cases to do "one-stop shopping" for all of their office products needs.
The Company's broad product selection, inventory procurement and management
procedures and state-of-the-art distribution facilities enable it to achieve an
order fill rate in excess of 90%. The Company's management information systems
have been designed, in part, to enable Management to monitor five key measures
of customer satisfaction: fill rate, order accuracy, inventory accuracy, on-
time delivery and accessibility to customers. The Company
47
<PAGE>
makes substantially all of its orders nationwide available by next day delivery
to assist resellers in successfully meeting end users' demands. The Company
publishes a wide array of product catalogs ranging from its full-line catalogs
to custom specialty catalogs to meet end user needs for information on specific
product offerings. Most of these product catalogs are custom imprinted with
particular resellers' names, which enables the reseller to distribute the
catalogs directly to its customers and garner repeat orders. In addition, the
Company provides its customers with a variety of support services such as its
"wrap and pack" program which offers resellers the option to receive orders
packaged in accordance with the specifications of particular end users. This
service allows resellers to lower their inventory investment and minimize
double handling costs while allowing them to continue to offer a wide product
range. The Company also offers a furniture set-up program in which the Company
delivers furniture directly to consumers on the reseller's behalf, thereby
enabling the reseller to offer a wide range of furniture on a cost-effective
basis.
The Company also provides its resellers a variety of electronic order entry
systems, pricing software programs and business management and marketing
training programs. For instance, the Company maintains electronic data
interchange ("EDI") systems that link the Company to selected resellers, and
multifaceted interactive order systems that link the Company to selected
resellers and such resellers to their ultimate end users. The Company's
sophisticated electronic management systems enable dealers to manage critical
business functions including order entry, purchasing, pricing, accounts
receivable, accounts payable and inventory control. The Company's matrix
pricing software program permits resellers to identify the optimum pricing mix
between high and low margin items, thereby enabling resellers to enhance their
operating margins. The Company's specialized business management programs
enhance particular resellers' ability to increase profits by providing a higher
level of service to the end user while the Company's marketing training
programs are designed to instruct resellers on how to market to the end user
based upon a total cost of procurement approach rather than focusing on
specific product prices. The Company continually reviews additional services
that might be helpful to its customers.
Diverse Customer Base. With over 14,000 resellers as customers, the Company
has one of the broadest customer bases in the industry. The Company's customers
include full-line office products resellers, such as commercial dealers and
contract stationers, retail dealers, office products superstores, mail order
companies and mass merchandisers, as well as specialized resellers, such as
office furniture, janitorial and computer dealers. No single reseller accounted
for more than 3.2% of the Company's net sales in 1994 on a pro forma basis. The
Company plans to continue to expand its customer base by (i) maintaining and
building its business with commercial dealers and contract stationers who,
through consolidation, continue to increase in size, (ii) developing additional
programs for marketing and buying groups that represent groups of dealers,
(iii) expanding relationships with the major office products superstore chains
and (iv) continuing to focus on niche markets, including specialty dealers
(e.g., furniture, janitorial and computer dealers) and particular end users
(e.g., healthcare, legal, financial and advertising specialty businesses).
State-of-the-Art Distribution Capabilities. The Company's network of 39
(post-consolidation) distribution centers located throughout the United States
employs state-of-the-art technology to efficiently distribute products to
customers. For example, as described above, the Company has developed EDI
capabilities that link the Company to the majority of its resellers and
multifaceted interactive order systems that link the Company to selected
resellers and such resellers to the ultimate end user. In 1994 on a pro forma
basis, approximately 85% of all of the Company's orders were received
electronically. The Company also uses a proprietary computer-based system to
enhance fill rates by automatically searching alternative distribution centers
for products and routing those products for shipment. In addition, the
Company's advanced communication system with many of its resellers is intended
to enhance the Company's ability to efficiently manage and distribute its
inventory.
Growth of Private Brand Products. The Company offers a growing line of over
1,300 private brand products under the Universal brand name, which the Company
believes is the broadest private brand
48
<PAGE>
product offering in the industry. Universal brand products represented
approximately 9% of the Company's net sales in 1994 on a pro forma basis. Prior
to the Merger, the Universal private brand line was offered only by the Company
but will now also be marketed to ASI's customers. The Company believes its
private brand products offer significant benefits both to the reseller, by
providing an alternative to branded products that offers similar quality at a
moderate price, and to the manufacturer, by enabling the manufacturer to
increase sales without diluting its brand name pricing structure. The Company
sees significant opportunity to expand its private brand product line in the
future. To further develop the Universal brand, the Company recently opened a
trading company in Hong Kong to facilitate the global purchasing of products.
Experienced Management Team. The Company's senior management team comprises
individuals who combine many years of experience in the office products
distribution industry. Management also has had significant experience in
acquiring and integrating companies in the office products industry through the
SDC Acquisition by United and the Lynn-Edwards Acquisition by Associated, each
in 1992.
BUSINESS STRATEGY
The Company's business strategy is to seek to improve its competitive
position and grow its revenues and profitability through (i) the continuation
of a high level of customer service, (ii) expanding the breadth of both its
product line and its customer base, and (iii) a continuing emphasis on cost
effective operations.
High Level of Customer Service. Customer service has been an important factor
in the Company's business strategy in the increasingly competitive office
products industry. The Company intends to continue its efforts to differentiate
itself from competitors by providing its customers with a broad product
selection, a high degree of product availability, expeditious distribution and
a variety of customer services. The Company plans to accomplish these goals by
continuing to (i) offer one of the broadest product selections available in the
industry, (ii) achieve high fill rates to assure availability of product to its
resellers, (iii) offer next day delivery on substantially all of its orders and
(iv) assist its resellers by offering electronic order entry systems, pricing
software programs and business management and marketing training programs, as
well as continually reviewing additional support services which might be
helpful to resellers. In addition, because resellers sell directly to end
users, the Company has also focused on the needs of the end user by designing
informative, user-friendly catalogs and marketing programs to assist the
reseller's sales efforts.
Expanding Product Line and Customer Base. The Company's product line
expansion plans include growing its ancillary product lines, such as office
furniture, computer hardware, peripherals and supplies and facilities
management supplies, which the Company believes allow it to gain incremental
sales from its existing resellers and thereby strengthen its position with
resellers as a "one-stop shop." In addition, ancillary products allow the
Company to enter additional distribution channels and, by adding new types of
resellers beyond full-line office products dealers alone, to expand its
customer base. The Company also plans to continue to expand its customer base
by developing additional programs for marketing and buying groups, expanding
relationships with superstore chains and maintaining and building its business
with commercial dealers and contract stationers. The Company also expects to
expand its private brand product offerings within these new product lines and
to begin marketing private brand items to ASI's customers. In addition, the
Company plans to evaluate opportunities for growth in market share in
connection with the trend toward direct delivery of products to end users
through arrangements with various resellers seeking to minimize inventory
investment. The Company believes that there is opportunity to capture a portion
of the sizeable percentage of total shipments by office products manufacturers
currently sold directly to resellers or end users without wholesaler
involvement.
Cost Effective Operations. The Company intends to continue to actively seek
cost reductions at both the corporate and operating levels in order to continue
to operate in a cost effective manner.
49
<PAGE>
Examples of such cost reductions include (i) reduced merchandise costs through
suppliers' incentives, (ii) continued efforts to increase inventory turnover
without lowering service levels, (iii) reduced payroll and benefits costs
through improved labor allocation, (iv) reduced freight costs through ongoing
refinements to delivery systems, (v) increased sourcing of certain products
off-shore, (vi) continued development of computer systems and (vii)
streamlining of work practices and procedures.
CONSOLIDATION PLAN AND BENEFITS OF THE ACQUISITION
Consistent with its business strategy, since the consummation of the
Acquisition on March 30, 1995 the Company has been engaged in implementing its
consolidation plan to integrate its business with the business of ASI. Through
the integration of distribution facilities and product lines in a manner
designed to enable the Company to offer its customers increased service and
product availability, the Company expects to improve its competitive position.
In addition, the Company plans to achieve cost savings and other benefits from
the elimination of redundant or overlapping functions and facilities and by
minimizing overlapping products.
In implementing its consolidation plan, another critical objective will be to
maintain and enhance customer relationships, service and marketing programs of
the combined businesses. Management believes that the Company's experience
integrating the SDC Acquisition in 1992, together with ASI's experience
integrating the Lynn-Edwards Acquisition in 1992, will enhance the Company's
ability to implement its strategy while maintaining competitive levels of
customer service.
Management anticipates that the implementation of its consolidation strategy
should result in significant cost savings and synergies which will enhance the
Company's financial and operational performance. Management estimates that,
upon phase-in of its consolidation plan over a 12-month period following the
Acquisition, the Company expects to realize approximately $26.0 million per
year in savings as a result of a successful implementation of its consolidation
plan, although the Acquisition is likely to result in a reduction in the rate
of revenue growth for some period following the Acquisition as a result of the
loss of some customers to competition. See "Risk Factors -- Implementation of
Consolidation Plan" and "Pro Forma Combined Financial Information."
Consolidate Number of Product Offerings and Increase Volume. Management plans
to consolidate the Company's product offerings by eliminating approximately
10,000 overlapping items from the catalogs that Management expects will be
distributed in the fourth calendar quarter of 1995, while at the same time,
adding more niche products, including more specialty items. In addition,
following the Acquisition, the Company is expected to have substantially
greater sales volume than either ASI or the Company separately prior to the
Acquisition. Management believes that the Company will benefit by being able to
(i) qualify for improved terms with vendors as a result of placing higher
volume purchases among fewer suppliers, (ii) offer a more diverse product line,
thereby enhancing end user purchasing options and (iii) achieve higher fill
rates as a result of greater inventory and warehousing capacity.
Consolidate Distribution Centers. Management has identified eight redundant
distribution centers between ASI and the Company prior to the Merger and plans
to close such redundant facilities within 12 months of the Merger. Management
believes that the Company will benefit by achieving cost reductions arising
from the elimination of such facilities. After the elimination of such
redundant distribution centers, the aggregate number of distribution centers
will be 39, which is greater than the number of distribution centers operated
by either company separately. Management believes that such increased number of
the Company's distribution centers and, in some markets, the proximity of
distribution centers to each other, ultimately will improve service levels and
make additional inventory available through the Company's automated inventory
management system and, as a result, improve the delivery services of the
Company. In addition, the Company intends to achieve cost savings from more
efficient operation post-Merger of two distributions centers in each of the
Chicago, Sacramento,
50
<PAGE>
Nashville and Minneapolis/St. Paul market areas, where the size of existing
facilities requires, or demand is sufficient to support, multiple facilities.
Reduce Corporate Overhead. Management has identified a number of corporate
positions which it believes can be eliminated in the Company and plans to
eliminate such positions and to close Associated's corporate headquarters.
Management believes that the Company will benefit by realizing savings (phased
in over a 12-month period) from reduced payroll, benefits and other related
expenses derived from (i) the elimination of such positions, (ii) the closing
of Associated's corporate headquarters and (iii) the consolidation of legal,
audit and tax consulting functions of Associated and United prior to the
Merger.
Reduce Sales Representatives. Management plans to eliminate redundant sales
positions where customer coverage overlaps. Within three months after the
Merger, Management believes that the Company will benefit by savings from
reduced payroll, benefits and other related expenses derived from the
elimination of such positions.
Expand Private Brand Products and Off-Shore Sourcing. Because of the cost
advantages and popularity of United's Universal private brand products,
Management plans to market both the Universal line and off-shore sourced
products to ASI's customers as well as use the combined volume of the Company
after the Merger to enhance the Company's ability, when appropriate, to
introduce new private brand products and, as appropriate, to source certain
additional products off-shore. Management believes that the Company will
benefit from such strategy by increasing sales of private brand and off-shore
products, which should provide higher profit margins to both resellers and the
Company.
THE OFFICE PRODUCTS DISTRIBUTION INDUSTRY
The Company operates in a large, fragmented and rapidly consolidating
industry. The office products distribution industry consists of several
different channels by which office products are distributed from the
manufacturer to the end user. These channels include both routes in which
resellers buy through wholesalers and routes in which resellers purchase
directly from manufacturers. Due to consolidation, the distinct boundaries that
once clearly defined distribution channels have become blurred. The industry
today consists principally of wholesalers, commercial dealers and contract
stationers, retail dealers, office products superstores, mail order companies
and mass merchandisers.
Wholesalers. Wholesalers purchase products directly from manufacturers and
sell them directly to resellers who, in turn, sell the products to end users.
The wholesale segment of the office products distribution industry consists of
national, specialty and regional wholesalers. The two national wholesalers
(i.e., the Company and S.P. Richards) compete with a full product offering and
extensive marketing and distribution services for their reseller customers.
Specialty wholesalers focus on limited product lines such as computer supplies,
legal supplies, medical filing systems, office furniture or janitorial
products. Regional wholesalers generally offer a full range of office products
and marketing services on a smaller scale and within a much more limited
geographic area than national wholesalers.
For manufacturers, the wholesaler provides wide market coverage, assumes
credit risk, carries inventory and processes smaller orders than manufacturers
can economically service. Wholesalers also provide resellers with prompt
service and delivery, a source for placing small quantity orders and the
opportunity to obtain credit, minimize investment in inventory and access
marketing resources and technical support. In order for resellers, such as
superstores to perform these functions themselves, a source of significant
capital is generally required for both investment in systems and additional
distribution facilities, as well as for the working capital requirements needed
to establish appropriate inventory levels.
51
<PAGE>
Office products wholesalers compete not only with other wholesalers but also
with office products manufacturers. See "Business -- Competition" and "Risk
Factors -- Competition." A sizeable percentage of total shipments by office
products manufacturers are currently sold directly to resellers or end users
without wholesaler involvement.
Commercial Dealers and Contract Stationers. The most significant reseller
channel for office product distribution continues to be commercial dealers and
contract stationers who 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 on the customer's premises. Major commercial dealers and contract
stationers purchase in large quantities directly from manufacturers, rely upon
wholesalers for inventory backup and product breadth and offer significant
volume-related discounts and a high level of service to their customers.
Retail Dealers. 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, 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 by superstores, many independent retail dealers have
joined marketing or buying groups to negotiate on a collective basis directly
with manufacturers and wholesalers.
Office Products Superstores. Superstores employ a warehouse format, are
typically open for business seven days a week, stock a large number and broad
range of items in inventory (typically in the range of 5,000 products),
purchase in volume and typically take delivery at their stores for the most
part direct from manufacturers and offer many of their products at discounts
from manufacturers' list prices. Virtually every major metropolitan area in the
United States is now served by at least one, and most by several, office
products superstores, and the three largest superstore companies (Office Depot,
OfficeMax and Staples) operate and advertise nationally with stores in many
metropolitan areas. Superstores 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 superstores to expand the range of products
offered without increasing their on hand inventory levels.
Mail Order Companies. Mail order marketers of 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 consumer marketing programs. Mail order companies
purchase both from wholesalers and manufacturers.
Mass Merchandisers. The mass market retailers (e.g., Sears, Wal-Mart
Stores/Sam's Club, Price/Costco, Kmart and Target) have recently taken a
growing interest in office products. Office supplies is one of many categories
of products more typically available in these stores.
PRODUCTS
The Company markets a broad array of products, which include traditional
office supplies; office furniture and desk accessories; office machines,
equipment and supplies; computer hardware, peripherals and supplies; and
facilities management supplies. The Company's core business continues to be
traditional office supplies, which includes both brand-name products and the
Company's private brand products marketed under the Universal name. As part of
the Company's business strategy to
52
<PAGE>
acquire incremental sales and increase market share through ancillary product
offerings, the Company began to focus on niche markets in fiscal year 1991 and
has expanded steadily upon this concept since then. A furniture division was
established to offer national delivery and product "set-up" capabilities to
office products dealers as well as to attract new furniture dealers. The
Company's sale of this division's items such as leather chairs, wooden and
steel desks and computer furniture has enabled it to become the nation's
largest office furniture wholesaler, with the Company currently offering nearly
3,000 furniture items from 80 different manufacturers. The Company's "Pro-
Image" program enables resellers with no previous expertise to provide high-end
furniture and office design services to end users. Another one of the Company's
niche markets is business presentation products. The Company also sells
computers, printers, modems, monitors and supplies with major brand names
through its MicroUnited Division. Additionally, the Company offers its
"Signature Image" program, which provides traditional office products resellers
with access into the advertising products market (such as imprinted and logo
items). The Company's newest product line encompasses the facilities management
supplies market, which includes janitorial and sanitation supplies, specialty
mailroom and warehouse items, kitchen and cafeteria items, first aid products
and ergonomic products designed to enhance worker productivity, comfort and
safety.
CUSTOMERS
The Company principally sells 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 sanitation supply distributors. In 1994 on a pro forma basis, no single
reseller accounted for more than 3.2% of the Company's consolidated net sales.
Commercial dealers and contract stationers are the most significant reseller
channel for office product distribution and typically serve large businesses,
institutions and government agencies. Through consolidation, these dealers are
getting larger and becoming even more important to the Company. Commercial
dealers and contract stationers remain one of the Company's fastest growing
customers classes.
The number of retail dealers has been declining for some time as the result
of individual retail dealers' inability to successfully compete with the
growing number of superstores and, more recently, as a result of dealerships
being acquired and brought under an umbrella of common ownership. However, many
retail office products dealers continue to thrive, adapting to the highly
competitive environment with the help of resources the Company offers. Many
retail dealers, commercial dealers and contract stationers have joined forces
in 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 strengths.
While the Company maintains and builds its business with commercial dealers
and contract stationers and retail dealers, it has also initiated relationships
with most major office products superstore chains. The Company sells
superstores commodity items as "fill-ins" when they are out of stock. In
addition, the Company has installed order stations in many superstores that
display the Company's catalogs thereby allowing end users to order products
from the Company through the superstore that the superstore does not carry in
stock.
Through its furniture division, the Company offers middle-grade office
furniture to both office products and office furniture dealers. The Company
also provides computer-related products to most categories of computer
resellers through its MicroUnited division and sells janitorial products to
sanitation supply distributors. The Company provides marketing materials and
professional expertise to meet the various needs of these specialized
resellers.
53
<PAGE>
MARKETING AND CUSTOMER SUPPORT
The Company concentrates its marketing efforts on providing value-added
services to resellers. The Company distributes products that are generally
available at similar prices from multiple sources, and most of its customers
purchase their products from more than one source. As a result, the Company
seeks to differentiate itself from its competitors through broad product
offerings, a high degree of product availability, a variety of customer
services and expeditious 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 resellers' 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 price services. These services are designed
to aid the reseller in differentiating itself from its competitors by
addressing the steps in the consumer's procurement process.
Currently, substantially all of the Company's products are sold through its
comprehensive office product catalogs and flyers. These materials include full
line catalogs, promotional pieces and specialty catalogs for the legal,
financial, healthcare, office furniture, facilities management and advertising
specialty markets. Catalogs also are provided for a variety of end user
markets, including: annual General Line Catalogs listing 25,000 items; an
annual office furniture catalog featuring furniture and accessories; an Office
Impressions catalog featuring the Company's private-brand furniture; a
quarterly Concept 90 catalog offering approximately 1,000 high-volume commodity
products; Office Saver and Flexi Flyer promotional pieces targeted at deep
discount markets; annual Universal and Universal Plus catalogs promoting the
Company's private-brand merchandise; an annual Computer Products Catalog
offering hardware, peripherals and supplies; an annual Computer Concepts
catalog; Specialty Market catalogs targeting healthcare, legal, financial and
advertising specialty businesses; an annual Facilities Management Supply
catalog featuring janitorial and sanitation supplies and ergonomic products; a
business presentation products catalog; and Access, a new promotional flyer
offering related office products distributed to end users on behalf of
resellers. Because commercial dealers, contract stationers and retail dealers
typically distribute only one wholesaler's catalogs in order to streamline
order entry, the Company attempts to maximize the distribution of its catalogs
by offering advertising credits to resellers, based on the volume of products
purchased, which can be used to offset the cost of catalogs.
To assist its resellers with pricing, the Company offers a matrix pricing
software program. Traditionally, resellers have priced products on a discount
from list price basis. With the advent of the superstore, pricing has shifted
towards a net pricing approach, whereby the superstore sells certain products
at significant discounts, assuming that it can recapture the discounts through
the sale of other higher margin products. The Company's matrix pricing program
provides the reseller with a tool to assist it in identifying the optimum
pricing mix between high and low margin items and, as a result, enables the
reseller to enhance its operating margins.
The Company provides sales representatives and managers of selected resellers
the opportunity to participate in marketing training programs sponsored by it.
Similar to its matrix pricing software, the Company's training programs are
designed to instruct the resellers in how to market to the end user based upon
a total cost of procurement approach, and thereby to minimize the focus on
specific product prices. Since the inception of the Company's program, over
3,000 individuals have attended such training programs.
The Company offers to its resellers a variety of electronic order entry
systems and business management and marketing programs which enhance the
reseller's ability to manage its business
54
<PAGE>
profitably. For instance, the Company maintains EDI systems that link the
Company to selected resellers, and multifaceted interactive order systems that
link the Company to selected resellers and such resellers to the ultimate end
user. The Company's most sophisticated electronic management system enables
dealers to manage critical business functions including order entry,
purchasing, pricing, accounts receivable, accounts payable and inventory
control. In July 1993, the Company entered into a joint venture with a software
developer, investing approximately $0.9 million as of February 28, 1995 for its
45% equity interest in a new corporation called United Business Computers, Inc.
to enhance, market and support PC-based dealer operating systems compatible
with the Company's system. The Company estimates that in 1994 on a pro forma
basis, approximately 85% of its orders were received electronically.
In addition to the Company's Pro-Image and Signature Image business
management and marketing programs described above, the Company also offers
resellers its "Desk Top Marketing" software program, which enables the reseller
to identify potential customers in a given market based upon parameters
selected by the reseller. The Company also offers, on an exclusive basis, the
Customer Self-Service program, which allows the reseller to provide end users
with on-line access to such reseller's computer for ordering, product inquiries
and promotion information.
DISTRIBUTION
Management has determined that, as a result of the Merger, eight of the
Company's 47 current regional distribution centers are redundant and,
accordingly, plans to close such redundant facilities within 12 months of the
Merger. As a result, the Company will have a network of 39 (post-consolidation)
regional distribution centers located in 35 metropolitan areas in 24 states,
most of which will carry the Company's full line of inventory. In addition, the
Company intends to achieve cost savings from the more efficient operation post-
Merger of two distribution centers in each of four market areas, where size of
existing facilities requires, or demand is sufficient to support, multiple
facilities. For a discussion of the benefits arising from the elimination of
such facilities, see "Business -- Consolidation Plan and Benefits of the
Acquisition."
The Company supplements its regional distribution centers with local
distribution points throughout the United States that serve as reshipment
points for orders filled at the regional distribution centers. The Company
utilizes over 500 trucks owned, leased or 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 augmented by its proprietary,
computer-based 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 two 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 provide a single
on-time delivery to the reseller. The system effectively provides the Company
with added inventory support, which enables it to provide higher service levels
to the reseller, to reduce back orders and to minimize time spent searching for
merchandise substitutes, all of which contribute to the Company's high fill
rate and efficient levels of inventory balances. See "Risk Factors -- Service
Interruptions."
Another service offered by the Company to selected resellers is its "wrap and
pack" program, which allows resellers the option to receive orders in
accordance with the specifications of particular end users. For example, when a
reseller receives orders from a number of separate end users, the Company
groups and wraps the items separately by end user so that the reseller need
only deliver the package. The "wrap and pack" 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.
55
<PAGE>
MERCHANDISING AND PURCHASING
The Company utilizes over 500 suppliers of its products. 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. In 1994 on a
pro forma basis, no supplier accounted for more than 9.4% of the Company's
aggregate purchases. The Company believes it is a significant customer for many
vendors.
The Company, like many other wholesalers, has a centrally controlled,
computerized forward buying program under which the Company, from time to time,
purchases items of inventory in advance of its specific needs when favorable
purchasing opportunities present themselves.
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. Most wholesale distributors of office
products conduct operations regionally and locally, sometimes with limited
product lines such as writing instruments or computer products. Other
wholesalers, including the Company, carry a full line of business products.
Manufacturers typically sell their products through a variety of distribution
channels, including business products wholesalers and resellers.
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. Competition between the Company and other wholesalers is based
primarily on net pricing to resellers, breadth of product lines, availability
of products, speed of delivery to resellers, fill rates and the quality of its
marketing and other services. The Company believes it is competitive in each of
these areas.
A trend toward consolidation has occurred in recent years throughout the
office products industry. Although at the national wholesale level only one
competitor (S.P. Richards) remains, consolidation of commercial dealers and
contract stationers has also resulted in an increased ability of those
resellers to buy goods directly from manufacturers. In addition, over the last
decade, office products superstores (which largely buy directly from
manufacturers but offer fewer items than the Company) have entered virtually
every major metropolitan market and dealers and contract stationers have formed
buying groups to purchase directly from manufacturers on a collective basis.
Increased competition in the office products industry has also led to
heightened price awareness among consumers, making commodity type office
products extremely price sensitive and requiring the Company to increase its
efforts to convince resellers of the continuing advantages of its competitive
strengths (as compared to those of manufacturers and other wholesalers), such
as marketing and catalog programs, speed of delivery, and the ability to offer
resellers a broad line of business products from multiple manufacturers with
lower minimum order quantities on a "one-stop shop" basis. See "Risk Factors --
Competition."
EMPLOYEES
At March 1, 1995, the Company and ASI employed approximately 5,015 persons in
the aggregate. Management has determined that as a result of the Merger,
certain warehouse, corporate and sales positions within the Company will be
eliminated. For a discussion of Management's plans with respect to the
elimination of such positions and the resulting expected benefits to the
Company, see "Business
56
<PAGE>
- -- Consolidation Plan and Benefits of the Acquisition -- Consolidate
Distribution Centers," "-- Reduce Corporate Overhead" and "-- Reduce Sales
Representatives."
The Company considers its relationships with its employees to be
satisfactory. Substantially all 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 various
collective bargaining agreements. The agreements expire at various times during
the next three years. See "Risk Factors -- Service Interruptions."
LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course
of its business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
Executive Offices. The Company's office facility in Des Plaines, Illinois has
approximately 135,800 square feet of office and storage space. In September
1993, approximately 47,000 square feet of office space located in Mount
Prospect, Illinois was leased by the Company. This lease expires in four years,
with an option to renew for two five-year terms.
The Company currently leases 20,568 square feet of office space in Itasca,
Illinois which previously served as Associated's corporate headquarters and
7,095 square feet of office space in Pittsburgh, Pennsylvania as a sales
office. As a result of the closing of Associated's corporate headquarters, the
Company plans to terminate the lease in Itasca, Illinois.
Local Distribution Points. The Company also operates 28 local distribution
points. Two are leased by the Company; the other local distribution points are
operated through cross-docking arrangements with third party distribution
companies.
Canadian Office. The Company currently leases a sales office in Woodbridge,
Ontario (7,000 sq. ft.). This lease expires August 31, 1995 with an option to
renew for one additional year.
Hong Kong Trading Office. United Stationers Hong Kong Limited leases 1,500
square feet for a trading office in Hong Kong with the lease expiring on
October 14, 1995.
Distribution Centers. The Company presently operates 47 distribution centers
in 24 states, with eight scheduled for closing in the near future as part of
the Company's consolidation plan. The following table sets forth information
regarding the principal leased and owned properties.
57
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
---------------
METROPOLITAN DATE OF LEASE
STATE CITY AREA SERVED OWNED LEASED EXPIRATION(2)
- ----- ------------------- --------------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Arizona................. Tempe Phoenix -- 110,000 3/31/96
California.............. City of Industry(1) Los Angeles -- 99,999 4/30/96
California.............. City of Industry Los Angeles 344,487 125,000 5/31/98
California.............. Sacramento Sacramento -- 150,207 5/30/03(3)
California.............. Sacramento Sacramento -- 263,000 7/31/08
Colorado................ Denver Denver 104,244 -- --
Colorado................ Denver(1) Denver -- 101,430 5/31/95
Florida................. Hialeah(1) Miami -- 94,080 12/31/99
Florida................. Jacksonville Jacksonville 95,500 -- --
Florida................. Tampa Tampa 128,000 -- --
Florida................. Ft. Lauderdale Miami -- 151,500 7/01/03
Georgia................. Smyrna(1) Atlanta 129,396 -- --
Georgia................. Norcross Atlanta 287,700 -- --
Illinois................ Carol Stream Chicago -- 139,444 6/30/97
Illinois................ Forest Park Chicago 222,280 106,000 11/30/95
Illinois................ Greenville St. Louis 210,000 -- --
Indiana................. Indianapolis Indianapolis 128,000 -- --
Louisiana............... Harahan New Orleans -- 104,385 11/20/95
Maryland................ Elkridge(1) Baltimore/Wash., D.C. -- 84,000 7/15/04
Maryland................ Harmans Baltimore/Wash., D.C. 323,980 170,000 2/29/96
Massachusetts........... Woburn Boston 372,000 -- --
Michigan................ Livonia Detroit 229,700 33,500 8/31/96
Minnesota............... Brooklyn Park Minneapolis/St. Paul 127,480 -- --
Minnesota............... Eagan Minneapolis/St. Paul 210,468 -- --
Missouri................ Kansas City Kansas City -- 77,244 5/31/98
New Jersey.............. Edison New York 257,578 133,177 6/30/98
New Jersey.............. Pennsauken Philadelphia 231,000 25,316 3/31/96
New York................ Coxsackie Albany 256,600 -- --
North Carolina.......... Charlotte Charlotte 104,000 -- --
North Carolina.......... Charlotte(1) Charlotte -- 81,726 7/31/97
Ohio.................... Cincinnati Cincinnati 108,778 -- --
Ohio.................... Columbus Columbus -- 126,665 8/31/99
Ohio.................... Springdale(1) Cincinnati -- 81,400 6/30/95
Ohio.................... Twinsburg Cleveland 206,136 -- --
Ohio.................... Valley View(1) Cleveland 233,508 -- --
Oklahoma................ Tulsa Tulsa 75,100 22,500 12/31/97
Oregon.................. Portland Portland -- 65,850 2/28/97
Tennessee............... Memphis Memphis -- 78,280 12/31/03
Tennessee............... Nashville Nashville -- 66,000 4/30/98
Tennessee............... Nashville Nashville -- 59,250 9/30/95
Texas................... Dallas Dallas 223,230 159,873 5/31/99
Texas................... Houston Houston -- 143,859 6/30/96
Texas................... Lubbock Lubbock -- 58,725 4/27/98
Texas................... San Antonio San Antonio -- 63,098 12/31/03
Utah.................... Salt Lake City Salt Lake City -- 89,324 9/30/99
Washington.............. Tukwila Seattle -- 144,031 3/31/97
Wisconsin............... Milwaukee Milwaukee 67,300 -- --
</TABLE>
- --------
(1) The Company plans to close the indicated eight facilities within 12 months
of the Merger. See "Business -- Consolidation Plan and Benefits of the
Acquisition."
(2) Except as specifically indicated, with respect to facilities subject to
more than one lease, references are to the earliest possible expiration
date.
(3) A portion of the lease covering 30,947 square feet of such property expires
on March 31, 1996.
The Company also owns 54,500 square feet of warehouse space in Jacksonville,
Florida, which it subleases to a third party.
58
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
In connection with the consummation of the Acquisition, seven of the nine
directors of United and all but one of the five directors of the Company
serving prior thereto were replaced by nominees designated by Associated. The
directors of United designated by Associated comprise the persons who were the
directors of Associated prior to the Acquisition. In addition, certain persons
serving as executive officers of the Company or Associated prior to the Merger
will no longer be serving in such capacity.
Set forth below is certain information with respect to those individuals who
are currently serving as members of the Boards of Directors and as executive
officers of United and the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ---------------------------------------------------
<C> <C> <S>
Thomas W. Sturgess 44 Director, Chairman of the Board, President and
Chief Executive Officer of United and the Company
Michael D. Rowsey 42 Director and Executive Vice President of United and
the Company
Steven R. Schwarz 41 Director of the Company; Executive Vice President
of United and the Company
Daniel H. Bushell 43 Director and Vice President of the Company; Chief
Financial Officer and Assistant Secretary of
United and the Company
Gary G. Miller 45 Director of United; Vice President and Secretary of
United and the Company
James T. Callier, Jr. 60 Director of United
Daniel J. Good 54 Director of United
Frederick B. Hegi, Jr. 51 Director of United
Jeffrey K. Hewson 51 Director of United and the Company
James A. Johnson 41 Director of United; Assistant Secretary of United
and the Company
Joel D. Spungin 56 Director of United
</TABLE>
Set forth below is a description of the backgrounds of the directors and
executive officers of United and the Company. There is no family relationship
between any directors or executive officers of United or the Company.
THOMAS W. STURGESS became President and Chief Executive Officer of United and
the Company on May 31, 1995 and Chairman of the Board of Directors of United
and the Company upon consummation of the Offer. Prior to the Merger, Mr.
Sturgess served as Chairman of the Board and Chief Executive Officer of
Associated since January 1992 and had been Chairman of the Board and Chief
Executive Officer of ASI since December 1994. Mr. Sturgess has served since
1987 as a general partner of various entities affiliated with Wingate Partners
("Wingate entities"), including the indirect general partner of each of Wingate
Partners and Wingate II. Mr. Sturgess currently serves as Chairman of the Board
of Redman Industries, Inc., a manufactured housing producer ("Redman"), as well
as RBPI Holding Corporation, a manufacturer and distributor of aluminum and
vinyl windows ("RBPI"). He is a director of Loomis Armored Inc., a provider of
armored car and related services ("Loomis"), AmeriStat Mobile Medical Services,
Inc., a provider of ambulance services ("AmeriStat"), and Century Products
Company, a manufacturer and distributor of baby seats and other juvenile
products ("Century Products").
MICHAEL D. ROWSEY was elected to the Board of Directors of United and the
Company upon consummation of the Offer and became Executive Vice President of
United and the Company upon consummation of the Merger. 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
59
<PAGE>
January 1992, Mr. Rowsey served in various capacities with BCOP, most recently
as the North Regional Manager.
STEVEN R. SCHWARZ was elected to the Board of Directors of the Company upon
consummation of the Offer and became Executive Vice President of United and the
Company upon consummation of the Merger. Prior thereto, he was Senior Vice
President, Marketing of United since June 1992 and had previously been Senior
Vice President, General Manager, MicroUnited since 1990 and Vice President,
General Manager, MicroUnited since September 1989. He had held a staff position
in the same capacity since February 1987.
DANIEL H. BUSHELL was elected to the Board of Directors of the Company upon
consummation of the Offer and became Chief Financial Officer and Assistant
Secretary of United and the Company and Vice President of the Company upon
consummation of the Merger. 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.
GARY G. MILLER was elected to the Board of Directors of United upon
consummation of the Offer and became Vice President and Secretary of United and
the Company upon consummation of the Merger. 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 Capital Corporation ("Cumberland"), a private investment firm which
is located in Fort Worth, Texas and is a stockholder of United. 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 CFData Corp., a
nationwide provider of check collection and check verification services and is
Vice President, Finance and Administration of Fore Star Golf, Inc., which was
formed in 1993 to own and operate golf facilities.
JAMES T. CALLIER, JR. was elected to the Board of Directors of United upon
consummation of the Offer. Prior to the Merger, he had been a director of
Associated since 1992. Mr. Callier is an indirect general partner of Wingate
Partners, and has served as President of Callier Consulting, Inc., an
investment management firm, since 1985. Mr. Callier currently serves as
Chairman of the Board of Century Products, as a director of Redman, RBPI and
Loomis and as an advisory director of Wingate II.
DANIEL J. GOOD was elected to the Board of Directors of United upon
consummation of the Offer. Prior to the Merger, he had been a director of
Associated since 1992. Mr. Good is Chairman of Good Capital Co., Inc. ("Good
Capital"), a private investment firm and investment advisory firm founded in
1989 and located in Lake Forest, Illinois, which is a stockholder of United.
Mr. Good is also Vice Chairman of Golden Cat Corporation, a producer and
distributor of cat care products and a producer of industrial absorbent
materials. Mr. Good serves on the Board of Directors of Supercuts, Inc. Prior
to founding Good Capital, Mr. Good was managing director of the Merchant
Banking Group of Shearson Lehman Hutton, Inc.
FREDERICK B. HEGI, JR. was elected to the Board of Directors of United upon
consummation of the Offer. 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 Board of Loomis Holding Corporation, the parent corporation
of Loomis, Tahoka First Bancorp, Inc., a bank holding company, and Cedar Creek
Bancshares, Inc., a bank holding company, and as a director of RBPI, Century
Products, Lone Star Technologies, Inc., a diversified company engaged in the
manufacturing of steel pipe and in commercial banking services, Cattle
Resources, Inc., a manufacturer of animal feeds and operator of commercial
cattle feedlots and various funds managed by InterWest Partners.
60
<PAGE>
JEFFREY K. HEWSON served as President and Chief Executive Officer of United
and the Company from consummation of the Merger until May 31, 1995. Prior
thereto, he was President and Chief Operating Officer of United and the Company
since April 1991. He had been Executive Vice President of United and the
Company since March 1990. Prior to that, he had been President of ACCO
International's U.S. Division since 1989 and President of its Canadian Division
since 1987. ACCO International is a manufacturer of traditional office products
and a subsidiary of American Brands, Inc., which is a global consumer products
holding company.
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 each of Wingate Partners
and 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
and AmeriStat.
JOEL D. SPUNGIN has served as a member of the Board of Directors of United
since 1972 and prior to the consummation of the Offer was a member of the Board
of Directors of the Company, and Chairman of the Board of Directors of United
and the Company and prior to the Merger was Chief Executive Officer of United
and the Company since August 1988. From October 1989 until April 1991, he was
also President of United and the Company. Prior to that, since March 1987, Mr.
Spungin was Vice Chairman of the Board and Chief Executive Officer of United
and the Company. Previously, since August 1981, Mr. Spungin was President and
Chief Operating Officer of United and the Company. He also serves as a director
of AAR Corp.
Approximately 75% of the Shares expected to be outstanding on the date of
this Prospectus are held in a voting trust (the "Voting Trust") pursuant to a
Voting Trust Agreement dated as of January 31, 1992 (the "Voting Trust
Agreement"). The trustees of the Voting Trust are Thomas W. Sturgess, Frederick
B. Hegi, Jr., James A. Johnson, Daniel J. Good and Gary G. Miller. The trustees
of the Voting Trust hold all voting power to vote the Shares held in the Voting
Trust and may act by a majority vote of the trustees. The trustees agree to
vote all Shares in trust to elect a board of directors of United with (i) a
least one representative designated by Good Capital, (ii) at least one
representative designated by ASI Partners, L.P., the general partner of which
is Cumberland, (iii) at least one representative designated by certain key
executives (consisting of Messrs. Rowsey, Eberspacher, Schleppe and L. Miller)
of United and (iv) such number of directors designated by Wingate Partners as
will represent a majority of the total number of directors. The Voting Trust
terminates on January 31, 2002 or upon the consummation of an underwritten
public offering of the Shares which meets certain criteria specified in the
Voting Trust Agreement. The Voting Trust Agreement does not apply to the
election of directors of the Company, although by virtue of the power to elect
the directors of United the trustees of the Voting Trust will indirectly have
the power to elect the directors of the Company. Officers of United and the
Company are elected by their respective Boards of Directors and hold office
until their respective successors are duly elected and qualified.
United's Restated Certificate of Incorporation (as hereinafter defined)
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
consistent of three years. The Directors currently in each class are as
follows: Class I (having terms expiring in 1996) -- Messrs. Good, Johnson and
Hewson; Class II (having terms expiring in 1997) -- Messrs. Sturgess, Hegi and
Rowsey; and Class III (having terms expiring in 1998) -- Messrs. G. Miller,
Callier and Spungin.
Certain directors of United who are not officers or employees of United or
the Company currently receive an annual retainer fee of $18,000, plus a fee of
$1,000 for each board meeting attended and a fee of $600 for each committee
meeting attended. An additional fee of $250 per committee meeting is
61
<PAGE>
currently paid to the chairman of each committee. When United's business
requires an overnight stay for a board or committee meeting, an additional $600
is currently paid. Certain of such fees may be deferred under the Directors'
Deferred Compensation Plan. United also has a retirement program for its
outside directors who have served at least one year as a director. Under the
program, directors are entitled to receive, upon their retirement from the
board after the age of 65, 50.0% of their last annual retainer per year of
service for those directors with less than seven years of service and 100.0% of
their last annual retainer per year of service as a director for those with
seven or more years of service. In addition, all directors are reimbursed for
travel expenses incurred in attending meetings. United also maintains a term
life insurance policy in the amount of $100,000 for the benefit of each
director. United is in the process of evaluating the extent to which the fees
and other benefits currently received by directors of United and the Company
will be retained, modified or terminated for directors of United and the
Company after the Merger.
EXECUTIVE COMPENSATION FOR UNITED
Compensation for executive officers of United and the Company is currently
governed by plans and other arrangements established by United for the benefit
of the employees of both United and the Company. United is in the process of
evaluating the extent to which the benefit plans and arrangements and other
matters relating to executive compensation described below that were in effect
for officers and employees of United and the Company prior to the Merger will
be retained, modified or terminated for officers and employees of United and
the Company after the Merger.
Compensation Table. The following table sets forth the compensation paid
during United's last three fiscal years to the Chief Executive Officer and each
of the four most highly compensated officers of United in all capacities in
which they served at the end of United's fiscal year ended August 31, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- ----------------------------
AWARDS
------------------
LONG-
OTHER TERM
ANNUAL RESTRICTED OPTIONS INCENTIVE ALL OTHER
COMPEN- STOCK (NUMBER PLAN COMPEN-
NAME AND FISCAL SALARY SATION AWARDS OF PAYOUTS SATION
PRINCIPAL POSITION YEAR (1) BONUS (2) (4) SHARES) (5) (2)(6)
------------------ ------ -------- -------- -------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel D. Spungin 1994 $431,667 $ -- $ (3) $ -- 45,000 $41,198 $11,416
Chairman and Chief 1993 420,500 201,344 (3) -- -- 37,683 13,243
Executive Officer 1992 401,975 262,006 -- -- 30,000 12,088 --
Jeffrey K. Hewson 1994 309,167 -- (3) -- 38,000 23,169 5,076
President and Chief 1993 286,250 119,074 (3) -- -- 14,283 6,382
Operating Officer 1992 268,750 158,125 -- 85,000 50,000 -- --
Ronald W. Weissman 1994 216,500 19,530 (3) -- -- 12,902 5,199
Executive Vice President 1993 213,750 74,810 (3) -- -- 14,833 7,378
1992 207,500 107,625 -- -- 7,500 4,489 --
Allen B. Kravis 1994 188,469 -- (3) -- 21,000 11,451 4,559
Sr. Vice Pres., Chief 1993 175,250 65,260 (3) -- -- 9,834 6,494
Financial Officer 1992 158,583 81,488 -- 21,250 25,000 2,105 --
Steven R. Schwarz 1994 181,890 15,818 (3) -- 21,000 9,677 822
Sr. Vice President 1993 169,875 57,279 (3) -- -- 8,226 2,861
1992 152,250 66,500 -- 34,375 15,000 918 --
</TABLE>
- --------
(1) Includes compensation amounts earned during the fiscal year but deferred
pursuant to Section 401(k) of the Internal Revenue Code under United's
Profit Sharing PluSavings Plan.
62
<PAGE>
(2) Disclosure of "Other Annual Compensation" and "All Other Compensation" is
not required for the fiscal year ended August 31, 1992.
(3) No amounts of "Other Annual Compensation" were paid to any named executive
officer, except for perquisites and other personal benefits which for each
executive officer did not exceed the lesser of $50,000 or 10.0% of such
individual's salary and bonus for the indicated fiscal year.
(4) Restricted stock awards are valued at the market price on date of grant.
Grants are made under the 1981 Stock Incentive Award Plan, and include tax
withholding rights which permit the officer to elect to have shares
withheld to satisfy federal, state and local tax withholding requirements
when the shares become unrestricted, generally three years after the grant
date. Dividends are paid on restricted shares at the same rate paid to all
shareholders. On August 31, 1994, Mr. Schwarz held 2,500 shares of
restricted stock valued at year-end market value for Shares of $9.50 per
share, or a total value of $23,750.
(5) Includes payments from Executive Bonus Plan (as hereinafter defined) of
awards earned in prior years payable in three annual installments as shown
below. Awards are partly (30.0%) in cash and partly (70.0%) in Share Units
(as hereinafter defined) which are converted to and paid out in common
stock. Cash payments include earnings on the cash amounts based on United's
return on equity or the treasury bill rate. Stock payments are valued at
the stock price as of the date of the award of Share Units:
<TABLE>
<CAPTION>
SPUNGIN HEWSON WEISSMAN KRAVIS SCHWARZ
------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C>
1994:
Cash................................ $15,789 $8,885 $4,975 $4,402 $3,730
Stock............................... 25,409 14,284 7,927 7,049 5,947
1993:
Cash................................ 13,224 4,478 5,173 3,328 2,687
Stock............................... 24,460 9,805 9,659 6,506 5,539
1992:
Cash................................ 5,059 -- 1,878 880 386
Stock............................... 7,029 -- 2,611 1,225 532
</TABLE>
(6) Includes premiums paid during 1994 for Split Dollar Life, Group Life and
Accidental Death insurance policies (Mr. Spungin $11,416, Mr. Hewson
$5,076, Mr. Weissman, $5,199, Mr. Kravis $4,559 and Mr. Schwarz $822).
United made no contributions to its Profit Sharing PluSavings Plan for the
indicated officers during 1994.
Option Grants. Options were granted during United's fiscal year ended August
31, 1994 to all of the executives named in United's Summary Compensation Table
on October 22, 1993 and August 24, 1994, all of which were redeemed upon
consummation of the Merger. The following table contains information concerning
such grants:
63
<PAGE>
OPTION GRANTS DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM (5)
-----------------------
PERCENT OF
OPTIONS TOTAL OPTIONS
GRANTED GRANTED TO
(NUMBER OF EMPLOYEES EXERCISE OR
SHARES) IN FISCAL YEAR BASE PRICE EXPIRATION
NAME (1) (4) (PER SHARE) DATE 5% 10%
---- ---------- -------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joel D. Spungin 25,000(2) 6.2% $16.25 10/21/99 $138,164 $313,447
20,000(3) 5.0% 10.00 08/23/98 43,101 92,820
Jeffrey K. Hewson 20,000(2) 5.0% 16.25 10/21/99 110,531 250,757
18,000(3) 4.5% 10.00 08/23/98 38,791 83,538
Ronald W. Weissman -0- -- -- -- -- --
Allen B. Kravis 12,000(2) 3.0% 16.25 10/21/99 66,319 150,454
9,000(3) 2.2% 10.00 08/23/98 19,396 41,769
Steven R. Schwarz 12,000(2) 3.0% 16.25 10/21/99 66,319 150,454
9,000(3) 2.2% 10.00 08/23/98 19,396 41,769
</TABLE>
- --------
(1) Options were granted under the 1981 Stock Incentive Award Plan at market
price on the date of grant.
(2) Options granted October 22, 1993 became exercisable in four equal annual
increments commencing October 21, 1994.
(3) Options granted August 24, 1994 became exercisable in three equal annual
increments commencing August 23, 1995.
(4) Based on 401,050 options granted to employees during the fiscal year.
(5) The amounts under the columns labeled "5%" and "10%" are included pursuant
to certain rules of the Commission, and are not intended to forecast future
appreciation, if any, in the price of the Shares. The actual value of the
options will vary in accordance with the market price of the Shares; any
such variance will affect all stockholders commensurately.
The following table contains information concerning option exercises during
United's fiscal year ended August 31, 1994 by each of the named executive
officers and the fiscal year end values:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR- OPTIONS AT FISCAL
END YEAR-END (1)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel D. Spungin -- $ -- 88,310 67,800 $6,192 $4,128
Jeffrey K. Hewson -- -- 47,000 71,000 8,310 5,540
Ronald W. Weissman -- -- 71,610 12,500 5,160 3,440
Allen B. Kravis -- -- 44,750 38,000 3,840 2,560
Steven R. Schwarz -- -- 26,450 35,000 3,870 2,580
</TABLE>
- --------
(1) The values given are based on the closing price of the Shares on August 31,
1994 which was $9.50, less the exercise price, before payment of applicable
income taxes.
Bonus Plans. A Management Incentive Plan ("MIP") provides annual incentive
compensation opportunities to officers and other upper management level
participants based on United's performance, region or division performance, and
personal performance. Under the MIP, annual targets are set by the Board of
Directors and bonuses are awarded under a formula based on percentage
attainment of the targets. The incentive awards for the Chief Executive Officer
("CEO"), Chief Operating
64
<PAGE>
Officer ("COO") and Chief Financial Officer ("CFO") are based solely on the
earnings performance of United. If United fails to produce minimum targeted
results, no incentives are paid to the CEO, COO or CFO. For fiscal year 1994,
United failed to meet the targets set by the Compensation Committee; therefore,
no bonuses were earned by the executive officers based on United's performance
although certain officers (other than the CEO, COO and CFO) did earn bonuses
based on personal performance targets.
United's Executive Bonus Plan ("EBP") applied to the Company's officers prior
to the Merger. While the EBP provided annual incentive opportunity, it also
focuses on long-term results. Annual targets were established by the
Compensation Committee measured by return on equity ("ROE") or the treasury
bill rate. Bonus awards were made annually, if earned, based on the percentage
achievement of targets set, with 50% of the awards deferred and paid over a
three-year period. Of the deferred amounts, approximately 30% is in cash to be
paid in three annual installments. The deferred cash portion was to increase
based on the subsequent ROE performance. The other 70% of the deferred award
was converted to "Share Units" having a value equal to the market price of one
share of Common Stock. Thus the value of the Share Units rises and falls in
response to market fluctuations. The Share Units are converted into Shares upon
distribution in three annual increments. For fiscal year 1994, no bonuses were
earned under the EBP because United failed to meet the ROE target set by the
Compensation Committee.
Based on amendments to the MIP and the EBP completed shortly before the
execution of the Merger Agreement, amounts accrued under the EBP in respect of
Messrs. Spungin, Hewson, Weissman, Kravis and Schwarz (collectively, the
"Protected Employees") were paid out based on United's performance through the
date of the consummation of the Offer for the portion of the plan year through
the last day of the month in which the Merger occurred and amounts accrued
through March 30, 1995 under the MIP in respect of the Protected Employees have
not been paid as of June 2, 1995 (such amounts are guaranteed under the Bonus
Trust Agreement (as hereinafter defined)). In addition, amounts shall be paid
out for the balance of the plan year under the MIP at 100% of the financial
targets under that plan. The Bonus Trust Agreement (as hereinafter defined)
secures the amount reasonably estimated by United to be owed to the Protected
Employees of United with respect to the EBP and MIP with respect to the current
fiscal year. The amount of the bonus under the MIP for the post-Merger
remainder of the current fiscal year was established at 100% of the bonus
opportunity for each of the Protected Employees. The amount of the bonus to
which each Protected Employee was entitled for the pre-Merger portion of the
current fiscal year was established, in accordance with the terms of the MIP,
at 150% of the bonus opportunity under such plan. These bonus payments are
expected to be made by the trustee under the Bonus Trust Agreement on or before
October 1995. Following the payment of all bonuses, the trust created by the
Bonus Trust Agreement shall terminate.
United adopted a severance plan for the officers of the Company shortly
before the execution of the Merger Agreement which provides a severance payment
of one year's base salary if an officer is terminated without cause or leaves
after remaining for the full transition period requested by United.
Prior to the consummation of the Offer, United, as settlor, entered into an
irrevocable trust agreement (the "Benefits Trust Agreement") with American
National Bank and Trust Company of Chicago, as trustee (the "Benefits
Trustee"). The Benefits Trust Agreement secures the payment of all amounts owed
to certain employees under their amended employment contracts, certain
obligations of United to provide post-employment medical benefits, certain
severance benefits to former employees, and related costs. Under the terms of
the Benefits Trust Agreement and the Merger Agreement, United has caused an
irrevocable letter of credit in the initial amount of $24.0 million to be
furnished to the Benefits Trustee by Chase Bank. Each compensation or benefit
payment by the Benefits Trustee reduces the amount of the letter of credit. To
the extent that United makes payments of compensation and benefits covered by
the Benefits Trust Agreement or otherwise satisfies its obligation to these
current and former employees (or, in some cases, their eligible dependents or
surviving beneficiaries) and obtains a waiver from such persons, the letter of
credit will be reduced as provided in such waiver.
65
<PAGE>
Prior to the consummation of the Offer, United, as settlor, entered into an
irrevocable trust agreement (the "Bonus Trust Agreement") with the Benefits
Trustee. The Bonus Trust Agreement secures the amount reasonably estimated by
United to be owed to certain employees for amounts accrued and to be accrued
under the MIP. Under the terms of the Bonus Trust Agreement, United has caused
an irrevocable letter of credit in the amount of approximately $3.4 million
(the "Bonus LOC") to be furnished by Chase Bank to the Benefits Trustee. The
Benefits Trustee will draw on the Bonus LOC (without the necessity of a default
by United) on October 16, 1995 to make distributions to trust beneficiaries for
amounts accrued through the date of the Merger under United's MIP, unless such
amounts have been previously paid. After this one-time distribution, the trust
will be closed.
Spungin Employment Contract. Prior to the execution and delivery of the
Merger Agreement, Joel D. Spungin had an employment and consulting agreement
under which Mr. Spungin was to be employed at a salary of not less than
$425,000, plus participation in all bonus, stock options and other benefit
plans generally available to executive officers of United.
United has amended the employment agreement with Mr. Spungin, effective as of
the consummation of the Offer. On March 20, 1995, Mr. Spungin resigned his
offices with United and was relieved of all duties thereto, except that he
remains an employee of United, and shall, subject to nomination and election,
serve as a member of the Board of Directors of United. His term of employment
will continue until August 31, 1995, unless terminated by either Mr. Spungin or
United. Mr. Spungin will continue to be paid his current employee benefits and
salary until August 31, 1995. On September 1, 1995, Mr. Spungin shall become an
executive consultant to United for a period of 11 years in accordance with the
terms of his amended employment agreement. United shall pay the sum of
$2,276,209 to Mr. Spungin on September 1, 1995, and for the period of September
1, 1995 through August 31, 1996, United shall pay Mr. Spungin $530,000 in equal
or nearly equal monthly installments. Beginning on September 1, 1996 and
continuing until the end of the consulting term, United shall make a monthly
payment of approximately $34,269.63 to Mr. Spungin amounting to a total of
$6,918,565.
Mr. Spungin and his spouse will receive coverage under United's present
medical plan for their lives, subject to a $1,000,000 lifetime maximum payment
limit in the aggregate for each of them. United is not permitted to terminate
such coverage without also terminating United's medical plan. If Mr. Spungin or
his spouse lose their medical coverage on account of a termination of United's
medical plan or United's failure to provide such medical coverage, (i) United
will pay premiums not to exceed, in the aggregate, $242,701 (such amount shall
not be applied against the $1,000,000 per person lifetime maximum) for
individual insurance coverage until Mr. Spungin and his spouse become eligible
for Medicare, (ii) United will pay premiums for Medicare supplemental policies
for the remainder of their lives (such amount shall not be applied against the
$1,000,000 per person lifetime maximum) and (iii) at any time Mr. Spungin and
his spouse are not reimbursed for medical expenses under such individual
insurance policies, United will pay or reimburse such medical expenses incurred
by Mr. Spungin and his spouse up to a $1,000,000 lifetime maximum payment for
each of them. If United fails to obtain an individual insurance policy within
30 days after termination of United's medical plan, it shall then pay Mr.
Spungin the sum of $242,701 in addition to expenses which may be paid under his
$1,000,000 million lifetime maximum benefit referred to in clause (iii) above.
United's obligation to provide such medical payments may be satisfied by
payments made under the Benefits Trust Agreement.
A failure by Mr. Spungin to render services to United or his disability shall
not cause a forfeiture of his entitlement to any amount or benefit under his
employment agreement. Upon Mr. Spungin's death, his spouse shall receive the
remainder of the salary and consulting payments due.
If United breaches any of its obligations to Mr. Spungin, he may resign and
remain entitled to the amounts under his employment agreement. Further, if
United fails to make any payment to which Mr. Spungin is entitled when due, all
the unpaid consulting payments and fringe benefits shall become
66
<PAGE>
payable immediately. Substantially all of United's obligations are secured by
the Benefits Trust Agreement.
Hewson Employment Contract. Mr. Hewson resigned as President and Chief
Executive Officer of United and the Company on May 31, 1995. Effective as of
the consummation of the Offer, United amended the employment agreement with Mr.
Hewson to, among other matters, reduce his term of employment to not more than
one year, eliminate his consulting term and provide for additional bonuses. In
recognition of Mr. Hewson's efforts prior to the consummation of the Offer and
his expected responsibilities following the consummation of the Offer, United
agreed to make a single payment of $875,000 to Mr. Hewson on September 26, 1995
(180 days after the consummation of the Offer). On the expiration of Mr.
Hewson's term of employment, he became entitled to receive an aggregate amount
equal to $1,575,000, which, except in limited circumstances, will commence with
an initial payment of $650,370 and the remainder payable monthly in equal
installments of $26,418.
Mr. Hewson and his spouse (and their eligible dependent children) became
entitled, upon the termination of Mr. Hewson's employment, to post-employment
medical coverage under United's medical plan until he reaches age 65 and his
spouse will also continue to be covered until she reaches age 65, subject to a
$1,000,000 maximum benefit payment limit, in the aggregate. United is not
permitted to terminate such coverage without also terminating United's medical
plan. If such plan is terminated, Mr. Hewson will be entitled to receive until
age 65 (but for not more than 18 months) (i) monthly payments equal to the
conversion premium under such plan and (ii) reimbursements for medical expenses
not covered by any insurance policy up to an aggregate of $300,000 for Mr.
Hewson and his eligible dependents, subject to an aggregate limit of $700,000
for all officers referred to as "contract officers" under the medical plan.
Other Executive Employment Contracts. Prior to the execution and delivery of
the Merger Agreement, employment and consulting agreements were also entered
into with Ronald W. Weissman, Allen B. Kravis, Steven R. Schwarz, Robert H.
Cornell, Otis H. Halleen, Jerold A. Hecktman and Ted S. Rzeszuto. The
agreements generally provide for annual compensation of not less than the
officer's salary at the time the employment agreement was made, plus
participation in all bonus, stock option and other benefit plans generally
available to executive officers of United. The existing employment agreements
with Messrs. Schwarz, Cornell, Halleen, Hecktman and Rzeszuto were amended or
restated, effective as of the consummation of the Offer to, among other
matters, reduce the term for which United is obligated to employ these officers
and to encourage these officers not to voluntarily resign during the
transitional period following the consummation of the Offer. Existing letters
describing Ergin Uskup's terms of employment have been substituted by a new
employment agreement which is intended to encourage Mr. Uskup not to
voluntarily resign for the one-year period following the consummation of the
Offer.
Each amendment provides that the term of employment shall be limited to one
year following the consummation of the Offer unless, within 30 days after the
consummation of the Offer, United notifies the officer of an earlier date of
termination. Under the employment agreement with Mr. Uskup, United has 30 days
following the consummation of the Offer to notify him whether his employment is
terminated or whether his term of employment shall be for the one year period
following the consummation of the Offer. If United terminates Mr. Uskup's
employment, Mr. Uskup will be entitled to receive severance in the amount of
$350,000. Further, each amendment eliminates the four-year consulting term
previously included in the employment agreements. Upon completion of the term
of employment, each officer (other than Mr. Uskup) shall be entitled to a bonus
equal to two times his highest annual compensation (including salary,
retirement benefit accruals and incentive compensation) paid or accrued during
the preceding five years, except the officer shall not be entitled to such
bonus if he voluntarily resigns without good reason (as defined in the
employment agreement, as amended) or is terminated by United for breach of a
fiduciary duty to United. Upon completion of his term of employment, Mr. Uskup
shall be
67
<PAGE>
entitled to receive a bonus equal to his annual salary. The stay bonuses are to
be secured as an obligation of the trust under the Benefits Trust Agreement.
Jeffrey K. Hewson (President and Chief Operating Officer), Steven R. Schwarz
(Senior Vice President, Marketing), Robert H. Cornell (Vice President, Human
Resources), Otis H. Halleen (Vice President, Secretary and General Counsel),
Ted S. Rzeszuto (Vice President and Controller), Jerold A. Hecktman (Vice
President, Advertising) and Ergin Uskup (Vice President, MIS -- Chief
Information Officer) are entitled to receive stay bonuses of $1,575,000,
$678,227, $602,985, $589,210, $511,297, $492,050 and $175,000, respectively.
The aggregate amount of stay bonuses under all amendments to the employment
agreements is $5,520,066.
As to certain current and former officers, amendments preclude United from
eliminating their eligibility for retiree medical coverage under United's
medical plan so long as United maintains such plan. In the event such medical
plan is terminated, United shall provide each officer with a monthly amount
equivalent to the current monthly premium under United's group medical plan to
convert to an individual medical policy for a period not to exceed 18 months.
This transition medical coverage also applies to Melvin L. Hecktman, James A.
Pribel and certain former employees currently entitled to retiree medical
coverage. In addition, for not more than 18 months, the covered officers and
their eligible dependents would be entitled to reimbursement of medical
expenses which are not covered by such individual medical policy or other
medical insurance, up to an aggregate of $300,000 for each such officer and his
dependents, subject to an aggregate limit of $700,000 for all of the covered
officers and their dependents.
The amendments also update the employment agreements to reflect the salary
and employee benefits to which the officers are currently entitled. The
amendments also set forth a procedure for an officer to exercise his right to
resign for good reason (as defined in the employment agreement, as amended) or
for United to terminate his employment for a breach of his fiduciary duty.
Profit Sharing PluSavings Plan. United has a qualified Profit Sharing
PluSavings Plan (the "Profit Sharing Plan") in which all salaried employees and
certain hourly paid employees of United and its subsidiaries are eligible to
participate following completion of six consecutive months of employment. The
Profit Sharing Plan provides for annual contributions by United in an amount
determined by the Board of Directors of United. The Profit Sharing Plan
consists of a "Basic Contribution," "Excess Contribution" and "Matching
Contributions." The Basic Contribution is allocated based on the ratio of each
participant's earnings to the earnings of all participants for the year.
Allocations under the Excess Contribution are based upon participants' earnings
in excess of 85% of the Social Security Taxable Wage Base. The portion vested
under the Basic Contribution described above will be immediately fully vested
in the participant's account. The portion described under the Excess
Contribution vests 10% each year for the first four years and 20% per year
thereafter, until fully vested after seven years. Upon retirement, death or
disability, a participant or his beneficiary is entitled to the entire amount
of his account. A participant whose employment terminates for any reason other
than retirement, death or disability is entitled to only the vested portion of
his account. The plan also permits employees to have contributions made as
401(k) salary deferrals on their behalf and to make after-tax voluntary
contributions.
United did not make any contribution to the Profit Sharing Plan for the year
ended August 31, 1994 (except for the Matching Contributions described below).
The Profit Sharing Plan provides that United may match employee contributions
made as 401(k) salary deferrals. United is contributing $.25 for each $1.00 of
pre-tax employee contributions, on contributions up to 4% of eligible wages.
For the fiscal year ended August 31, 1994, United paid $494,347 in matching
contributions.
68
<PAGE>
Pension Plans. United maintains a noncontributory pension plan covering
officers of United and the Company (the "Pension Plan"). Employees are eligible
to participate following the conclusion of twelve consecutive months of
employment and the attainment of age 21. The Pension Plan provides for annual
retirement benefits at age 65 equal to one percent of an employee's career-
average annual compensation (as reported to the Internal Revenue Service)
multiplied by the number of years of credited service up to a maximum of 40
years; however, an employee's annual compensation for each year of service
prior to September 1989, is deemed to be the compensation earned by such
employee during the twelve month period ending on August 31, 1989. An
employee's pension rights fully vest after five years of service. These
benefits are in addition to normal Social Security retirement benefits.
Alternative benefit options of early retirement, joint and survivor annuity,
and disability are also available. All such options are of actuarially
equivalent value to the basic pension. The normal retirement age under this
plan is 65.
The following table sets forth the estimated annual benefits upon retirement
at age 65 under the Pension Plan to the five executive officers individually
named in United's Summary Compensation Table (calculated on the basis of
estimated years of service at retirement age and levels of compensation paid in
calendar year 1994, assuming 5.5% compounded annual increases):
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL
PENSION AT
NAME OF PARTICIPANT RETIREMENT
------------------- ----------
<S> <C>
Joel D. Spungin................................................ $150,493
Jeffrey K. Hewson.............................................. 37,607
Ronald W. Weissman............................................. 65,071
Allen B. Kravis................................................ 43,813
Steven R. Schwarz.............................................. 85,042
</TABLE>
As of August 31, 1994, the credited years of service under the Pension Plan
for the five individuals named were as follows: Mr. Spungin, 36 years; Mr.
Hewson, 4 years; Mr. Weissman, 26 years; Mr. Kravis, 19 years and Mr. Schwarz,
17 years.
United's contributions to the Pension Plan are not allocated to the accounts
of the individual participants.
In connection with the Merger, the Pension Plan was amended to provide that
the actuarial factors employed by the plan may not be adjusted in a manner that
would reduce lump sum benefits payable under the Pension Plan.
United also maintains a number of retirement benefit plans for its employees
who are covered under collective bargaining agreements.
Supplemental Benefits Plan. The Board of Directors of United has adopted a
nonqualified unfunded program ("Supplemental Benefits Plan") to provide for the
payment to individuals of benefits which would otherwise be payable under
United's Pension Plan and Profit Sharing Plan but which may not be paid under
such plans due to limits imposed by Sections 401(a)(17) and 415 of the Internal
Revenue Code. In addition, the plan also provides that a participant in the
plan who has reached 40 years of service and age 65, but continues as an
employee (for example, under a consulting agreement) would be able to elect to
receive, upon retirement, the lump sum amount to which he or she would have
been entitled had retirement begun at age 65. As of September 1, 1994, Messrs.
Spungin, Hewson, Weissman, Kravis and Schwarz would be entitled to receive
potential annual pension payments, pursuant to the Supplemental Benefits Plan,
of approximately $93,089, $109,434, $4,303, $17,625 and $79,031 respectively,
commencing at normal retirement age.
69
<PAGE>
Amendments to Medical Plan. United amended its medical plan shortly before
the execution of the Merger Agreement. United's medical plan was amended to
generally provide that: (i) the plan cannot be changed or terminated with
respect to certain designated officers or early retirees; and (ii) certain
designated officers (upon termination of employment) and early retirees and
their spouses can continue to participate in the medical plan until age 65
under the same general terms and conditions applicable to active employees,
subject to an aggregate maximum benefit limit of $250,000 for each early
retiree and $1,000,000 for certain designated officers. The medical plan was
also amended to provide that, in the event of its termination, United will
provide certain funds to designated individuals for a specified period of time
for the purpose of (i) obtaining health insurance; and (ii) reimbursing such
individuals for medical expenses in the event of their uninsurability or
catastrophic illness.
Compensation Committee Interlock and Insider Participation. Compensation
decisions for executive officers of United and the Company for the fiscal year
ending August 31, 1994 were made by the compensation committee of the Board of
Directors of United consisting of E. David Coolidge III (Chairman), Jack J.
Crocker, David R. Smith, Jack Twyman and, upon the retirement of Jack J.
Crocker in January 1994, Douglas K. Chapman. None of such persons was during
such fiscal year, or was formerly, an officer or employee of United or the
Company. Mr. Coolidge is the Managing Partner of William Blair & Company, which
from time to time has rendered investment banking and related services to
United, for which United has paid customary fees. After the Merger, the Company
does not expect to have a compensation committee or other committee of the
Board of Directors of United or the Company performing similar functions.
Decisions concerning compensation of executive officers are expected to be made
by the Board of Directors of the Company which will include Thomas W. Sturgess,
Jeffrey K. Hewson and Michael D. Rowsey, each of whom is an executive officer
of United and the Company.
EXECUTIVE COMPENSATION FOR ASSOCIATED
Cash Compensation. The following table sets forth all cash compensation paid
by ASI, as well as certain other compensation paid as accrued, during
Associated's last three fiscal years to the Chief Executive Officer and each of
the four most highly compensated officers of Associated in all capacities in
which they served at the end of Associated's fiscal year ended December 31,
1994.
70
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION(1)
- ------------------ ------ -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Thomas W. Sturgess(2)... 1994 $ 0 $ 0 $ 0 $ 0
Chairman of the Board
and 1993 0 0 0 0
Chief Executive Officer 1992 0 0 0 0
Edward R. Simon, Jr.(3). 1994 171,358 0 --(4) 1,750
Former Chairman of the
Board 1993 291,684 0 100,744(5) 4,290
and Chief Executive
Officer of ASI 1992 0 0 0 0
Michael D. Rowsey....... 1994 211,752 85,000 --(4) 3,220
President and Chief 1993 209,748 0 --(4) 4,447
Operating Officer 1992 186,758 15,000 51,310(5) 2,537
Daniel J. Schleppe...... 1994 184,848 36,969 --(4) 2,812
Vice President 1993 183,318 0 0 3,883
1992 163,834 7,500 0 2,221
Daniel H. Bushell....... 1994 181,728 80,000 --(4) 2,764
Chief Administrative
Officer and 1993 179,730 0 0 3,803
Chief Financial Officer 1992 155,848 15,000 --(4) 2,156
Robert W. Eberspacher... 1994 169,074 42,585 21,997(6) 2,572
Vice President 1993 163,668 0 0 3,460
1992 145,608 9,000 55,038(5) 1,967
</TABLE>
- --------
(1) Reflects (a) term life insurance premiums paid by Associated on behalf of
such individuals and (b) amounts contributed on behalf of such individuals
to the Associated Profit Sharing and Savings Plan.
(2) Mr. Sturgess was elected Chairman of the Board and Chief Executive Officer
of Associated effective January 1992. Although Mr. Sturgess did not receive
a salary for his services to Associated, he serves as a general partner of
various Wingate entities including the indirect general partner of Wingate
Partners. Wingate Partners earned annual management fees from Associated of
$350,000, $210,000 and $320,833 with respect to fiscal years 1994, 1993 and
1992, respectively, for providing management services to Associated
pursuant to an Investment Banking Fee and Management Agreement described
below under "Certain Transactions -- Management Agreements." None of the
compensation received by Mr. Sturgess from Wingate Partners is specifically
allocated based upon services provided by him to Associated.
(3) Mr. Simon resigned as Chairman of the Board and Chief Executive Officer of
ASI effective December 18, 1994.
(4) Amounts do not exceed the lesser of $50,000 or 10.0% of the individual's
salary and bonus for the indicated fiscal year.
(5) Amounts represent relocation expenses paid by Associated on behalf of such
executives.
(6) Includes $1,997 and $20,000 paid by Associated as reimbursement for spousal
travel expenses and club membership dues, respectively, on behalf of Mr.
Eberspacher.
Employment Agreements. Prior to the consummation of the Merger, Associated
entered into employment agreements with the following former executive officers
of Associated pursuant to which such executives have agreed to serve in the
capacities and for the salaries listed below. Such employment agreements are
now obligations of United.
71
<PAGE>
<TABLE>
<CAPTION>
EMPLOYEE POSITION SALARY
-------- ------------------------------------------ --------
<C> <S> <C>
Michael D. Rowsey....... President and Chief Operating Officer of
Associated and ASI $200,000
Daniel J. Schleppe...... Executive Vice President of Associated and
ASI 175,000
Daniel H. Bushell....... Chief Administrative and Chief Financial
Officer of Associated and ASI 170,000
Robert W. Eberspacher... Vice President, Northern Operations of ASI 155,000
Duane J. Ratay.......... Vice President, Corporate Operations of
ASI 125,112
Lawrence E. Miller...... Vice President of Marketing of ASI 125,000
</TABLE>
Such salaries are subject to increase at the discretion of the Board of
Directors of United. In addition, the agreements provide for payment of an
annual bonus to such executives, based on the performance of United and such
executive's performance, in such amount, if any, as determined in good faith by
the Board of Directors of United. The agreements were initially scheduled to
terminate on January 31, 1995, but by their terms have been extended on a year
to year basis until terminated in writing by either party at least sixty (60)
days prior to the end of such term. If, prior to expiration, such employee's
employment is terminated by United other than for cause, such executive will be
entitled to a continuation of base salary and benefits for one year after
termination.
Stock Option Plan. Associated adopted the Associated Holdings, Inc. 1992
Management Stock Option Plan (the "Management Stock Option Plan") pursuant to
which incentive and non-qualified stock options could be issued to certain of
its officers, key employees and directors. A total of 86,735 shares of
Associated Common Stock was reserved for issuance under the Management Stock
Option Plan. In connection with the Merger, United assumed all of the
obligations of Associated under the Management Stock Option Plan, with an
aggregate of 202,962 Shares being authorized for issuance under the plan.
The Management Stock Option Plan, as amended, is administered by the Board of
Directors of United, although the plan provides that the Board of Directors of
United may designate an option committee to administer the plan. Options
outstanding under the Management Stock Option Plan as of the Merger Date became
exercisable for a number of Shares equal to the number of such Shares that
would have been received in respect of such option if it had been exercised
immediately prior to the Effective Time. See "The Acquisition."
Under the Management Stock Option Plan, certain executive officers, key
employees and directors are eligible to receive incentive and non-qualified
options to purchase shares of Associated Common Stock. Subject to restrictions
contained in the Management Stock Option Plan, stock options are exercisable at
such time and on such terms as the Board of Directors of Associated determined.
The exercise price of any option granted pursuant to the Management Stock
Option Plan is not permitted to be less than the fair market value per Share on
the date of grant, as determined by the board of directors of United. Subject
to certain additional limitations, no option by its terms was not permitted to
be exercisable after the expiration of ten years from the date of grant, or
such other period (in the case of non-qualified options) or such shorter period
(in the case of incentive options) as the Board of Directors of United in its
sole discretion may determine. Stock options are not transferable, except by
legal will and by the laws of descent and distribution.
An optionee under the Management Stock Option 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 United, by delivering Shares 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. United 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 to be issued
(except in the case of incentive options).
72
<PAGE>
As of the date of this Prospectus, options to purchase an aggregate of
105,047 Shares subject to the terms and conditions of the Management Stock
Option Plan are outstanding. In addition, in accordance with the terms of
Executive Stock Purchase Agreements ("Executive Purchase Agreements") pursuant
to which Messrs. Rowsey, Schleppe, Eberspacher and L. Miller purchased shares
of Associated Common Stock and Associated Class A Preferred Stock and which
United assumed in the Merger, United is obligated to issue options exercisable
for an aggregate of 72,248 Shares to such executives by January 31, 1996 so
long as such executives continue to be employed by the Company at the time of
issuance. Accordingly, United has reserved an additional 72,248 Shares for
issuance upon exercise of options to be granted in accordance with the
Executive Purchase Agreements. The outstanding options have an exercise price
of $2.90 per Share and vest in four equal annual installments beginning on the
first anniversary of the date of grant. Of the options granted under the
Management Stock Option Plan, options representing an aggregate of 77,306
Shares have been granted to the named executive officers of Associated, as
follows:
<TABLE>
<CAPTION>
EMPLOYEE
STOCK
OPTIONS
(NUMBER
OF
NAME SHARES)
--------------------------------------------------------------- --------
<S> <C>
Michael D. Rowsey.............................................. 22,254
Daniel J. Schleppe............................................. 18,928
Daniel H. Bushell.............................................. 18,928(1)
Robert W. Eberspacher.......................................... 17,196
</TABLE>
- --------
(1) Does not include the additional option approved by the Board of Directors
of Associated described below.
The above options were granted effective January 31, 1992. The number of
Shares subject to such options are subject to reduction to the extent Wingate
Partners and its affiliates do not achieve certain internal rates of return on
their investment in United and, unless certain internal rates of return to
Wingate Partners and its affiliates are met, such options automatically
terminate (and any Shares previously acquired on exercise of such options are
deemed canceled). Such options terminate in any event on January 31, 1999.
Prior to the consummation of the Offer, the Board of Directors of Associated
approved (i) the grant of an additional option exercisable for an aggregate of
18,928 Shares at an exercise price of $2.90 per Share to Mr. Bushell and (ii)
the establishment of a bonus pool consisting of an aggregate of up to $150,000
which was awarded to Messrs. Rowsey and Bushell in connection with the
consummation of the Offer.
Compensation Committee Interlocks and Insider Participation. During
Associated's fiscal year ended December 31, 1994, Associated had no
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning compensation of executive officers were
made during such fiscal year by the Board of Directors of Associated, which
included Thomas W. Sturgess and Michael D. Rowsey, each of whom was an
executive officer of Associated.
CERTAIN TRANSACTIONS
CERTAIN AGREEMENTS REGARDING THE SHARES
In connection with the Boise Transaction in 1991, Messrs. Rowsey, Schleppe,
Eberspacher and L. Miller purchased shares of Associated Common Stock pursuant
to the Executive Purchase Agreements, which agreements, as now in effect after
the Merger, (i) require, under certain circumstances, that United issue options
exercisable for an aggregate of 72,248 Shares by January 31, 1996 to such
executives (see "Management -- Executive Compensation for Associated -- 1992
Stock
73
<PAGE>
Option Plan"), (ii) allow each executive to cause United to repurchase (subject
to cash availability and lending restrictions) such executive's Shares in the
event of such executive's death, retirement or disability at the fair market
value thereof at the time of repurchase and (iii) enable United to repurchase
an executive's Shares upon such executive's death, retirement, disability or
termination of employment at the net book value thereof at the date of such
termination.
Associated, Wingate Partners, Cumberland, ASI Partners, L.P., Good Capital,
Boise Cascade Corporation ("Boise Cascade") and certain other holders of
Associated Common Stock (including Messrs. Rowsey, Schleppe, Eberspacher and L.
Miller) entered into the Associated Holdings, Inc. Stockholders Agreement,
dated as of January 31, 1992 (the "Stockholders Agreement"), which was
terminated as of the date of the Merger. The Stockholders Agreement provided
for, among other things, certain restrictions on transfer of Shares held by the
parties to the agreement and preemptive rights with respect to certain
issuances by United of Shares. Pursuant to the Stockholders Agreement, parties
thereto purchased Associated Common Stock offered in connection with the Offer.
See "Financing the Acquisition -- Equity Investment."
Also in connection with the Boise Transaction, Associated, on January 31,
1992, entered into a registration rights agreement (the "Stockholders
Registration Rights Agreement") with Wingate Partners, Cumberland, ASI
Partners, L.P., Good Capital, Boise and certain other holders of Associated
Common Stock (including Messrs. Rowsey, Schleppe, Eberspacher and L. Miller)
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. United assumed the obligation of Associated under the Stockholder
Registration Rights Agreement by operation of law in connection with the Merger
and such agreement has been amended accordingly. Under the amended agreement, a
holder of 20.0% of the Shares subject to the agreement can, in certain
circumstances, require United to effect up to three registrations of all or
part of such holder's Shares. United is not required to honor any request to
register Shares if the request is received either prior to March 30, 1996 or
less than 300 days following the effective date of any previous registration
statement filed in connection with any such request. Upon receipt of a written
request to register a holder's Shares, United must send notice to the other
holders subject to the agreement and permit them to also request to have their
respective Shares registered under the Securities Act. Registrations effected
at the request of the holders will be at the expense of United (excluding
underwriting discounts and commissions).
Prior to the Merger, substantially all shares of Associated Common Stock were
held in the Voting Trust pursuant to the Voting Trust Agreement. As of the
Effective Time, the Voting Trust Agreement was amended to govern Shares held by
the parties thereto in substantially the same manner as such agreement
previously governed shares of Associated Common Stock. The trustees of the
Voting Trust are Thomas W. Sturgess, Frederick B. Hegi, Jr., James A. Johnson,
Daniel J. Good and Gary G. Miller. The trustees of the Voting Trust hold all
voting power to vote the Shares held in the Voting Trust and may act by a
majority vote of the trustees. The trustees agree to vote all of the Shares
held in trust to elect a board of directors of United with (i) a least one
representative designated by Good Capital, (ii) at least one representative
designated by ASI Partners, L.P., the sole general partner of which is
Cumberland (iii) at least one representative designated by certain former key
executives (consisting of Messrs. Rowsey, Eberspacher, Schleppe and L. Miller)
of Associated and (iv) such number of directors that will represent a majority
of the total number of directors designated by Wingate Partners. Except with
respect to Boise Cascade, the Voting Trust terminates on January 31, 2005 or
upon the consummation of an underwritten public offering of the Shares which
meets certain criteria specified in the Voting Trust Agreement. Boise Cascade's
rights and obligations under the Voting Trust Agreement will terminate on March
30, 1997. The Voting Trust Agreement does not apply to the election of
directors of the Company. Officers of United and the Company are elected by
their respective boards of directors and hold office until their respective
successors are duly elected and qualified.
74
<PAGE>
BOISE WARRANTS
In connection with the Boise Transaction, Associated entered into a warrant
agreement with Boise Cascade pursuant to which it issued to Boise Cascade
warrants (the "Boise Warrants") entitling the holder thereof to acquire an
aggregate of 23,129 shares of Associated Common Stock for an exercise price of
$1.00 per share. Associated amended the Boise Warrants prior to the Merger Date
to apply to the Shares in the same manner as they formerly applied to
Associated Common Stock. Accordingly, the holder thereof is presently entitled
to acquire an aggregate of 77,104 Shares for an exercise price of $0.30 per
Share. The following is a summary of the material terms of the Boise Warrants:
The Boise Warrants contain customary antidilution provisions and are
exercisable through January 31, 2002. In addition, United is entitled to
repurchase the Boise Warrants at any time after the repurchase or redemption of
all outstanding shares of Series B Preferred Stock at an aggregate purchase
price which would provide Boise Cascade with a yield from issue of at least 15%
on its investment in the Series B Preferred Stock (including the related
preferred stock of Associated prior to the Merger), giving effect to dividends
received by Boise Cascade.
The Boise Warrants provide the holders with certain "tag along rights" which
entitle such holders to participate, on a pro rata basis, in certain sales of
Shares by Wingate Partners, Cumberland, Good Capital or any other controlling
stockholder of United. Pursuant to the Boise Warrants, Wingate Partners has
been granted certain "go along rights" which are triggered (subject to certain
exceptions) in the event (i) Wingate Partners sells 100% of its equity interest
in United in a private offering, (ii) all or substantially all of the assets of
United are sold and the proceeds of such sale are distributed to the
stockholders of United or (iii) United participates in a merger or
consolidation. In the event Wingate Partners exercises its "go along rights" in
connection with the occurrence of one of the events described above, each
holder of Boise Warrants would become obligated to sell all Boise Warrants and
Shares held by such holders in the applicable transaction and to vote all
Shares in favor of such transaction.
The holders of the Boise Warrants are entitled, pursuant to the terms of the
Boise Warrants, to preemptive rights with respect to certain issuances of
Shares by United. The Boise Warrants also contain certain covenants and
agreements with respect to, among other things, (i) transactions with
affiliates (other than certain specified transactions with Wingate Partners,
Cumberland and Good Capital), (ii) certain mergers, reorganizations,
recapitalization and other events with respect to the Shares, (iii) the
repurchase or redemption of Shares, (iv) changes of the fiscal year of United,
(v) the taking of actions that would cause United or any subsidiary of United
to own less than 80% of any subsidiary of United, (vi) delivery of financial
statements of United, (vii) board observation rights for meetings of the Boards
of Directors of United and its subsidiaries and (viii) indemnification.
Associated obtained the consent of Boise Cascade to the consummation of the
Offer, the Merger and the transactions contemplated thereby. In connection with
the issuance of the Boise Warrants, Associated entered into the Stockholder
Registration Rights Agreement with the holders of the Boise Warrants among
others.
LENDER WARRANTS
In connection with the Boise Transaction, Associated entered into a warrant
agreement with CMIHI (the "Lender Warrant Agreement") pursuant to which it
issued to CMIHI and certain of Associated's senior lenders warrants (the
"Lender Warrants") entitling the holders thereof to acquire an aggregate of
150,340 shares of Associated Common Stock (or, at such holder's option,
nonvoting common stock of Associated) for an exercise price of $0.01 per share.
The Lender Warrants were issued in two tranches representing an aggregate of
34,694 shares of Associated Common Stock (the "Tranche A Warrants") and 115,646
shares of Associated Common Stock (the "Tranche B Warrants"), respectively.
75
<PAGE>
In connection with the purchase by Associated of Lynn-Edwards in 1992, the
Tranche B Warrant holders received additional Tranche B Warrants exercisable
for an additional 39,878 shares of Associated Common Stock. In addition, an
antidilution adjustment mechanism in the Lender Warrant Agreement caused the
holders of the Tranche A and Tranche B Warrants to be entitled to purchase an
additional 2,017 and 9,040 shares of Associated Common Stock, respectively, on
a pro rata basis as an adjustment relating to the issuance of shares of
Associated Common Stock to Boise.
The Tranche A and Tranche B Warrants were assumed by United upon consummation
of the Merger and now allow the holders thereof to acquire an aggregate of
122,316 and 549,684 Shares (or, at such holder's option, shares of Nonvoting
Common Stock), respectively. Prior to the Merger, Wingate Partners, Wingate II,
Wingate Affiliates, L.P., Wingate Affiliates II, L.P. and Daniel J. Good
purchased from one of Associated's former senior lenders Tranche A and Tranche
B Warrants exercisable for an aggregate of 238,795 Shares for an aggregate of
approximately $1.7 million.
The following is a summary of the material terms of the Lender Warrants:
The Lender Warrants contain customary antidilution provisions and are
exercisable through January 31, 2001. In addition, United is entitled to
repurchase the Lender Warrants at any time after January 31, 1999 at the
greater of the then fair market value of the Shares (less the applicable
exercise price for the Lender Warrants) or the Equity Value (which is defined
generally as (i) five times United's and its consolidated subsidiaries'
earnings before interest, taxes and depreciation and amortization minus (ii)
non-convertible debt of United and its consolidated subsidiaries minus (iii)
preferred stock of United plus (iv) cash and cash equivalents). In the event
United repurchases Lender Warrants or Shares pursuant to the call option
granted under the Lender Warrants and, within twelve months after the date of
such repurchase, United, any subsidiary of United, or Wingate Partners,
Cumberland or Good Capital or their subsidiaries, or affiliates (but excluding
any limited partners of Wingate Partners as such) or associates has entered
into any contract relating to a merger of United or sale of all or
substantially all of the assets of United or any subsidiary of United (a "Look
Back Event"), then United is required to make a payment to each holder whose
Lender Warrants or Shares were repurchased in an amount generally equal to (i)
the excess of the fair market value of the consideration received by United,
the subsidiaries and the stockholders of United (on a per share basis) in
connection with the Look Back Event over (ii) the sum of (a) the amount paid to
such holder pursuant to the exercise by United of its call option plus (b)
imputed interest on such amount through the date of repurchase at the base rate
under United's existing senior credit agreement.
The Lender Warrants also contain certain put rights which require United to
repurchase such Lender Warrants upon the earlier of January 31, 1997 or the
occurrence of certain extraordinary corporate events. The purchase price
payable by United or the Company upon the exercise of the put rights is the
greater of the then fair market value of the Shares (less the applicable
exercise price of the Lender Warrants) or the Equity Value. Because Associated
refinanced all of its existing indebtedness in connection with the Acquisition
(including its indebtedness under old Associated Term Loans), the Lender
Warrants were amended to provide that no put rights may be exercised thereunder
until February 10, 1996.
The Lender Warrants provide the holders with certain "tag along rights" which
entitle such holders to participate, on a pro rata basis, in certain sales of
Shares by Wingate Partners, Cumberland, Boise Cascade, Good Capital or any of
their subsidiaries, affiliates (but excluding any limited partners of Wingate
as such) or associates. Pursuant to the Lender Warrants, Wingate Partners has
been granted certain "go along rights" which are triggered (subject to certain
exceptions) in the event (i) Wingate Partners sells 100% of its equity interest
in United in a private offering, (ii) all or substantially all of the assets of
United are sold and the proceeds of such sale are distributed to the
stockholders of United or (iii) United participates in a merger or
consolidation. In the event Wingate Partners exercises its "go along rights" in
connection with the occurrence of one of the events described above, each
holder of
76
<PAGE>
Lender Warrants would become obligated to sell all Lender Warrants and Shares
held by such holders in the applicable transaction and to vote all Shares in
favor of such transaction.
The Lender Warrants contain a mechanism whereby after the Lender Warrants (or
a portion thereof) have been sold pursuant to the put rights, tag along rights,
or go along rights under the Lender Warrants (provided that such events have
occurred prior to January 31, 1999), each holder of Tranche B Warrants is
required to refund to United a portion of the aggregate amount earned by such
holder on its Tranche B Warrant investment (the "Refunded Amount"). The
Refunded Amount is only required to be paid in the event the amount earned by
all holders of the Tranche B Warrants exceeds $6,500,000 and such holders
received an internal rate of return on their investment represented by the
Tranche B portion of the Old Associated Term Loans of at least 25%. The
Refunded Amount ranges from 10.0% of amounts earned on the Tranche B Warrants
to 40% of such amounts, depending upon the amount by which the aggregate amount
earned by all holders of the Tranche B Warrants exceeds $6,500,000 and the
internal rate of return received by such holders on their investment
represented by the Tranche B portion of the Old Associated Term Loans exceeds
25%.
Pursuant to the terms of the Lender Warrants, if, at any time, United does
not have securities registered under Section 12(b) or 12(g) of the Exchange Act
and is not required to file reports under Section 15(d) of the Exchange Act,
the holders of the Lender Warrants will be entitled to preemptive rights with
respect to certain issuances of Shares by United and to board observation
rights for meetings of the boards of directors of United and its subsidiaries.
The Lender Warrants also contain certain covenants and agreements with respect
to, among other things, (i) transactions with affiliates (other than the
payment of a limited amount of management fees to Wingate Partners, Cumberland
and Good Capital), (ii) certain mergers, reorganizations, recapitalization and
other events with respect to the Shares, (iii) the redemption of Shares, (iv)
changes of the fiscal year of United, (v) the taking of actions that would
cause United or any subsidiary of United to own less than 80% of any subsidiary
of United, except that United and each subsidiary of United may own a
percentage of the stock of any such subsidiary not lower than the percentage
owned at the effective time of the Merger, (vi) delivery of financial
statements of United, and (vii) indemnification.
In connection with the issuance of the Lender Warrants, Associated, on
January 31, 1992, entered into a registration rights agreement (the "Lender
Registration Rights Agreement") with the holders of the Lender Warrants
pursuant to which it granted to such holders certain rights with respect to
registration under the Securities Act of shares of Associated Common Stock
issuable to them upon exercise of the Lender Warrants. United assumed the
obligations of Associated under the Lender Registration Rights Agreement by
operation of law in connection with the Merger and such agreement has been
amended accordingly. Pursuant to the amended agreement, United agreed to use
its best efforts to effect a "shelf" registration of all Shares issuable or
issued upon exercise of the Lender Warrants and subject to the agreement as
promptly as practicable following the sixtieth day after the Merger. In
addition, the holders of a majority of the Shares issuable or issued upon
exercise of the Lender Warrants and subject to the agreement will be able to
require United, after consummation of a public offering of Shares meeting
certain specified criteria, and after satisfaction of certain other conditions,
to effect up to five registrations of all or part of the Shares held by them.
United is not required to honor any request to register Shares if the request
is received less than 300 days following the effective date of any previous
registration statement filed in connection with any such request. Upon receipt
of a written request to register a holder's Shares, United must send notice to
the other holders subject to the agreement and permit them to also request to
have their respective Shares registered under the Securities Act. Registrations
effected at the request of the holders will be at the expense of United
(excluding underwriting discounts and commissions).
MANAGEMENT AGREEMENTS
Pursuant to an Investment Banking Fee and Management Agreement dated as of
January 31, 1992 among Associated, ASI and Wingate Partners, Wingate Partners
provided certain financial advisory
77
<PAGE>
services to Associated and ASI in connection with the Boise Transaction, in
exchange for a one-time fee of $500,000 (which was paid in January 1992 upon
the consummation of the Boise Transaction). United assumed the obligation of
Associated under such agreement by operation of law in connection with the
Merger and such agreement has been amended accordingly. Pursuant to the amended
agreement Wingate Partners has agreed to provide certain oversight and
monitoring services to United and the Company and their subsidiaries, in
exchange for an annual fee of up to $725,000, payment (but not accrual) of
which is subject to restrictions under the New Credit Agreement related to
certain United performance criteria. At the Effective Time, United paid
aggregate fees to Wingate Partners of $2.3 million for services rendered in
connection with the Acquisition. Pursuant to the $350,000 annual fee limit
previously in effect under such agreement, Wingate Partners earned an aggregate
of $350,000, $210,000 and $320,833 with respect to each of Associated's fiscal
years ended 1994, 1993 and 1992, respectively, for such oversight and
monitoring services. Under the amended agreement, United is obligated to
reimburse Wingate Partners for its out-of-pocket expenses and indemnify Wingate
Partners and its affiliates from loss in connection with these services. The
agreement expires on January 31, 2002, provided that the agreement continues in
effect on a year to year basis thereafter unless terminated in writing by one
of the parties at least 180 days before the expiration of the primary term or
any subsequent yearly term.
Pursuant to an Investment Banking Fee and Management Agreement dated as of
January 31, 1992 among Associated, ASI and Cumberland, Cumberland provided
certain financial advisory services to Associated and ASI in connection with
the Boise Transaction, in exchange for a one-time fee of $500,000 (which was
paid in January 1992 upon consummation of the Boise Transaction). United
assumed the obligation of Associated under such agreement by operation of law
in connection with the Merger and such agreement has been amended accordingly.
Pursuant to the amended agreement, Cumberland has agreed to provide certain
oversight and monitoring services to United and the Company and their
subsidiaries, in exchange for (i) an annual fee of up to $137,500, payment (but
not accrual) of which is subject to restrictions under the New Credit Agreement
related to certain United performance criteria and (ii) previously issued
shares of Associated Common Stock that converted in the Merger into 77,063
Shares. Subject to certain exceptions, the issuance of such Shares is subject
to rescission if the agreement is terminated before January 31, 2002. At the
Effective Time, United paid aggregate fees to Cumberland of $100,000 for
services rendered in connection with the Acquisition. Pursuant to the $75,000
annual fee limit previously in effect under such agreement, Cumberland earned
$75,000, $45,000 and $68,750 with respect to each of Associated's fiscal years
ended 1994, 1993 and 1992, respectively, for such oversight and monitoring
services. United is also obligated to reimburse Cumberland for its out-of-
pocket expenses and indemnify Cumberland and its affiliates from loss in
connection with these services. The agreement expires on January 31, 2002,
provided that the agreement continues in effect on a year to year basis
thereafter unless terminated in writing by one of the parties at least 180 days
before the expiration of the primary term or any subsequent yearly term.
Pursuant to an Investment Banking Fee and Management Agreement dated as of
January 31, 1992 among Associated, ASI and Good Capital, Good Capital provided
financial advisory services to Associated and ASI in connection with the Boise
Transaction in exchange for 31,480 shares of Associated Common Stock and 185
shares of Associated class A preferred stock. United assumed the obligations of
Associated under such agreement by operation of law in connection with the
Merger and such agreement has been amended accordingly. Pursuant to the amended
agreement, Good Capital has agreed to provide certain oversight and monitoring
services to United and the Company and their subsidiaries, in exchange for (i)
an annual fee of up to $137,500, payment (but not accrual) of which is subject
to restrictions under the New Credit Agreement related to certain United
performance criteria and (ii) previously issued shares of Associated Common
Stock that converted in the Merger into 77,063 Shares. Subject to certain
exceptions, the issuance of such Shares are subject to rescission if the
agreement is terminated before January 31, 2002. At the Effective Time, United
paid aggregate fees to Good Capital of $100,000 for services rendered in
connection with the Acquisition. Pursuant to the
78
<PAGE>
$75,000 annual fee limit previously in effect under such agreement, Good
Capital earned an aggregate of $75,000, $45,000 and $68,750 in each of
Associated's fiscal years ended 1994, 1993 and 1992, respectively, of which
Associated has paid Good Capital $45,000, $45,000 and $68,750, respectively,
for such oversight and monitoring services. United is also obligated to
reimburse Good Capital for its out-of-pocket expenses and indemnify Good
Capital and its affiliates from loss in connection with these services. The
agreement expires on January 31, 2002, provided that the agreement continues in
effect thereafter on a year to year basis unless terminated in writing by one
of the parties at least 180 days before the expiration of the primary term or
any subsequent yearly term.
CERTAIN INTERESTS OF CHASE BANK
Chase Bank has certain interests in the Acquisition and in the Company in
addition to its affiliate, Chase Securities which served as the Initial
Purchaser of the Old Notes and received a discount in the amount of $4.5
million.
Upon consummation of the sale of the Old Notes, CMIHI, an affiliate of Chase
Bank, beneficially owned 9.85% of the Shares outstanding as a result of its
ownership of (i) the Lender Warrants received in connection with the Boise
Transaction that entitle CMIHI to purchase 237,748 Shares for $0.01 per Share,
(ii) 240,023 shares of Nonvoting Common Stock purchased or received in
connection with the Acquisition and (iii) 139,474 shares of Nonvoting Common
Stock issued to CMIHI upon consummation of the sale of the Old Notes. See
"Certain Transactions -- Lender Warrants" and "Financing the Acquisition --
Loan Facilities -- New Credit Facilities."
Chase Securities served as financial advisor to Associated in connection with
the Acquisition. Chase Bank is the agent and a lender under the New Credit
Facilities. In addition, in connection with the Offer, Chase Securities served
as dealer manager and Chase Bank served as depositary for tendered Shares. A
substantial portion of the net proceeds of the Old Notes were used to repay the
Bridge Loan and a portion of the remainder was used to prepay loans under the
Term Loan Facilities. See "Use of Proceeds." The lenders under the Bridge Loan
were Chase Bank, an affiliate of the Initial Purchaser, and The Roebling Fund,
a statutory business trust, of which Chase Bank serves as manager and is a
substantial beneficial owner. In all such capacities, Chase Bank and its
affiliates received or will receive an aggregate of approximately $23.3 million
in fees (although certain of such fees were shared with other members of the
lending groups) and had certain of their expenses reimbursed.
MISCELLANEOUS
Melvin L. Hecktman, who resigned as vice chairman of United effective
September 1, 1993, had a consulting agreement with United by which Mr.
Hecktman, until February 28, 1995, received annual compensation of $275,000,
plus participation in all bonus and other benefit plans generally available to
executive officers of United. The amount of his consulting compensation was
subject to reduction by the amount of compensation he may receive from new
employment. Under the terms of the consulting agreement, Mr. Hecktman was to
render such advisory and consulting services as requested by United. Mr.
Hecktman was restricted from disclosing proprietary materials and confidential
information. In addition, Mr. Hecktman was restricted from being employed by or
consulting with any competing firm during the consulting period.
Mr. Coolidge, a director of the Company until consummation of the Merger, is
the Managing Partner of William Blair & Company, which from time to time has
rendered investment banking and related services to United, for which United
has paid customary fees (including a fee of approximately $2.0 million in
connection with investment banking services and a fairness opinion rendered in
connection with the Acquisition).
79
<PAGE>
FINANCING THE ACQUISITION
GENERAL
The total amount of funds required by Associated to consummate the
Acquisition, redeem United stock options, refinance certain existing
indebtedness of the Company, United and ASI and pay related fees and expenses
was approximately $558.5 million. In connection with the Acquisition, aggregate
proceeds of approximately $416.5 million under the New Credit Facilities,
together with the $130.0 million in proceeds of the Bridge Loan under the
Subordinated Bridge Facility, were used to (i) to finance the purchase of
Shares pursuant to the Offer, (ii) refinance certain existing indebtedness of
ASI, United and the Company, (iv) redeem United stock options and (v) pay
certain of the fees, expenses and financing costs relating to the Acquisition.
In addition, simultaneously with the consummation of the Offer, Associated
obtained $12.0 million from the sale of additional shares of Associated Common
Stock primarily to certain existing holders of Associated Common Stock or
warrants to purchase the same that was used to finance the purchase of Shares
pursuant to the Offer. See "Financing the Acquisition -- Equity Investment."
The aggregate proceeds under the New Credit Facilities consist of $125.0
million under the Tranche A Facility (as hereinafter defined), $75.0 million
under the Tranche B Facility (as hereinafter defined) and approximately $216.5
million under the Revolving Credit Facility.
The following table sets forth the approximate amounts and sources and uses
of funds that were necessary to consummate the Offer and the Merger:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
Sources:
New Credit Facilities(1)........................................... $416,537
Subordinated Bridge Facility (2)................................... 130,000
Equity Investment.................................................. 12,000
--------
Total Sources.................................................. $558,537
========
Uses:
Purchase Shares.................................................... $266,629
Refinance Existing Company Debt.................................... 180,752
Refinance Existing ASI Debt........................................ 78,856
Estimated Fees and Expenses (3).................................... 29,300
Other (4).......................................................... 3,000
--------
Total Uses..................................................... $558,537
========
</TABLE>
- --------
(1) Includes borrowings of approximately $206.8 million at the time of
consummation of the Acquisition and an additional approximately $9.7
million of additional revolving loan borrowings used to pay fees and
expenses after the Acquisition.
(2) Refinanced with a portion of the net proceeds of the Old Notes.
(3) Excludes approximately $2.6 million borrowed by the Company and $3.2
million borrowed by ASI prior to closing of the Offer to pay fees and
expenses in connection with consummation of the Acquisition. These amounts
are included under "Refinance Existing Company Debt" and "Refinance
Existing ASI Debt," respectively, above. Estimated Fees and Expenses
include the Initial Purchaser's discount.
(4) This amount was used to redeem United stock options. This amount excludes
approximately $3.2 million borrowed by the Company prior to closing of the
Offer to discharge compensation and other liabilities in connection with
consummation of the Acquisition. This latter amount is included under
"Refinance Existing Company Debt" above.
LOAN FACILITIES
New Credit Facilities. Immediately prior to acceptance for payment of Shares
in the Offer, Associated and ASI entered into the New Credit Agreement with
Chase Bank, as agent, and a group of
80
<PAGE>
banks and financial institutions (including Chase Bank, the "Senior Lenders"),
providing for (a) a tranche A term loan facility (the "Tranche A Facility") in
an aggregate principal amount of $125,000,000, (b) a tranche B term loan
facility in an aggregate principal amount of $75,000,000 (the "Tranche B
Facility" and, together with the Tranche A Facility, the "Term Loan
Facilities") and (c) a revolving credit facility (the "Revolving Credit
Facility" and, together with the Term Loan Facilities, the "New Credit
Facilities") in an aggregate principal amount of up to $300,000,000, including
a $90,000,000 sublimit available for issuance of letters of credit. Upon
consummation of the Mergers, the obligations of Associated and ASI in respect
of the New Credit Agreement were assumed by United and the Company,
respectively.
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 to, and
is qualified in its entirety by reference to, all the provisions of the New
Credit Agreement, a copy of which is available upon request to the Company. See
"Available Information."
The loans outstanding under the Term Loan Facilities and the Revolving Credit
Facility bear interest, at the Company's option, equal to (i) the Base Rate (as
hereinafter defined) plus 2.25% (if the Tranche B Facility) or 1.75% (if either
the Tranche A Facility or the Revolving Credit Facility) or (ii) LIBOR (as
defined), based on one, two, three or six month periods, provided that until
the date 90 days after the Merger Date, each interest period shall be one month
and shall be coterminous with other outstanding LIBOR loans, plus 3.25% (if the
Tranche B Facility) or 2.75% (if the Tranche A Facility or the Revolving Credit
Facility), with the applicable margins for all but the Tranche B Facility being
subject to reductions based on a debt to cash flow ratio test.
Amounts outstanding under the Tranche A Facility are required to be repaid in
20 consecutive quarterly installments, the first four of which (each in the
aggregate principal amount of $3,750,000) will be due on the last day of each
of the first four calendar quarters commencing with the quarter ending June 30,
1995. Subsequent quarterly payments under the Tranche A Facility are each in
the aggregate principal amount of $6,250,000 for each of the eight consecutive
calendar quarters commencing with the quarter ending June 30, 1996 and
$7,500,000 for each of the eight consecutive calendar quarters commencing with
the quarter ending June 30, 1998. Amounts outstanding under the Tranche B
Facility will be repaid in 28 consecutive quarterly installments, the first
twenty of which (in the aggregate principal amount of $250,000 each) will be
due on the last day of each of the first twenty calendar quarters commencing
with the quarter ending June 30, 1995. The remaining eight installments in the
aggregate principal amount of $8,750,000 each will be due on the last day of
each calendar quarter commencing with the quarter ending June 30, 2000. The
final installments under the Tranche A Facility and the Tranche B Facility will
be payable on March 31, 2000 and March 31, 2002, respectively. The Revolving
Credit Facility will mature on March 31, 2000. A portion of the proceeds from
the Old Notes was used to prepay approximately $4.1 million (plus interest
accrued thereon) of amounts outstanding under the Tranche A Facility and
approximately $2.4 million (plus interest accrued thereon) of amounts
outstanding under the Tranche B Facility.
The Revolving Credit Facility is subject to (i) a borrowing base equal to 80%
of Eligible Receivables (as defined in the New Credit Agreement) plus 50% of
Eligible Inventory (as defined in the New 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) and (ii) the requirement that, for
each fiscal year commencing January 1, 1996, the Company must repay revolving
loans so that for a consecutive period of 30 days in each fiscal year the
aggregate revolving loans do not exceed $200,000,000.
Loans under the Term Loan Facilities and the Revolving Credit Facility may be
prepaid at any time and are subject to certain mandatory prepayments out of (i)
net proceeds in excess of $15,000,000 received from the issuance of equity by
the Company or any of its subsidiaries after the Merger Date, (ii) net proceeds
from certain asset sales in excess of $10,000,000 and (iii) 50% of the
Company's Excess Cash Flow (as defined) if the Debt to Cash Flow Ratio (as
defined) as of the last day of the fiscal year is less than 3 to 1 and
otherwise 75% of the Company's Excess Cash Flow. Optional prepayments under the
Term Loan Facilities will be applied, pro rata to loans outstanding under the
81
<PAGE>
Tranche A Facility and the Tranche B Facility (pro rata to the remaining
installments). Mandatory prepayments will be applied first, pro rata to loans
outstanding under the Tranche A Facility and the Tranche B Facility (pro rata
to the remaining installments), and second, to the permanent reduction of
commitments (and the payment of loans outstanding) under, the Revolving Credit
Facility.
The Term Loan Facilities and the Revolving Credit Facility are guaranteed, on
a joint and several basis, by United and will be guaranteed by all of the
direct and indirect domestic subsidiaries of the Company (if any).
The Term Loan Facilities 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 of the Company
and security interests in and liens upon all accounts receivable, inventory,
contract rights and other personal and real property of the Company and its
domestic subsidiaries.
The New Credit Agreement contains representations and warranties, affirmative
and negative covenants and events of default customary for financings of the
type. The Company has obtained the consent of the requisite percentage of
Senior Lenders under the New Credit Agreement to permit the redemption of the
Series B Preferred Stock, although additional consents from other persons are
required to effect such redemption.
United and the Company are obligated under the New Credit Agreement to pay
the costs and expenses arising in connection with the preparation, execution,
and delivery of the New Credit Agreement and to indemnify the Senior Lenders
(and their respective officers, directors, employees and affiliates) against
certain liabilities in connection with the Acquisition and the New Credit
Facilities.
At the closing of the Offer, 40,471 shares of Associated nonvoting common
stock were issued to CMIHI (which shares converted into 139,474 shares of
Nonvoting Common Stock in the Merger). Upon consummation of the offering of the
Old Notes, 139,474 additional shares of Nonvoting Common Stock (representing an
additional 2% of the Shares on a fully diluted basis) were issued to CMIHI.
Subordinated Bridge Facility. Immediately prior to the acceptance for payment
of Shares in the Offer, Associated and ASI entered into the Subordinated Bridge
Facility with The Roebling Fund, as agent and lender, and Chase Bank, as
lender, providing for the Bridge Loan to ASI in an aggregate principal amount
of $130,000,000. Upon consummation of the Mergers, the obligations of
Associated and ASI in respect of the Subordinated Bridge Facility were assumed
by United and the Company, respectively. The Subordinated Bridge Facility
(together with approximately $1.6 million in accrued and unpaid interest
thereon) was refinanced in full from a portion of the proceeds of the sale of
the Old Notes. See "Use of Proceeds."
EQUITY INVESTMENT
Associated obtained $12,000,000 from the sale of additional shares of
Associated Common Stock prior to the consummation of the Offer to Wingate
Partners, Wingate II, certain affiliates thereof, CMIHI, Daniel J. Good, ASI
Partners, L.P., ASI Partners II, L.P. and others, which amount was used to
finance the purchase of Shares pursuant to the Offer.
FEES AND EXPENSES
An aggregate of approximately $35.1 million of fees and expenses was incurred
by Associated and United in connection with the Acquisition. Such amounts
include usual and customary fees and expenses for accounting, lending,
financial advisory, dealer-manager, legal, printing, appraisal, consulting and
related services, a substantial portion of which have been paid to Chase Bank
and its affiliates. See "Certain Transactions -- Certain Interests of Chase
Bank."
82
<PAGE>
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK OF UNITED
The authorized capital stock of United consists of 46,500,000 shares,
consisting of (a) 1,500,000 shares of a class designated as Preferred Stock,
$0.01 par value (the "Preferred Stock"), (b) 40,000,000 shares of a class
designated as Common Stock, par value $0.10 per share (the "Common Stock"), and
(c) 5,000,000 shares of a class designated as Nonvoting Common Stock, $0.01 par
value (the "Nonvoting Common Stock"). Of the authorized shares of capital
stock, 5,648,895 shares of Common Stock, 379,497 shares of Nonvoting Common
Stock and an aggregate of 22,231.3880 shares of Preferred Stock, consisting of
5,000 shares of Series A Preferred Stock, 6,892.5552 shares of Series B
Preferred Stock, and 10,338.8328 shares of Series C Preferred Stock (the Series
A, Series B and Series C Preferred Stock being collectively referred to herein
as the "Merger Preferred Stock"), are outstanding. If the necessary consents
are obtained, the Company may dividend to United an amount sufficient to redeem
all of the outstanding shares of Series B Preferred Stock from the proceeds of
the Old Notes.
The following is a summary of the terms of Merger Preferred Stock. Such
summary does not purport to be complete and is qualified in its entirety by
reference to United's restated certificate of incorporation, as amended (the
"Restated Certificate of Incorporation"), a copy of which is available upon
request to the Company. See "Available Information."
Dividends. The holders of Series A Preferred Stock are entitled to receive
dividends at a rate of 10% per annum applied to a dividend base per share of
$1,000 (the "Dividend Base") payable on April 30, July 31, October 31 and
January 31 (each a "Dividend Payment Date") of each year, subject as described
below under "Description of Capital Stock -- Capital Stock of United --
Dividend and Redemption Restrictions." If United fails to pay a dividend in
cash on any Dividend Payment Date or fails to make any redemption payment when
due, the dividend rate shall be retroactively increased to 13% per annum and
shall remain at such rate until the failure is cured.
The holders of Series B Preferred Stock and Series C Preferred Stock are
entitled to receive dividends at a rate of 9% per annum applied to the Dividend
Base, payable on each Dividend Payment Date, subject as described below under
"Description of Capital Stock -- Capital Stock of United --Dividend and
Redemption Restrictions." In the event United fails to pay a dividend in cash
on the Series B or Series C Preferred Stock on any Dividend Payment Date or
fails to make any redemption payment in respect of the Series B or Series C
Preferred Stock when due, the dividend rate thereon shall retroactively be
increased to 10% per annum and shall remain at such rate until such failure is
cured.
The dividends on the Merger Preferred Stock are cumulative and shall accrue,
whether or not declared or restricted by the terms of any loan agreements and
regardless of whether there are funds legally available for payment of the
dividends. In the discretion of the Board of Directors of United, the dividends
may be payable in cash or in additional shares of the same class of Merger
Preferred Stock. Dividends on the Series C Preferred Stock may be payable in
additional shares of Series C Preferred Stock only for Dividend Payment Dates
occurring on or prior to January 31, 1999.
If at any time United fails to pay any dividends on the Dividend Payment Date
or United fails to redeem the requisite number of shares of a series of Merger
Preferred Stock (the "Defaulted Series"), United shall not (a) declare or pay
any dividend on any Junior Shares (as defined below) or make any payment on
account of, or set apart money for, a sinking or other analogous fund, for the
purchase, redemption or other retirement of any Junior Shares or make any
distribution with respect thereto (other than in Junior Shares); (b) purchase
any shares of a Defaulted Series (except for a consideration payable in Junior
Shares) or redeem fewer than all of the shares of the Defaulted Series
outstanding;
83
<PAGE>
or (c) permit any subsidiary of United to purchase any Junior Shares or permit
any subsidiary to purchase fewer than all of the shares of the Defaulted Series
then outstanding, unless, at the time of such dividend, payment, distribution,
purchase or redemption, all accrued and unpaid dividends on shares of the
Defaulted Series are contemporaneously paid in full in cash or additional
shares of the Defaulted Series and all shares of the Defaulted Series which the
Company so failed to redeem are contemporaneously redeemed.
United also may not take any of the actions specified in (a), (b) or (c) in
the previous paragraph in respect of the Series B or Series C Preferred Stock
in excess of $1 million for all such actions unless at the time such action is
taken: (i) United has redeemed for cash all shares of Series B and Series C
Preferred Stock, if any, which have been issued to the holders of Series B and
Series C Preferred Stock, respectively, as in-kind dividends; (ii) United and
its wholly-owned subsidiaries, on a consolidated basis, have common equity
computed in accordance with generally accepted accounting principles after
giving effect to any purchases, redemptions, payments, distributions or
disbursements under (a), (b) or (c) above, of at least $26 million; (iii) if
any such purchases, redemptions, payments, distributions or disbursements
specified in (a), (b) or (c) above are to be made after July 31, 1999, then all
shares of Series B Preferred Stock shall have been redeemed or otherwise
retired; and (iv) if any such purchases, redemptions, payments, distributions
or disbursements specified in (a), (b) or (c) above are to be made on or after
the dates required for redemptions of shares of Series C Preferred Stock
specified below, then that portion of such Series C Preferred Stock so required
to be redeemed as of such dates shall have been redeemed or otherwise retired.
Notwithstanding the previous sentence, nothing in this paragraph limits
United's obligation to make payments or disbursements for any amount it is
obligated to pay under or pursuant to the Lender Warrants; and nothing in this
paragraph limits United or its subsidiaries from re-purchasing Shares or
options to purchase Shares held by any employee of United or its subsidiaries
in connection with the termination of such employee's employment.
Redemption. United will be required to redeem all shares of the Series A
Preferred Stock and Series B Preferred Stock on July 31, 1999 and to redeem the
Series C Preferred Stock on January 31, 2002 each for the sum of $1,000 per
share plus the aggregate of accrued and unpaid dividends to such date, subject
to appropriate adjustments in the event of a stock split, reverse stock split
or similar transaction (the "Redemption Price"), subject as described below
under "Description of Capital Stock-- Capital Stock of United -- Dividend and
Redemption Restrictions." The Series C Preferred Stock redemptions will be
required to be made in four quarterly installments of principal on April 30,
2001, July 31, 2001, October 31, 2001 and January 31, 2002.
In the event of a Cash-Out Event (as hereinafter defined) and, in such event,
at the request of a holder of Merger Preferred Stock, United will be required
to redeem all of such holder's shares of preferred stock then outstanding at
the Redemption Price, subject as described below under "Description of Capital
Stock -- Capital Stock of United -- Dividend and Redemption Restrictions." If
pursuant to the sale or Change in Control (as hereinafter defined) of United,
the holders of Shares receive cash, Shares or common stock or other securities
of any corporation that is the successor to substantially all of the business
or assets of United or the ultimate parent of such successor which is (or will,
upon distribution thereof, be) listed on the New York Stock Exchange or the
American Stock Exchange, or approved for quotation on the Nasdaq National
Market ("Marketable Securities") or a combination thereof, then, United may at
its option and in lieu of the cash redemption described in the previous
sentence, redeem the Merger Preferred Stock by converting each share into cash,
Marketable Securities or a combination thereof, in the same proportions
received by the holders of Shares, the value of which shall equal the
Redemption Price. "Cash-Out Event" means the occurrence of a Business Sale, a
Change in Control, a Qualified Public Offering or a Recapitalization. In the
case of the Series C Preferred Stock, "Cash-Out Event" shall also include the
expiration of the agreement between United (as successor to Associated) and
Affiliated Computer Services, Inc. providing for the furnishing of information
systems services for United (as successor to Associated), or the early
termination of such
84
<PAGE>
agreement for any reason other than termination of such agreement by Affiliated
Computer Services, Inc. For purposes of the foregoing, "Business Sale" means a
transaction or a series of transactions, whether effected by sale or exchange
of securities or assets, merger or consolidation, or otherwise, that results in
the sale of United or its business to any person (i) who, immediately prior to
the contemplated transaction, does not own in excess of 5.0% of the Shares on a
fully diluted and converted basis (a "5.0% Owner"), (ii) who is not
controlling, controlled by or under common control with United or any such 5.0%
Owner and (iii) who is not the spouse or descendant of any such 5.0% Owner or a
trust for the benefit of such 5.0% Owner or such other persons ("Independent
Third Party") or group of Independent Third Parties, pursuant to which such
Independent Third Party or group of Independent Third Parties would acquire (a)
capital stock of United possessing the voting power under normal circumstances
to elect a majority of the Board or (b) all or substantially all of United's
assets determined on a consolidated basis; "Change in Control" means an
occurrence by which Wingate Partners and its affiliates and Cumberland and its
affiliates shall have collectively sold or otherwise disposed of and received
the pecuniary benefit of 33 1/3% of the Shares legally or beneficially owned by
them collectively as of January 31, 1992, subject to appropriate adjustment in
the event of a stock split, reverse stock split or similar transaction and
excluding any sales or other dispositions made by any of them to employees of
United or of any of its subsidiaries of up to 10.0% of such holdings;
"Qualified Public Offering" means a sale in a public offering or series of
public offerings, registered under the Securities Act, of Shares; provided,
however, that such offering or series of offerings shall not be deemed to be a
Qualified Public Offering unless such offering or offerings shall have resulted
in (A)(i) public ownership of not less than 20.0% of the Shares of United on a
fully-diluted basis (which such Shares are listed upon the New York Stock
Exchange, the American Stock Exchange or are approved for quotation on the
Nasdaq National Market), and (ii) such offering or offerings shall have
resulted in receipt by United of aggregate cash proceeds (after deduction of
underwriter discounts and the costs associated with such offering or offerings)
of at least $37.5 million, or (B) the holders of Shares of United receive, as a
result of such offering or offerings, cash, Marketable Securities or a
combination thereof valued at not less than $1.0 million; and
"Recapitalization" means a recapitalization of United pursuant to which the
holders of Shares of United receive cash, securities (other than shares junior
to the Series B or Series C Preferred Stock), property or other assets and such
consideration is valued at not less than $1.0 million.
United may, at its option, redeem any portion or all of any series of the
Merger Preferred Stock outstanding at the Redemption Price. Any such redemption
of shares of Series A Preferred Stock must be made ratably among the holders of
Series A Preferred Stock, and any redemption of shares of Series B Preferred
Stock or Series C Preferred Stock must be made ratably among the holders of
both Series B and Series C Preferred Stock. United may seek and obtain the
consent of the holders of the Series C Preferred Stock to permit the redemption
solely of the shares of Series B Preferred Stock with a dividend from the
Company of a portion of the proceeds of the Old Notes.
Exchange Notes. Provided United has paid all accrued dividends on the
outstanding shares of Series A Preferred Stock, United may redeem all shares of
Series A Preferred Stock then outstanding in exchange for subordinated notes
that shall have a maturity date of July 31, 1999 and shall bear interest at the
rate of 10.0% for interest paid in cash or 13.0% for interest paid in kind
("Series A Exchange Notes"). The Series A Exchange Notes issued to each holder
shall be in an aggregate principal amount equal to the Redemption Price.
Provided United has redeemed any outstanding shares of Series A Preferred
Stock and has paid all accrued dividends on the outstanding shares of Series B
and Series C Preferred Stock, United may redeem all shares of Series B and
Series C Preferred Stock in exchange for respective subordinated notes (the
"Series B Exchange Notes" and the "Series C Exchange Notes," respectively). The
Series B Exchange Notes will have a maturity date of July 31, 1999 and the
Series C Exchange Notes will mature on January 31, 2002, with any payments on
the Series C Exchange Notes to be in four equal
85
<PAGE>
installments on April 30, 2001, July 31, 2001, October 31, 2001, and January
31, 2002. Both Series B and Series C Exchange Notes shall bear interest at the
rate of 11.0% for interest paid in cash or 12.0% for interest paid in kind. The
Series B and Series C Exchange Notes issued to each holder shall be in an
aggregate principal amount equal to the Redemption Price of the redeemed
shares.
Payments on the Series A, Series B and Series C Exchange Notes will be
subordinated to any obligations of United for borrowed money (including all
amounts owing under the Guarantees and the New Credit Facilities) and, in the
case only of the Series B and Series C Exchange Notes, will be subordinated to
Series A Exchange Notes.
Voting Rights. Holders of shares of Merger Preferred Stock generally will
have no voting rights. However, United shall not, without the affirmative vote
or written consent of the holders of at least 51.0% of all outstanding shares
of a series of Merger Preferred Stock voting separately as a series (the
"Affected Series") (a) amend any provision of the certificate of incorporation
or by-laws of United in any manner which adversely (and, in the case of the
Series A Preferred Stock only, materially) affects the relative rights,
preferences, qualifications, powers, limitations or restrictions of the
Affected Series; (b) either (i) in the case of Series A Preferred Stock,
increase the authorized number of shares of Preferred Stock, or authorize,
issue or otherwise create securities convertible into any shares of capital
stock of United other than Junior Shares, or (ii) in the case of Series B or
Series C Preferred Stock, increase the authorized number of shares of capital
stock of United, or authorize, issue or otherwise create securities convertible
into any shares of capital stock of the corporation other than Series A (only
for purposes of paying dividends in kind on Series A Preferred Stock), Series B
or Series C Preferred Stock, Common Stock or Junior Shares; or (c) voluntarily
effect any reclassification of the Affected Series.
Whenever dividends on any series of Merger Preferred Stock are in arrears in
an amount equal to at least six quarterly dividends (an "Impaired Series"), (i)
the number of members of the Board of Directors of United shall be increased by
one for each Impaired Series and (ii) the holders of each Impaired Series
(voting separately as a series) will have the exclusive right to vote for and
elect one additional director of United. The right of the Impaired Series to
vote for an additional director shall terminate when all accrued and unpaid
dividends on the Impaired Series have been declared and paid in cash or in-kind
or set apart for payment.
Liquidation Preferences. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of United, the holders of the Merger
Preferred Stock shall be entitled to receive an amount equal to the Redemption
Price of such shares held by them in preference to and in priority over any
distributions upon Junior Shares. If the assets of United are not sufficient to
pay in full the Redemption Price to holders of Series A Stock, the holders of
all such shares shall share ratably (to the exclusion of any other holders of
capital stock) in such distribution of assets. If the assets of United are not
sufficient to pay in full the Redemption Price to holders of Series B and
Series C Stock, after payment in full of the Redemption Price of the Series A
Stock, the holders of all such shares shall share ratably (to the exclusion of
any other holders of capital stock) in such distribution of assets.
"Junior Shares" means with respect to the priority of any class or series of
Preferred Stock, shares of Common Stock or shares of any other series or class
of Preferred Stock of United which are designated as junior to such series in
United's certificate of incorporation or any amendment thereto, or in the
resolution designating the class or series of such Preferred Stock and any
warrants, options or other rights to acquire or purchase such securities. The
shares of Series B and Series C Preferred Stock are Junior Shares in relation
to the Series A Preferred Stock. Any shares of additional Preferred Stock,
regardless of designation, shall be deemed Junior Shares in relation to the
Series A, Series B and Series C Preferred Stock.
86
<PAGE>
Dividend and Redemption Restrictions. Notwithstanding the foregoing, no
dividend payment or redemption may be made with respect to any Merger Preferred
Stock if such payment or redemption would contravene the provisions of the
Restated Certificate of Incorporation, the Debt Agreements or any law or
regulation. "Debt Agreements" is defined to mean the New Credit Facilities, the
Indenture for the Notes and any agreements evidencing any renewal, extension,
refinancing, refunding or replacement thereof.
CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 890,000 shares of
common stock, par value $1.00 per share, 880,000 of which are outstanding and
owned beneficially and of record by United.
87
<PAGE>
OWNERSHIP OF VOTING SECURITIES
All of the issued and outstanding capital stock of the Company is owned
beneficially and of record by United. The following table sets forth, based on
information available to the Company as of , 1995, certain information
regarding the beneficial ownership of the Common Stock and the Series A,
Series B and Series C Preferred Stock of United as of the date of this
Prospectus by (i) each person who is known to United to beneficially own more
than 5% of any class of United's capital stock, (ii) each of the directors of
United and the Company, (iii) each named executive officer identified under
" Management -- Executive Compensation for United" or under "Management --
Executive Compensation for Associated," except to the extent no longer
serving as an officer or employee of United or the Company, and (iv) all
current directors and executive officers of United and the Company as a group.
See "Financing the Acquisition."
<TABLE>
<CAPTION>
COMMON STOCK (1) SERIES A PREFERRED (2) SERIES B PREFERRED (2)
---------------------- ---------------------------- ------------------------
DIRECTORS, EXECUTIVE PERCENT NUMBER PERCENT NUMBER PERCENT
OFFICERS AND NUMBER OF OF OF OF OF
5.0% STOCKHOLDERS OF SHARES CLASS(3) SHARES CLASS(3) SHARES CLASS(3)
-------------------- --------- -------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wingate Partners, L.P... 2,788,023(4) 44.70% 3,148(5) 62.96% -- --%
750 N. St. Paul Street
Suite 1200
Dallas, Texas 75201
ASI Partners, L.P....... 870,416(6) 14.44 1,212(7) 24.24 -- --
301 Commerce Street
Suite 3300
Fort Worth, Texas 76102
Cumberland Capital 870,416(6) 14.44 1,212(7) 24.24 -- --
Corporation............
301 Commerce Street
Suite 3300
Fort Worth, Texas 76102
Boise Cascade 272,632(8) 4.47 -- -- 6,893 100.00
Corporation............
One Jefferson Square
Boise, Idaho 83702
Chase Manhattan 617,245(9) 9.85 -- -- -- --
Investment Holdings,
Inc....................
1 Chase Manhattan Plaza
New York, New York
10081
Affiliated Computer -- -- -- -- -- --
Services...............
2828 North Haskell
Avenue
Dallas, Texas 75204
Thomas W. Sturgess (10). -- -- -- -- -- --
Gary G. Miller (11)..... -- -- -- -- -- --
Daniel J. Good.......... 102,434(12) 1.69 -- -- -- --
Jeffrey K. Hewson....... 1,038 * -- -- -- --
Michael D. Rowsey (13).. 58,968(14) * 55 1.09 -- --
Daniel J. Schleppe (13). 56,474(15) * 55 1.09 -- --
Steven R. Schwarz....... 315 * -- -- -- --
Daniel H. Bushell....... 23,965(16) * -- -- -- --
James T. Callier, Jr. -- -- -- --
(10)................... -- --
Frederick B. Hegi, Jr. -- -- -- --
(10)................... -- --
James A. 15 * -- --
Johnson(10)(13)........ 9,585 *
Joel D. Spungin......... 6,686(17) * -- -- -- --
Robert W. Eberspacher 55 1.09 -- --
(13)................... 55,175(18) *
All current directors
and executive officers
as a group
(11 persons) (10)-(18). 202,992(19) 3.34 70 1.39 -- --
<CAPTION>
SERIES C PREFERRED (2)
-------------------------
DIRECTORS, EXECUTIVE PERCENT
OFFICERS AND NUMBER OF
5.0% STOCKHOLDERS OF SHARES CLASS(3)
-------------------- ----------- -------------
<S> <C> <C>
Wingate Partners, L.P... -- --%
750 N. St. Paul Street
Suite 1200
Dallas, Texas 75201
ASI Partners, L.P....... -- --
301 Commerce Street
Suite 3300
Fort Worth, Texas 76102
Cumberland Capital -- --
Corporation............
301 Commerce Street
Suite 3300
Fort Worth, Texas 76102
Boise Cascade -- --
Corporation............
One Jefferson Square
Boise, Idaho 83702
Chase Manhattan -- --
Investment Holdings,
Inc....................
1 Chase Manhattan Plaza
New York, New York
10081
Affiliated Computer 10,339 100.00
Services...............
2828 North Haskell
Avenue
Dallas, Texas 75204
Thomas W. Sturgess (10). -- --
Gary G. Miller (11)..... -- --
Daniel J. Good.......... -- --
Jeffrey K. Hewson....... -- --
Michael D. Rowsey (13).. -- --
Daniel J. Schleppe (13). -- --
Steven R. Schwarz....... -- --
Daniel H. Bushell....... -- --
James T. Callier, Jr. -- --
(10)...................
Frederick B. Hegi, Jr. -- --
(10)...................
James A. -- --
Johnson(10)(13)........
Joel D. Spungin......... -- --
Robert W. Eberspacher -- --
(13)...................
All current directors
and executive officers
as a group
(11 persons) (10)-(18). -- --
</TABLE>
- -------
* Represents less than 1.0%.
(1) All Shares shown in the table, other than Shares beneficially owned by
CMIHI and Messrs. Hewson, Schwarz and Spungin are held in the Voting
Trust. See "Certain Transactions -- Certain Agreements Regarding the
Shares." The trustees of the Voting Trust are Messrs. Sturgess, Hegi,
Johnson, Good and G. Miller.
(2) Except under limited circumstances, the holders of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are not
entitled to vote. See "Description of Capital Stock -- Capital Stock of
United -- Voting Rights."
(3) For purposes of calculating the beneficial ownership of each stockholder,
it was assumed (in accordance with the Commission's definition of
"beneficial ownership") that such stockholder had exercised all options
or warrants by which such stockholder had the right, within 60 days
following , 1995, to acquire shares of such class of stock.
88
<PAGE>
(4) Includes (i) 2,078,434 Shares owned by Wingate Partners, (ii) 456,137
Shares owned by Wingate II, (iii) 36,078 Shares owned by Wingate
Affiliates and (iv) 7,884 Shares owned by Wingate Affiliates II, L.P.
Also includes Lender Warrants exercisable for an aggregate of 209,490
Shares (or shares of Nonvoting Common Stock, at the holder's option)
purchased by such entities from one of Associated's former senior
lenders.
(5) Includes (i) 3,094 Shares owned by Wingate Partners and (ii) 54 Shares
owned by Wingate Affiliates.
(6) Includes (i) 715,201 Shares owned by ASI Partners, L.P., (ii) 78,152
Shares owned by ASI Partners II, L.P. and (iii) 77,063 Shares owned by
Cumberland. Cumberland serves as the general partner of both ASI
Partners, L.P. and ASI Partners II, L.P.
(7) Includes 1,212 shares of Series A Preferred Stock owned by ASI Partners,
L.P., as to which Cumberland serves as general partner.
(8) Includes (i) 195,528 Shares owned by Boise Cascade and (ii) 77,104 Shares
issuable upon exercise of a Boise Warrant.
(9) Consists of 237,748 Shares (or shares of Nonvoting Common Stock, at the
holder's option) issuable upon exercise of Lender Warrants which are
immediately exercisable at $0.01 per Share, 240,023 shares of Nonvoting
Common Stock held by such holder and 139,474 shares of Nonvoting Common
Stock that were issued upon consummation of the sale of the Old Notes.
Subject to certain restrictions, the Nonvoting Common Stock is
convertible at any time at the option of the holder into Shares for no
additional consideration. See "Certain Transactions -- Lender Warrants"
and "Financing the Acquisition -- Loan Facilities -- New Credit
Facilities."
(10) Does not include shares owned by Wingate Partners, Wingate II, Wingate
Affiliates or Wingate Affiliates II, L.P. Each of Messrs. Sturgess, Hegi
and Callier is a general partner of Wingate Affiliates, and an indirect
general partner of Wingate Partners and, accordingly, may be deemed to
beneficially own the Shares owned of record by Wingate Partners and
Wingate Affiliates. Each of Messrs. Sturgess, Hegi and Johnson is a
general partner of Wingate Affiliates II, L.P. and an indirect general
partner of Wingate II and, accordingly, may be deemed to beneficially own
the Shares owned of record by Wingate II and Wingate Affiliates II, L.P.
(11) Does not include shares owned by ASI Partners, L.P., ASI Partners II,
L.P. or Cumberland. Mr. Miller is President and a stockholder of
Cumberland and, accordingly, may be deemed to beneficially own the shares
owned of record by ASI Partners, L.P., ASI Partners II, L.P. and
Cumberland.
(12) Includes Lender Warrants exercisable for an aggregate of 21,377 Shares
(or shares of Nonvoting Common Stock, at the holder's option) purchased
by Mr. Good from one of Associated's former senior lenders. Does not
include 181,950 Shares owned by Good Capital. Mr. Good is Chairman and a
controlling stockholder of Good Capital and, accordingly, may be deemed
to beneficially own the shares owned of record by Good Capital.
(13) Includes shares owned directly and by an individual retirement account
for the sole benefit of such individual.
(14) Includes (i) 42,278 Shares owned by or for the benefit of Mr. Rowsey and
(ii) 16,690 Shares issuable upon exercise of options which are, subject
to certain restrictions described under""Management -- Executive
Compensation for Associated -- 1992 Stock Option Plan," imme-diately
exercisable at $2.90 per share.
(15) Includes (i) 42,278 Shares owned by or for the benefit of Mr. Schleppe
and (ii) 14,196 Shares issuable upon exercise of options which are,
subject to certain restrictions, immediately exercisable at $2.90 per
share.
(16) Includes (i) 9,769 Shares owned by or for the benefit of Mr. Bushell and
(ii) 14,196 Shares issuable upon exercise of options which are, subject
to certain restrictions, immediately exercisable at $2.90 per share.
(17) Includes (i) 3,217 Shares owned by Mr. Spungin, (ii) an aggregate of
2,918 Shares owned by trusts and a partnership under Mr. Spungin's
direction and (iii) an aggregate of 551 Shares owned by relatives of Mr.
Spungin.
(18) Includes (i) 42,278 Shares owned by or for the benefit of Mr. Eberspacher
and (ii) 12,897 Shares issuable upon exercise of options which are,
subject to certain restrictions, immediately exercisable at $2.90 per
share.
(19) Includes an aggregate of (i) 150,729 Shares owned by the current
directors and executive officers of United and the Company, (ii) 30,886
Shares issuable upon exercise of options which are, subject to certain
restrictions, immediately exercisable at $2.90 per share and (iii) 21,377
Shares issuable upon exercise of a Lender Warrant owned by a director of
United.
89
<PAGE>
DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under an Indenture dated as of May 3, 1995 (the
"Indenture") between the Company, United, as Guarantor, 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 pursuant to the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the indenture will be subject to and governed by the
Trust Indenture Act. The following summary of the material provisions of the
Indenture does not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, are qualified in their entirety by reference to
all of the provisions of the Indenture and those terms made a part of the
Indenture by the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "Description of the New Notes --
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 mature on May 1, 2005, will be limited to $150,000,000
aggregate principal amount at any one time outstanding (including any New Notes
that may be issued from time to time in exchange for the Old Notes as described
under "The Exchange Offer") and will be unsecured senior subordinated
obligations of the Company. Each Note will bear interest at the rate set forth
on the cover page hereof from May 3, 1995 or from the most recent interest
payment date to which interest has been paid, payable semi-annually on May 1
and November 1 in each year, commencing November 1, 1995, to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the April 15 or the October 15 next preceding such interest payment
date. For a description of the circumstances under which the interest rate on
the Old Notes may be increased from the rate set forth on the cover page of
this Prospectus, see "The Exchange Offer -- Adjustment to Old Notes."
Payment of the Notes is guaranteed by United on a senior subordinated basis
and will be guaranteed on a senior subordinated basis by any newly formed
domestic Restricted Subsidiary of the Company created or acquired after the
Closing Date.
Principal of (and premium, if any, on) and interest 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 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 Person entitled
thereto as shown on the security register. The Notes will be issued only in
fully registered form without coupons, in denominations of $1,000 and any
integral multiple thereof. 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.
Initially, the Company was permitted to issue only the Old Notes; however,
the Company may issue New Notes in exchange for a like principal amount of Old
Notes in connection with the Exchange Offer. Upon any such exchange the Old
Notes so exchanged shall be cancelled and shall no longer be deemed outstanding
for any purpose. In no event shall the aggregate principal amount of Old Notes
and New Notes outstanding exceed $150,000,000. The Old Notes and the New Notes
shall be one class for all purposes under the Indenture, including, without
limitation, amendments, waivers, redemptions, Change of Control Offers, and
Offers, and for purposes of this "Description of the New Notes," all references
herein to "Notes" shall be deemed to refer collectively to Old Notes and New
Notes, unless the context otherwise requires.
90
<PAGE>
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after May 1, 2000,
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 May 1 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR 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 (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 or from time to time prior to May 1, 1998, the
Company may redeem Notes having a principal amount of up to $50.0 million
within 180 days following one or more Public Equity Offerings with the net
proceeds of such offerings at a redemption price equal to 112.75% of the
principal amount thereof, together with accrued and unpaid interest, 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
$100.0 million aggregate principal amount of the Notes remain outstanding.
If less than all of the Notes are to be redeemed, 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.
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 (and premium, if any, on) and interest on,
the Notes will be subordinated, as set forth in the Indenture, in right of
payment to the prior payment in full of all Senior Indebtedness in cash or in
any other form acceptable to the holders of Senior Indebtedness (or such
payment shall be duly provided for to the satisfaction of the holders of the
Senior Indebtedness). The Notes will be senior subordinated indebtedness of the
Company ranking pari passu with all other existing and future senior
subordinated indebtedness of the Company and senior to all existing and future
Subordinated Indebtedness of the Company.
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
"Description of Notes -- Defeasance or Covenant Defeasance of Indenture") or
distribution of any assets of the Company of any kind or character shall be
made by the Company on account of principal of (and premium, if any, on) or
interest 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 Senior Bank Facility in accordance
with the terms of the Senior Bank Facility) unless and until such default shall
have been cured or waived or shall have ceased
91
<PAGE>
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 the
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 "Description of Notes -- 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) shall be
made by the Company on account of any principal of (and premium, if any, on) or
interest 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 holder 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 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 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 "Description of the New Notes -- 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 creditors, as
such, 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
92
<PAGE>
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 shall 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, or
interest on the Notes.
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.
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 Indebtedness" means 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 law whether or not
allowable as a claim in such proceeding) on any Indebtedness of the Company
(except as otherwise provided in this definition), whether outstanding on the
Closing 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 Senior Bank Facility (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 Senior Bank Facility shall not constitute Senior 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, (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 Code, 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
Senior Bank Facility; and (ii) any other Senior Indebtedness outstanding in a
principal amount of at least $50 million, and which is specifically designated
by the Company in the agreement governing or the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness."
"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)
on any Indebtedness of such Guarantor (except as otherwise provided in this
definition), whether outstanding on the Closing Date or thereafter created,
incurred or assumed, unless, in the case of any
93
<PAGE>
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
Senior Bank Facility; provided, however, that any Indebtedness under any
refinancing, refunding or replacement of the Senior Bank Facility shall not
constitute Senior Guarantor Indebtedness to the extent that the Indebtedness
thereunder is by its express terms subordinate to any other Indebtedness of any
Guarantor. 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, (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 Code, 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 Senior Bank Facility; and (ii) any other Senior
Guarantor Indebtedness outstanding in a principal amount of at least $50
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."
After giving pro forma balance sheet effect to the Acquisition and the
refinancing of certain debt and redemption of certain preferred stock assumed
to be effected with the proceeds of this offering as if all such transactions
had occurred on December 31, 1994, there would have been approximately $411.3
million of Senior Indebtedness of the Company (all of which would have been
Designated Senior Indebtedness) and approximately $401.0 million of Senior
Guarantor Indebtedness of United (all of which would have been Designated
Senior Guarantor Indebtedness) outstanding on such date, substantially all of
which would have been secured by substantially all of the assets of the Company
and United, respectively; in addition, after taking into account approximately
$68.1 million of outstanding letters of credit, there would have been
approximately $56.6 million available to be drawn by the Company as secured
Senior Indebtedness under the revolving credit portion of the New Credit
Facilities (all of which would have been Designated Senior Indebtedness), which
amount would have been secured Senior Guarantor Indebtedness of United (all of
which would have been Designated Senior Guarantor Indebtedness). See "Risk
Factors -- Subordination," "Capitalization" and "Pro Forma Combined Financial
Information."
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
Limitation on Incurrence of 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) if (A) the Consolidated Fixed Charge Coverage Ratio of the
Company for the four full fiscal quarters immediately preceding the incurrence
of such Indebtedness taken as one period (and after giving pro forma effect to
(i) if the computation of the Consolidated Fixed Charge Coverage Ratio is made
on any date prior to the end of the four full fiscal quarters immediately
following the effective date of the Merger, the consummation of the Merger and
the financing related thereto (but excluding
94
<PAGE>
any anticipated savings, whether or not related thereto), including the
issuance of the Notes as though they had been issued and outstanding at the
effective time of the Merger and the incurrence of indebtedness under the
Senior Bank Facility and, in each case, the application of the proceeds
thereof, as though such transaction had occurred on the first day of the four
full fiscal quarters commencing immediately prior to the effective date of the
Merger, (ii) the incurrence of such Indebtedness 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 such four-quarter period; (iii) the incurrence, repayment or
retirement of any other Indebtedness by the Company and its Restricted
Subsidiaries since the first day of such 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); (iv) in the case of Acquired Indebtedness, the related
acquisition as if such acquisition occurred at the beginning of such four-
quarter period; and (v) 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 such four-quarter period, and any related
incurrence or repayment of Indebtedness, in each case since the first day of
such four-quarter period, assuming such acquisition or disposition had been
consummated on the first day of such four-quarter period) is (x) for the period
from the Closing Date through May 3, 1998 at least equal to 2.00:1.00 and (y)
thereafter at least equal to 2.25:1.00 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 (x) outstanding at any time in an
aggregate principal amount not to exceed an amount equal to $200 million
minus all principal amounts actually repaid under the term loan portion of
the Senior Bank Facility, including any such amount repaid as provided
under the "Limitation on Sale of Assets" covenant described below, and (y)
outstanding at any time in an aggregate amount equal to the greater of (I)
the Borrowing Base and (II) $300 million;
(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 and Indebtedness
of any Guarantor pursuant to its Guarantee of the Notes;
(iv) Indebtedness of the Company outstanding on the Closing 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
95
<PAGE>
intercompany note in the form attached to the Indenture and (y) any such
Indebtedness shall be subordinated in right of 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)
shall be deemed to be an incurrence of such Indebtedness by the obligor not
permitted by this clause (vi), 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 such Subsidiary 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 clauses (iii) and (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 consisting of Capitalized Lease
Obligations or purchase money obligations, in addition to that described in
clauses (i) through (vii) of this paragraph (b), not to exceed $10 million
outstanding at any one time in the aggregate;
(ix) Indebtedness of the Company (whether or not constituting purchase
money obligations or Capitalized Lease Obligations) not to exceed $20
million at any one time outstanding; and
(x) Indebtedness of the Company consisting of bona fide Interest Rate
Agreements designed to protect the Company from, or control the exposure of
the Company to, fluctuations in interest rates in respect of Indebtedness.
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);
(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)
96
<PAGE>
(the foregoing actions described in clauses (i) through (iv), collectively,
"Restricted Payments") unless after giving effect to the proposed 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 or Event of Default shall have occurred and be continuing and such
Restricted Payment shall not cause or constitute any of the foregoing; (B)
immediately before and immediately after giving effect to such transaction on a
pro forma basis, 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 Closing 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 the date of the Merger and
ending on the last day of the Company's last fiscal quarter ending prior to
the date of the Restricted Payment;
(II) the aggregate Net Cash Proceeds received after the Closing 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 Closing 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 Closing 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;
(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; plus
(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) made by the Company and the
Restricted Subsidiaries since the Closing Date, not to exceed, in the case
of any Investments in any Person, the amount of Investments (other than
Permitted Investments) made by the Company and the Restricted Subsidiaries
in such Person since the Closing 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
or Event of 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 warrants,
options or other rights to acquire such stock in
97
<PAGE>
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
issue and sale (other than to a Subsidiary) for cash of, any Qualified
Capital Stock of the Company or warrants, options or other rights to
acquire such stock;
(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 a Subsidiary) for cash of, any
Qualified Capital Stock of the Company or warrants, options or other rights
to acquire such stock;
(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 Closing Date does not
exceed $600,000 in any fiscal year of the Company; and provided further
that the amount by which $600,000 exceeds the amount so used in any fiscal
year of the 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 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 $500,000 in any
fiscal year of the Company;
(vii) payments to United, not to exceed $250,000 in the aggregate after
the Closing 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;
(viii) payments to United of up to $1,000,000 in any fiscal year of the
Company, to the extent used by United to satisfy its payment obligations
under the Management Services Agreements; and
(ix) the payment of dividends or the making of distributions to United,
within 30 days of the Closing Date, to the extent that United, within such
30 days, uses such dividends and distributions to redeem or repurchase all
or any portion of United's Series B Preferred Stock that is outstanding on
the Closing Date (plus any shares of Series B Preferred Stock issued as
dividends on such outstanding shares after the Closing Date and prior to
such redemption or repurchase); and the purchase by the Company of all or
any portion of United's Series B Preferred Stock that is outstanding on the
Closing Date (plus any shares of Series B Preferred Stock issued as
dividends on such outstanding shares after the Closing Date and prior to
such purchase), within 30 days of the Closing Date; provided that the
aggregate amount of all such payments by the Company under this clause (ix)
shall not exceed $7.0 million.
The actions described in clauses (i) through (iii) and clauses (v) through
(vii) 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), (viii) 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).
98
<PAGE>
Limitation on Transactions with Affiliates. 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 (other than a Restricted Wholly Owned Subsidiary 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 $1.0 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 of
the Company, and (iii) with respect to a transaction or series of related
transactions involving aggregate value in excess of $5.0 million, the Company
delivers to the Trustee an opinion of an independent 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.
The foregoing shall not apply to the performance of obligations under the
Management Service Agreements and the Employment Contracts, in each case as in
effect on the Closing Date.
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 Closing Date or acquired after the Closing 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 as of the Closing 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 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
99
<PAGE>
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; and
(e) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (d) so
long as the amount of property or assets subject to such Lien is not
increased thereby.
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
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 existing on the Closing Date 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: 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"), in accordance
with the procedures set forth in the Indenture 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
100
<PAGE>
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 or 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.
(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,
other than the Joint Venture, promptly upon becoming a Restricted Subsidiary,
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
101
<PAGE>
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 on the Closing
Date (2) any encumbrance or restriction, with respect to a Person that becomes
a Subsidiary after the Closing Date, in existence at the time such Person
becomes a Subsidiary and not incurred in connection with, or in contemplation
of, such Person becoming a 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 not materially less favorable to the
Holders of the Notes than those under or pursuant to the agreement so extended,
renewed, refinanced or replaced; (4) any encumbrance or restriction created
pursuant to an asset sale 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 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 non-
assignment provisions of any lease governing any leasehold interest of the
Company or any Restricted Subsidiaries; (6) to the extent required by the
Indenture; and (7) any encumbrance or restriction existing under or by reason
of applicable law.
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, 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 15 days following any Change of Control, 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.
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 Senior Bank Facility
prohibits 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 Senior Bank Facility 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 Senior Bank
Facility 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 "Description of
Notes -- Events of Default," subject to the subordination provisions of the
Indenture.
102
<PAGE>
"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), other than one or more of the
Permitted Holders, 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 constitute a majority 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 (other than one or more of the Permitted Holders); (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 "Description of
Notes -- 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 Closing Date with respect to Indebtedness outstanding on the Closing 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
103
<PAGE>
the 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 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 or Event of
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
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.
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 or partnership 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 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
or Event of Default shall have occurred and be continuing;
104
<PAGE>
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
are not Subsidiaries 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 paragraphs in which the Company
or any Guarantor 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 or such Guarantor, as the case may be, and the
Company or such Guarantor, as the case may be, 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);
(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 "Description of Notes -- Consolidation, Merger, Sale of
Assets"; (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 $10 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 or any
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 $10 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
105
<PAGE>
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 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 Senior Bank Facility is 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 Senior Bank Facility or (b) acceleration of the Indebtedness under
the Senior Bank Facility. 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.
106
<PAGE>
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 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 or an Event of 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 "Description of Notes -- 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 (as defined in the Indenture), 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 Closing 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 of 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
107
<PAGE>
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 or Event of
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 the 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.
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 Holders, 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
108
<PAGE>
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 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 of each Note affected thereby; (v) except as otherwise
permitted under "Description of the New Notes -- 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.
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. Notwithstanding any of the foregoing,
for purposes of the Indenture, The Chase Manhattan Corporation and its
subsidiaries shall be deemed not to be an Affiliate of United, the Company or
any Subsidiary.
109
<PAGE>
"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 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 (x) any
transfer of properties or assets (A) that is governed by the first paragraph
under "-- Consolidation, Merger, Sale of Assets" or (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 or (y) transfers of properties and
assets listed on Schedule I to the Indenture.
"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 or state 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.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a) 80%
of the face amount of all accounts receivable of the Company and its Restricted
Subsidiaries as of such date and (b) 50% 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.
"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.
"Closing Date" means May 3, 1995.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio 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
110
<PAGE>
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.
"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 deferred financing
costs incurred with respect to the issuance of the Notes or the borrowings
under the Senior Bank Facility, to the extent paid prior to or on the Closing
Date, 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 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).
111
<PAGE>
"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.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Employment Agreements" means the several employment agreements, dated on or
prior to the Closing Date, between or among United and/or the Company and each
of Joel D. Spungin, Jeffrey K. Hewson, Ronald W. Weissman, Allen B. Kravis,
Steven R. Schwarz, Robert H. Cornell, Otis H. Halleen, Jerold A Hecktman, Ted
S. Rzeszuto, Michael D. Rowsey, Daniel J. Schleppe, Daniel H. Bushell, Robert
D. Eberspacher, Duane J. Ratay and Lawrence E. Miller.
"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 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, other than the Joint Venture.
"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
112
<PAGE>
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 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
$500,000, 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.
"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.
"Management Services Agreements" means the several investment banking fee and
management agreements dated on or prior to the Closing Date, among United, the
Company and Wingate Partners L.P., Cumberland Capital Corporation and Good
Capital Co., Inc., as amended to the Closing Date.
"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.
"Merger" means, collectively, the merger of Associated with and into United
and the merger of ASI with and into the Company.
"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
113
<PAGE>
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 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 Holders" means Wingate Partners, L.P., Wingate Partners II, L.P.,
Wingate Affiliates, L.P., and Wingate Affiliates II, L.P. (collectively,
"Wingate Partners"), ASI Partners, L.P., ASI Partners II, L.P., Cumberland
Capital Corporation, Good Capital Co., Inc., Daniel J. Good, Boise Cascade
Corporation, Chase Manhattan Investment Holdings, Inc., James A. Johnson,
Michael D. Rowsey, Daniel J. Schleppe, Daniel H. Bushell and Robert W.
Eberspacher, all such Persons being stockholders of United on the Closing Date,
together with (i) the direct and indirect general partners of Wingate Partners
and (ii) any entity controlled by Wingate Partners, in each case on April 26,
1995.
"Permitted Investment" means (i) investments in the Company or any Restricted
Wholly Owned Subsidiary or any Person which, as a result of such Investment,
becomes a Restricted Wholly Owned Subsidiary; (ii) Indebtedness of the Company
or a Restricted Subsidiary described under clauses (v) and (vi) of the
definition of "Permitted Indebtedness"; (iii) Temporary Cash Investments; (iv)
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; (v) guarantees of Indebtedness otherwise permitted by the Indenture;
(vi) Investments in existence on the Closing Date; (vii) customer advances not
to exceed $250,000 at any one time outstanding; (viii) travel and relocation
loans and advances made to employees in the ordinary course of business not to
exceed $200,000 at any one time outstanding; (ix) 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 (x) additional Investments not to exceed $1 million at any one
time outstanding.
114
<PAGE>
"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.
"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 Closing
Date, and including, without limitation, all classes and series of preferred or
preference stock.
"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.
"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.
"Senior Bank Facility" means the Senior Bank Facility, each dated as of March
30, 1995, among the Company, United, the subsidiaries of the Company, if any,
identified on the signature pages thereof under the caption "Subsidiary
Guarantors," the lenders named therein and Chase Bank, as agent, 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, supplementations or other modifications of the
foregoing, including the addition of new lenders or agents). For purposes of
the Indenture, "Senior Bank Facility" 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; provided that, for
purposes of the definition of "Permitted Indebtedness," no such increase may
result in the principal amount of Indebtedness under the Credit Agreement
exceeding the amount permitted by subparagraphs (b)(i) and (b)(ii) of the
"Limitation on Indebtedness" covenant; and provided
115
<PAGE>
further that there shall at any time be only one instrument that constitutes
the "Senior Bank Facility" under the Indenture. The Senior Bank Facility on the
date hereof consists of the New Credit Facilities referred to elsewhere in this
Prospectus.
"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.
"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 $500,000,000 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 Corporation ("S&P") or any
successor rating agency, (iii) commercial paper with a maturity of one year or
less and 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 $500,000,000.
"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 of the Company 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 $10 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
116
<PAGE>
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 of the Company 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 of the Company may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately
after giving effect to such designation there would be no Default or Event of
Default under the Indenture and the Company could incur $1.00 of additional
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 minimus 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.
117
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on May 3, 1995 in a private placement.
In connection therewith, the Company entered into the Registration Agreement,
which requires that the Company file the Exchange Offer Registration Statement
under the Securities Act with respect to the New Notes and, upon the
effectiveness of such Exchange Offer 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 may be reoffered and resold by the holder without registration under
the Securities Act. The Registration Agreement further provides that the
Exchange Offer Registration Statement must be declared effective on or prior to
August 31, 1995. Upon the completion of the Exchange Offer (unless any holder
is unable to make the requisite representations in order to participate in 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
Agreement has been filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part. As a result of the filing and the
effectiveness of the Exchange Offer Registration Statement, certain prospective
increases in the interest rate on the Old Notes provided for in the
Registration Agreement and the Indenture will not occur. Following the
consummation 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 the 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 consummation of the Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to the
Company, 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 such New Notes, whether or not such person is the 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
promulgated under the Securities Act, of the Company. In the event that any
holder of Old Notes cannot make the requisite representations to the Company in
order to participate in the Exchange Offer, such holder can elect, by so
indicating on the Letter of Transmittal and providing certain additional
necessary information, to have such holder's Old Notes registered in a "shelf"
registration statement on an appropriate form pursuant to Rule 415 under the
Securities Act. 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 a period of 180 days. 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 Notes under the Securities Act. See "-- Procedures for Tendering."
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, 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 not such person
is the holder (other than any such holder or such other person 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 business of such holder or such other person and neither
such 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 such interpretation by the staff
of the Commission 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
118
<PAGE>
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 consummation 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 the 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 consummation of the Exchange Offer if such 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 the same as the form and terms of the
Old Notes except that the New Notes have been registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. 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 May 3, 1995, $150,000,000 aggregate principal amount of the Old Notes
was outstanding and there were registered holders. This Prospectus,
together with the Letter of Transmittal, is being sent to such registered
Holders and to others believed to have beneficial interests in the Old Notes.
Holders of Old Notes do not have any appraisal or dissenters' rights under the
Business Corporation Act of the State of Illinois or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Securities 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 expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
" --- Fees and Expenses" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on ,
1995, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date"
119
<PAGE>
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 below under"-- Conditions" 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 such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign, and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile 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, or (ii) a timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation") of such Old Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (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 below
under "-- Exchange Agent" prior to the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such 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 THE ABOVE 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 such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership
of the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
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 Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a
120
<PAGE>
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States 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, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such 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 unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
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 subsequent to
the Expiration Date or, as set forth below under
" -- Conditions," 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 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 holder, (ii) neither the holder nor
any such other person is engaged 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.
In the event that any holder of Old Notes cannot make the requisite
representations to the Company in order to participate in the Exchange Offer,
such holder can elect, by so indicating on the Letter of Transmittal and
providing certain additional necessary information, to have such holder's Old
Notes registered in a "shelf" registration statement on an appropriate form
pursuant to Rule 415 under the Securities Act. Such election must be made by
the Expiration Date in order for such holder to participate in the "shelf"
registration.
121
<PAGE>
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 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 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 non-exchanged 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.
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 by causing the
Book-Entry Transfer 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 facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "-- Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
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 received 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 five 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 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 all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five 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 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written,
telegraphic, telex, or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth
122
<PAGE>
under " -- Exchange Agent" prior to 5:00 p.m., 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 validity 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 described under "--Procedures for
Tendering" above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept Old Notes for exchange, or to issue New Notes in
exchange for Old Notes, and may terminate or amend the Exchange Offer as
provided herein, if at any time before the acceptance of such Old Notes for
exchange any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transactions contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in
the ability of the Company to accept for exchange or exchange some or all
of the Old Notes pursuant to the Exchange Offer, or any statute, rule,
regulation, order, interpretation or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer
or any of the transactions contemplated by the Exchange Offer by any
government or governmental authority, domestic or foreign, or any action
shall have been taken, proposed or threatened, by any government or
governmental authority or agency or court, domestic or foreign, that in the
sole judgment of the Company, might directly or indirectly result in any of
the consequences referred to in clauses (i), (ii) above or, in the sole
judgment of the Company, might otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or the over-the-counter market, (ii) any limitation by
any governmental agency or authority which adversely affects the ability of
the Company to complete the transactions contemplated by the Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States,
or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof;
which, in the sole judgment of the Company in any case, and regardless of the
circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
123
<PAGE>
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.
ADJUSTMENT TO OLD NOTES
Pursuant to the Registration Agreement, United and the Company have agreed to
use their best efforts to (i) file with the Commission on or prior to June 2,
1995, and cause to become effective on or prior to August 31, 1995, the
Exchange Offer Registration Statement with respect to a registered offer under
the Securities Act to exchange the New Notes for the Old Notes in accordance
with the terms of the Exchange Offer and (ii) cause such Exchange Offer to be
consummated on or prior to September 30, 1995.
In the event that either (i) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to June 2, 1995, (ii) the Exchange Offer
Registration Statement is not declared effective on or prior to August 31,
1995, (iii) the Exchange Offer is not consummated on or prior to September 30,
1995 or (iv) changes in law or the applicable interpretation of the Commission
staff do not permit the Company to effect the Exchange Offer and a Shelf
Registration Statement with respect to the Old Notes is not declared effective
under the Securities Act on or prior to the later of (x) August 31, 1995 and
(y) the 45th calendar day after the publication of the change in law or
interpretation, the interest rate borne by the Old Notes shall be increased by
one-half of one percent per annum following the relevant date described in
clause (i), (ii), (iii) or (iv), as applicable. The aggregate amount of such
increase from the original interest rate pursuant to these provisions will in
no event exceed one-half of one percent per annum. Such increase will cease to
be effective on the date of filing of the Exchange Offer Registration
Statement, effectiveness of the Exchange Offer Registration Statement,
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be.
ASSISTANCE
All executed Letters of Transmittal should be directed to the Exchange Agent.
Questions and requests for assistance and requests for additional copies of
this Prospectus, the Letter of Transmittal and other related documents should
be directed to the Exchange Agent as provided below.
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:
THE BANK OF NEW YORK
By Registered or Certified Facsimile Transmission By Hand/Overnight
Mail: Number: Delivery:
(212) 571-3080
101 Barclay Street - 7E 101 Barclay Street
New York, New York (For Eligible InstitutionsCorporate Trust Services
Attn: Reorganization Only) Window
Section Confirm by Telphone: Ground Level
(212) 815-2742 New York, New York 10286
Attn: Reorganization
Section
For Information Call:
(212) 815-6333
124
<PAGE>
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 Trustee, 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.
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 HIM 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 should not be an exchange or
otherwise a taxable event to a holder for federal income tax purposes.
Accordingly, a holder should have the same adjusted issue price, adjusted
basis, and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer 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 180 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, for 90 days following the later of (i) the effective date of the
Registration Statement and (ii) the first date upon which the New Notes were
bona fide offered to the public, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
125
<PAGE>
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 though brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/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.
For a period of 180 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 other than commissions or concessions of any brokers or dealers.
LEGAL MATTERS
Certain legal matters in connection with the New Notes will be passed upon
for United and the Company by Weil, Gotshal & Manges, a partnership including
professional corporations, Dallas, Texas.
EXPERTS
The consolidated financial statements of United as of August 31, 1993 and
1994 and for the years ended August 31, 1992, 1993 and 1994 included in this
Prospectus and the consolidated financial statements of Associated as of
December 31, 1993 and 1994 and from inception, January 31, 1992, through
December 31, 1992 and for the years ended December 31, 1993 and 1994 included
in this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
126
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNITED STATIONERS INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of August 31, 1993 and August 31, 1994.... F-3
Consolidated Statements of Income for the years ended August 31, 1992,
August 31, 1993 and August 31, 1994..................................... F-5
Consolidated Statements of Changes in Stockholders' Investment for the
years ended August 31, 1992, August 31, 1993 and August 31, 1994........ F-6
Consolidated Statements of Cash Flows for the years ended August 31,
1992, August 31, 1993 and August 31, 1994............................... F-7
Notes to Consolidated Financial Statements............................... F-8
Condensed Consolidated Balance Sheets as of August 31, 1994 (audited) and
February 28, 1995 (unaudited)........................................... F-17
Condensed Consolidated Statements of Income for the Six Months Ended
February 28, 1994 and February 28, 1995 (unaudited)..................... F-18
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
February 28, 1994 and February 28, 1995 (unaudited)..................... F-19
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-20
Supplemental Consolidated Quarterly Financial Information (unaudited).... F-21
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................. F-22
Consolidated Balance Sheets as of December 31, 1993 and 1994............. F-23
Consolidated Statements of Income for the Period from Inception, January
31, 1992, through December 31, 1992 and for the Years Ended December 31,
1993 and 1994........................................................... F-24
Consolidated Statements of Stockholders' Equity for the Period from
Inception, January 31, 1992, through December 31, 1992 and for the Years
Ended December 31, 1993 and 1994 ....................................... F-25
Consolidated Statements of Cash Flows for the Period from Inception,
January 31, 1992, through December 31, 1992 and for the Years Ended
December 31, 1993 and 1994.............................................. F-26
Notes to Consolidated Financial Statements............................... F-27
Supplemental Consolidated Quarterly Financial Information (unaudited).... F-39
Condensed Consolidated Balance Sheets as of March 31, 1995 (unaudited)
and December 31, 1994 (audited)......................................... F-40
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1995 (unaudited) and March 31, 1994 (unaudited)......... F-41
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1995 (unaudited) and March 31, 1994 (unaudited)......... F-42
Notes to Condensed Consolidated Financial Statements..................... F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of
Directors of United Stationers Inc. :
We have audited the accompanying consolidated balance sheets of UNITED
STATIONERS INC. (a Delaware Corporation) AND SUBSIDIARIES as of August 31, 1993
and 1994, and the related consolidated statements of income, changes in
stockholders' investment and cash flows for fiscal years ended August 31, 1992,
1993 and 1994. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Stationers Inc. and Subsidiaries as of August 31, 1993 and 1994, and the
results of its operations and its cash flows for the fiscal years ended August
31, 1992, 1993 and 1994, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois,
October 6, 1994.
F-2
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUG. 31,
-----------------
ASSETS 1993 1994
------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 7,889 $ 6,920
Accounts receivable, less reserves for doubtful accounts of
$3,964 in 1993 and $4,010 in 1994......................... 188,396 187,565
Inventories................................................ 229,760 225,794
Deferred income taxes and prepaid expenses................. 16,426 15,512
-------- --------
Total current assets..................................... $442,471 $435,791
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings......................................... $ 90,147 $ 92,099
Fixtures and equipment..................................... 143,415 150,630
Leasehold improvements..................................... 46 36
Assets under capital leases................................ 1,210 1,163
-------- --------
Total property, plant and equipment...................... $234,818 $243,928
Less -- Accumulated depreciation and amortization ......... 97,182 114,364
-------- --------
Net property, plant and equipment........................ $137,636 $129,564
-------- --------
GOODWILL, NET................................................ $ 43,484 $ 42,369
-------- --------
OTHER ASSETS................................................. $ 11,195 $ 10,826
-------- --------
Total assets............................................. $634,786 $618,550
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUG. 31,
------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1993 1994
---------------------------------------- -------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term
obligations............................................. $ 3,448 $ 6,338
Accounts payable......................................... 150,374 121,793
Accrued expenses......................................... 69,175 65,055
Accrued income taxes..................................... 3,400 2,778
-------- --------
Total current liabilities.............................. $226,397 $195,964
-------- --------
DEFERRED INCOME TAXES...................................... $ 14,484 $ 17,427
-------- --------
LONG-TERM OBLIGATIONS:
Long-term debt........................................... $146,735 $149,465
Capital leases........................................... 68 --
Other liabilities........................................ 9,405 9,684
-------- --------
Total long-term obligations............................ $156,208 $159,149
-------- --------
STOCKHOLDERS' INVESTMENT:
Preferred stock, no par value, authorized 1,500,000
shares, no shares issued or outstanding................. $ -- $ --
Common stock, $0.10 par value, authorized 40,000,000
shares, issued 18,586,627 shares in 1993 and 18,592,054
shares in 1994.......................................... 1,859 1,859
Capital in excess of par value........................... 91,687 91,729
Retained earnings........................................ 144,292 152,448
Less -- 9,993 shares and 1,828 shares of common stock in
treasury at cost in 1993 and 1994, respectively......... (141) (26)
-------- --------
Total stockholders' investment......................... $237,697 $246,010
-------- --------
Total liabilities and stockholders' investment......... $634,786 $618,550
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUG. 31,
----------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES.................................. $1,094,275 $1,470,115 $1,473,024
COST OF SALES.............................. 848,588 1,125,596 1,150,123
---------- ---------- ----------
Gross profit on sales.................. $ 245,687 $ 344,519 $ 322,901
---------- ---------- ----------
OPERATING EXPENSE:
Warehousing, marketing and administrative
expenses................................ $ 213,372 $ 298,405 $ 286,607
Restructuring charge..................... 5,913 -- --
---------- ---------- ----------
Total operating expenses............... $ 219,285 $ 298,405 $ 286,607
---------- ---------- ----------
Income from operations................. $ 26,402 $ 46,114 $ 36,294
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense......................... $ (6,980) $ (9,849) $ (10,722)
Interest income.......................... 477 299 261
Other, net............................... 364 355 225
---------- ---------- ----------
Total other income (expense)........... $ (6,139) $ (9,195) $ (10,236)
---------- ---------- ----------
Income before income taxes............. $ 20,263 $ 36,919 $ 26,058
INCOME TAXES............................... 8,899 15,559 10,309
---------- ---------- ----------
Net Income............................. $ 11,364 $ 21,360 $ 15,749
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING............................... 16,088,450 18,559,600 18,587,282
========== ========== ==========
NET INCOME PER COMMON SHARE................ $ 0.71 $ 1.15 $ 0.85
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL
IN
NUMBER OF EXCESS TOTAL
COMMON COMMON OF PAR RETAINED TREASURY STOCKHOLDERS'
SHARES STOCK VALUE EARNINGS STOCK INVESTMENT
---------- ------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31,
1991................... 15,535,013 $1,554 $54,557 $125,704 $(231) $181,584
Net Income............ -- -- -- 11,364 -- 11,364
Issuance of common
shares............... 3,016,169 301 36,643 -- -- 36,944
Cash dividends--$0.40
per share on common
stock................ -- -- -- (6,535) -- (6,535)
Disposition of
treasury stock....... -- -- -- -- 30 30
---------- ------ ------- -------- ----- --------
BALANCE, AUGUST 31,
1992................... 18,551,182 $1,855 $91,200 $130,533 $(201) $223,387
Net Income............ -- -- -- 21,360 -- 21,360
Issuance of common
shares............... 35,445 4 487 -- -- 491
Cash dividends--$0.40
per share on common
stock................ -- -- -- (7,601) -- (7,601)
Disposition of
treasury stock....... -- -- -- -- 60 60
---------- ------ ------- -------- ----- --------
BALANCE, AUGUST 31,
1993................... 18,586,627 $1,859 $91,687 $144,292 $(141) $237,697
Net Income............ -- -- -- 15,749 -- 15,749
Issuance of common
shares............... 5,427 -- 42 -- -- 42
Cash dividends--$0.40
per share on common
stock................ -- -- -- (7,593) -- (7,593)
Disposition of
treasury stock....... -- -- -- -- 115 115
---------- ------ ------- -------- ----- --------
BALANCE, AUGUST 31,
1994................... 18,592,054 $1,859 $91,729 $152,448 $ (26) $246,010
========== ====== ======= ======== ===== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUG.
31,
----------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 11,364 $ 21,360 $ 15,749
Adjustments to reconcile net income to net cash
provided by (used in) operating activities,
net of SDC purchase--
Loss on sale of fixed assets................. $ 55 $ 476 $ 579
Depreciation and amortization................ 19,879 21,243 21,236
(Decrease)/increase in deferred taxes........ (8,240) 2,261 2,943
Increase/(decrease) in accounts payable...... 7,195 15,259 (28,581)
(Decrease)/increase in accrued liabilities... (2,896) 3,655 (7,522)
(Increase)/decrease in accounts receivable... (12,681) (20,016) 831
(Increase)/decrease in inventories........... (15,776) (7,353) 3,966
Decrease in prepaid expenses................. 3,940 1,392 914
Increase in other assets..................... (5,378) (2,275) (2,007)
-------- -------- --------
Total adjustments.......................... $(13,902) 14,642 $ (7,641)
-------- -------- --------
Net cash provided by (used in) operating
activities................................ $ (2,538) $ 36,002 $ 8,108
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment... $ (8,342) $(30,008) $(10,719)
Proceeds from disposition of property, plant
and equipment................................. 51 50 220
Payment for purchase of SDC, net of cash
acquired of $2,480............................ (37,338) -- --
-------- -------- --------
Net cash used in investing activities...... $(45,629) $(29,958) $(10,499)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in short-term debt......... $ 1,636 $ (481) $ (2,855)
Payments on long-term obligations.............. (4,213) (4,537) (1,533)
Additions to long-term obligations............. 57,460 1,971 13,246
Issuance of common shares...................... 164 491 42
Payment of dividends........................... (6,535) (7,601) (7,593)
Disposition of treasury stock.................. 30 60 115
-------- -------- --------
Net cash provided by (used in) financing
activities................................ $ 48,542 $(10,097) $ 1,422
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVA-
LENTS........................................... $ 375 $ (4,053) $ (969)
CASH AND CASH EQUIVALENTS at the beginning of the
year............................................ 11,567 11,942 7,889
-------- -------- --------
CASH AND CASH EQUIVALENTS at the end of the year. $ 11,942 $ 7,889 $ 6,920
======== ======== ========
Supplemental Disclosures of Cash Flow Informa-
tion:
Cash paid during the year for:
Interest (net of amount capitalized)......... $ 6,722 $ 8,972 $ 10,199
Income taxes................................. 14,489 18,395 6,229
-------- -------- --------
Supplemental Schedule of Noncash Investing and
Financing Activities:
Fair value of assets acquired.................. $175,359 $ -- $ --
Cash paid...................................... (39,818) -- --
Common stock issued............................ (36,780) -- --
-------- -------- --------
Liabilities assumed/incurred..................... $ 98,761 $ -- $ --
-------- -------- --------
Investment in business venture................... $ -- $ 742 $ --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of United
Stationers Inc. and its wholly owned subsidiaries ("the Company"). Investments
in 20% to 50% owned companies are accounted for by the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior-year amounts have been reclassified to conform
with current-year presentations.
Fiscal Year
The Company's fiscal year ends on August 31. Unless otherwise stated,
references to years relate to fiscal years.
Revenue Recognition
Sales and provisions for estimated sales returns and allowances are recorded
at the time of shipment.
Cash and Cash Equivalents
Investments in instruments which have an original maturity of three months or
less are considered to be cash equivalents. Cash equivalents are stated at cost
which approximates market value.
Inventories
Inventories constituting approximately 82% of total inventories both at
August 31, 1993 and at August 31, 1994 have been valued under the last-in,
first-out (LIFO) method with the remainder of the inventory valued under the
first-in, first-out (FIFO) method. Inventory valued under the FIFO and LIFO
accounting methods are recorded at the lower of cost or market. 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
$16,679,000 and $18,854,000 higher than reported at August 31, 1993 and 1994,
respectively.
In 1994, liquidations of certain LIFO inventories had the effect of
increasing net earnings by $830,000 or $0.04 per share. During both 1992 and
1993, LIFO inventories did not sustain liquidations.
Depreciation and Amortization
Depreciation and amortization are determined by using the straight-line
method over the estimated useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to
10 years; the estimated useful life assigned to buildings does not exceed 40
years; leasehold improvements and assets under capital leases are amortized
over the lesser of their useful lives or the term of the applicable lease.
Goodwill reflecting the excess of cost over the value of net assets of
businesses acquired is being amortized on a straight-line basis over 40 years.
The cumulative amount of goodwill amortized at August 31, 1993 and 1994 is
$1,200,000 and $2,315,000, respectively.
F-8
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Software Capitalization
The Company capitalizes major internal and external systems development costs
determined to have benefits for future periods. Amortization expense is
recognized over the periods in which the benefits are realized, generally not
to exceed three years. Systems development costs capitalized were $4,202,000,
$1,955,000 and $2,166,000 in 1992, 1993 and 1994, respectively. Amortization
expense was $3,384,000, $2,946,000 and $2,376,000 in 1992, 1993 and 1994,
respectively.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
value of cash and cash equivalents, trade receivables and trade payables are
considered to be representative of their respective fair values.
Borrowings under the Company's Reducing Revolving Credit and Term Loan
Agreement are considered to be at fair market value. The Company had
approximately $66.1 million and $62.7 million of long-term debt (excluding
borrowings under the Company's Reducing Revolving Credit and Term Loan
Agreement) outstanding as of August 31, 1993 and 1994, respectively. The
approximate fair value was $68.0 million and $59.8 million as of August 31,
1993 and 1994, respectively. The fair value is based on the current rates
offered to the Company for debt of similar maturities. The fair values on the
long-term debt financial instruments are not necessarily indicative of the
amounts that would be realized in a current market exchange and exclude any
liquidation or origination costs.
Foreign Currency Translation
All assets and liabilities of the Company's foreign operations are translated
at current exchange rates. Revenues and expenses are translated at average
exchange rates for the year in accordance with Statement of Financial
Accounting Standard No. 52. The amounts for all years presented were
immaterial.
Earnings Per Share
Earnings per share and the effect on earnings per share of potentially
dilutive stock options are computed by the treasury stock method. This
computation takes into account the weighted average number of shares
outstanding during each year, outstanding stock options and their exercise
prices, and the market price of the stock throughout the year. The exercise of
outstanding stock options would not result in a material dilution of earnings
per share.
2. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
On June 24, 1992, the Company acquired all of the outstanding capital stock
of SDC Distributing Corp., parent of Stationers Distributing Company, Inc.
("SDC"). The results of operations of SDC have been included in the Company's
consolidated financial statements since June 25, 1992.
The following summarized unaudited pro forma results of operations for the
years ended August 31, 1991 and 1992 assume the acquisition occurred at the
beginning of the respective periods. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of the
results of operations that actually would have resulted had the combination
been in effect on the dates indicated, or which may result in the future.
<TABLE>
<CAPTION>
1991 1992
---------- ----------
(IN THOUSANDS OF
DOLLARS, EXCEPT SHARE
DATA) (UNAUDITED)
<S> <C> <C>
Net Sales........................................... $1,378,734 $1,445,900
Net Income.......................................... 14,070 20,444
Net Income per Share................................ 0.76 1.10
</TABLE>
F-9
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the fourth quarter of 1992, the Company recorded a $5.9 million pre-tax
restructuring charge related to severance payments and closing of certain
facilities associated with the acquisition.
3. LONG-TERM DEBT
Long-term debt consists of the following amounts (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Mortgages, 9,0% to 12.5%, due in installments until 2002,
secured by the Regional Distribution Centers in Livonia,
Michigan; Pennsauken, New Jersey; Dallas, Texas; Woburn,
Massachusetts; and The City of Industry, California........ $ 13,615 $ 13,182
Industrial development bonds, interest at 69% of prime,
maturing in 2015, secured by land, buildings and certain
equipment located in Edison, New Jersey.................... 8,000 8,000
Industrial development bonds, at market interest rates,
maturing at various dates through 2011..................... 14,300 14,300
Industrial development bonds, at 66% to 79% of prime,
maturing at various dates through 2005..................... 15,500 15,500
Unsecured loan, at 9.65%, maturing at various dates through
1998....................................................... 14,300 11,450
Other long-term debt........................................ 356 303
Term Loan................................................... 30,000 30,000
Revolver.................................................... 54,000 63,000
-------- --------
$150,071 $155,735
-------- --------
Less--current maturities.................................... 3,336 6,270
-------- --------
$146,735 $149,465
======== ========
</TABLE>
The prevailing prime interest rate at the end of 1993 and 1994 was 6.0% and
7.8%, respectively.
The Company has a $160.0 million Reducing Revolving Credit and Term Loan
Agreement ("Credit Agreement") with a group of seven lenders (the "Lenders").
The Credit Agreement consists of a $130.0 million revolving credit facility
("Revolver") and a $30.0 million term loan ("Term Loan"). Proceeds are used to
finance working capital requirements and capital expenditures of the Company.
The Revolver provides for revolving credit loans up to the amount of the
commitment until August 31, 1997, at the Company's option. The initial $130.0
million commitment decreases to $83.6 million as of August 31, 1997 based on
quarterly decreases which began in May 1994 as specified in the Credit
Agreement. As of August 31, 1994, the Revolver commitment is $126.0 million.
Under the terms of the Credit Agreement, the Company is required to pay a
facility fee of 3/16 of 1% of the total available Revolver. The Term Loan (as
amended) matures on September 30, 1995 (or earlier upon certain subsequent
offerings by the Company of debt or equity). The Term Loan can be prepaid
without penalty. Interest on both loans is payable at varying rates provided
for in the Credit Agreement.
The Credit Agreement contains certain financial covenants covering the
Company and its subsidiaries on a consolidated basis, including, without
limitation, covenants relating to the consolidated current ratio, tangible net
worth, capitalization, fixed charge coverage, capital expenditures and payment
of dividends by the Company.
F-10
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, the Company re-negotiated the repayment schedule of certain of
its debt, resulting in the reclassification of approximately $1.3 million from
short-term to long-term debt.
The net book value of assets subject to secured mortgages and industrial
development bonds as of August 31, 1993 and 1994 was $28,962,000 and
$28,610,000, respectively.
Maturities of long-term debt (excluding amounts borrowed under the Credit
Agreement), for the years following the period ended August 31, 1994, are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1995.............................................................. $ 6,270
1996.............................................................. 7,352
1997.............................................................. 8,201
1998.............................................................. 8,805
1999.............................................................. 2,961
Later years....................................................... 29,146
-------
$62,735
=======
</TABLE>
4. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has pension plans in effect for substantially all employees. Non-
contributory plans covering non-union employees provide pension benefits that
are based on years of credited service and a percentage of annual compensation.
Non-contributory plans covering union members generally provide benefits of
stated amounts based on years of service. The Company funds the plans in
accordance with current tax laws.
The Company also has a non-contributory, non-qualified plan ("Supplemental
Benefits Plan") in effect for certain executives. The Company has not funded
this plan.
Pension expense in 1992, 1993 and 1994 was approximately $866,000, $1,269,000
and $1,755,000, respectively.
F-11
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the plans' funded status at August 31, 1993
and August 31, 1994 (in thousands of dollars):
<TABLE>
<CAPTION>
SUPPLEMENTAL
PENSION PLANS BENEFIT PLANS
---------------- --------------
1993 1994 1993 1994
------- ------- ------ ------
<S> <C> <C> <C> <C>
Actuarial Present Value of Benefits
Obligation
Vested benefits........................... $15,063 $15,215 $ 442 $ 549
Non-vested benefits....................... 1,702 1,887 4 16
------- ------- ------ ------
Accumulated benefits obligation............. $16,765 $17,102 $ 446 $ 565
Effect of projected future compensation
levels..................................... 2,356 2,982 119 328
------- ------- ------ ------
Projected benefits obligation............... $19,121 $20,084 $ 565 $ 893
Plan assets at fair value................... 20,875 21,000 -- --
------- ------- ------ ------
Projected benefits obligation less than (in
excess of) plan assets..................... $ 1,754 $ 916 $ (565) $ (893)
Unrecognized net gain due to past experience
different from assumptions................. (279) 266 (9) 189
Unrecognized prior service cost............. 1,270 1,347 160 131
Unrecognized net obligation (asset) at
September 1, 1985 to be amortized over 3 to
12 years in 1994 and 4 to 13 years in 1993. (561) (467) 120 90
------- ------- ------ ------
Prepaid (accrued) pension liability
recognized in Consolidated Balance
Sheets................................... $ 2,184 $ 2,062 $ (294) $ (483)
======= ======= ====== ======
</TABLE>
The plans' assets consist of debt securities, equity securities and
government securities. Net periodic pension cost for 1992, 1993 and 1994 for
pension and supplemental benefits plans includes the following components (in
thousands of dollars):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the period......... $1,055 $1,293 $1,863
Interest cost on projected benefits obligation.......... 952 1,209 1,436
Actual return on assets................................. (983) (3,235) 263
Net amortization and deferral........................... (158) 2,002 (1,807)
------ ------ ------
Net periodic pension cost............................. $ 866 $1,269 $1,755
====== ====== ======
</TABLE>
The projected benefit obligations for 1992, 1993 and 1994 were determined
using an assumed discount rate of 7.5%, 7.25% and 7.5%, respectively. In 1993
and 1994, the assumed rate of compensation increase ranged from 0% to 5.5%. In
1992, the assumed compensation increase ranged from 0% to 5%. The expected
long-term rate of return on assets used in determining net periodic pension
cost was 7.5%.
The Company provides an unfunded health care plan to substantially all
retired non-union employees and their dependents. Eligibility requirements are
based on the individual's age (minimum age of 55), years of service and hire
date. The benefits are subject to retiree contributions, deductibles, co-
payment provisions and other limitations.
During the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standard No. 106 (SFAS 106), "Employer's Accounting for
Postretirement Benefits Other Than Pensions." SFAS
F-12
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
106 requires companies to accrue the expected cost of postretirement health
care and life insurance benefits throughout the employee's active service
period. Previously, postretirement health care costs were recognized as claims
were paid. The Company has elected to amortize the unfunded Accumulated
Postretirement Benefit Obligation (APBO) of $1,996,474 as of September 1, 1993
over 20 years.
The assumed health care average cost trend rate used in measuring the APBO at
August 31, 1994 was 11.5% in 1994, 11.0% in 1995, and 3% in 1996 and beyond.
Beginning in 1996, retirees will pay the difference between actual plan costs
and the portion of cost paid by the Company which is limited to a cost trend
rate of 3%. The assumed discount rate was 7.5%. A 1% increase in the care cost
trend rate would increase the APBO as of August 31, 1994 by approximately
$272,000 and the sum of the 1994 annual service cost and interest cost by
approximately $64,000.
Prior to 1994, the cost of providing postretirement health care benefits net
of retiree contributions was $33,396 in 1992 and $46,777 in 1993.
The cost of postretirement health care benefits for the year ended August 31,
1994 is as follows (in thousands of dollars):
<TABLE>
<S> <C>
Service cost........................................................ $246
Interest on accumulated benefits obligation......................... 146
Amortization of transition obligation............................... 100
----
Net postretirement benefit cost................................... $492
====
</TABLE>
The following table sets forth the amounts recognized in the Company's
Balance Sheet at August 31, 1994 (in thousands of dollars):
<TABLE>
<S> <C>
Retirees........................................................ $ (601)
Other active plan participants.................................. (1,634)
-------
Total APBO...................................................... $(2,235)
Unrecognized transition obligation.............................. 1,897
Unrecognized net (gain)......................................... (76)
-------
Accrued postretirement benefit obligation....................... $ (414)
=======
</TABLE>
The Company has a qualified Profit Sharing Plan in which all salaried
employees and certain hourly paid employees of the Company are eligible to
participate upon completion of six consecutive months of employment. The Profit
Sharing Plan provides for annual contributions by the Company in an amount
determined by the Board of Directors. The Plan also permits employees to have
contributions made as 401(k) salary deferrals on their behalf and to make
after-tax voluntary contributions. The Plan provides that the Company may match
employee contributions as 401(k) salary deferrals. Company contributions to the
Plan for both profit sharing and matching of employee contributions were
approximately $1.0 million in 1992, $1.4 million in 1993 and $0.5 million in
1994.
5. STOCK INCENTIVE PLANS
Under the Directors' Stock Option Plan, the Company granted options for 7,500
shares at a price of $19.25 per share in 1993 and 7,500 shares at a price of
$15.25 per share in 1994. The Directors' Option Plan provides for the granting
of options covering up to 100,000 shares of the Company's
F-13
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
common stock, subject to anti-dilution adjustments. Options are exercisable at
any time after they are granted, but for not more than ten years after the
option's grant. As of August 31, 1993 and 1994, 45,500 and 41,000 options,
respectively, were outstanding at a price range of $8.75 to $22.13 per share.
Under the Company's 1981 Stock Incentive Award Plan, current options
outstanding have an exercisable life of either five, six or ten years from the
date of grant. The Company granted certain officers 16,700 and 15,000 shares of
restricted stock in 1991 and 1992, respectively. There have been no restricted
stock grants since 1992. The grants of restricted shares resulted in deferred
compensation expense of $699,000 of which $185,000, $132,000 and $39,000 was
recognized in 1992, 1993 and 1994, respectively. The unrecognized portion of
deferred compensation was $55,000 and $16,000 as of August 31, 1993 and 1994,
respectively. Under the terms of the grant, the stock does not vest to the
employee until completion of three years of employment after the date of grant.
In 1989, the Board of Directors terminated the 1985 Non-qualified Stock
Option Plan so that no further stock options would be issued under this plan.
The termination of the plan did not affect the options previously granted and
outstanding. No option may be exercised more than ten years after its grant.
Grants made under the plan will expire in years 1996-1998.
The following table summarizes the transactions of the 1981 and 1985 Option
Plans for the last three years:
<TABLE>
<CAPTION>
1981 STOCK INCENTIVE
AWARD PLAN
(EXCLUDING RESTRICTED
STOCK) 1992 OPTION PRICE RANGE 1993 OPTION PRICE RANGE 1994 OPTION PRICE RANGE
--------------------- -------- ------------------ ------- ------------------ --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of the year.. 777,116 $8.64-$19.39 995,520 $ 8.64-$19.39 891,350 $ 8.64-$19.39
Granted................. 327,600 $9.29-$13.75 18,000 $ 13.75-$14.00 401,050 $ 10.00-$16.25
Exercised............... (1,180) $ 8.64 (37,040) $ 8.64-$17.48 (3,520) $ 8.64-$13.75
Cancelled............... (108,016) $8.64-$19.39 (85,130) $ 8.64-$19.39 (153,820) $ 8.64-$19.39
-------- ------- ---------
Options outstanding at
end of the year........ 995,520 891,350 1,135,060
======== ======= =========
1985 NON-QUALIFIED STOCK 1992 OPTION PRICE RANGE 1993 OPTION PRICE RANGE 1994 OPTION PRICE RANGE
OPTION PLAN -------- ------------------ ------- ------------------ --------- ------------------
- ------------------------
Options outstanding at
beginning of the year.. 168,665 $14.78-$18.09 143,000 $ 14.78-$18.09 109,500 $ 14.78-$18.09
Granted................. 0 -- 0 -- 0 --
Exercised............... 0 -- (5,000) $18.09 0 --
Cancelled............... (25,665) $14.78-$18.09 (28,500) $ 14.78-$18.09 0 --
-------- ------- ---------
Options outstanding at
end of the year........ 143,000 109,500 109,500
======== ======= =========
</TABLE>
F-14
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES
The Company has entered into several non-cancelable long-term leases on
property and equipment. Future minimum lease payments for non-cancelable leases
in effect at August 31, 1994 having initial remaining terms of more than one
year are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
OPERATING LEASES
---------------------------
CAPITAL LEASE SUBLEASE NET LEASE
YEAR LEASES PAYMENTS INCOME PAYMENTS
- ---- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
1995....................................... $70 $11,883 $ 585 $11,298
1996....................................... -- 9,342 363 8,979
1997....................................... -- 6,388 143 6,245
1998....................................... -- 4,962 49 4,913
1999....................................... -- 6,609 -- 6,609
Later years................................ -- 7,415 -- 7,415
--- ------- ------ -------
Total minimum lease payments............... $70 $46,599 $1,140 $45,459
======= ====== =======
Less--Amount representing interest......... 2
---
Present value of net minimum lease payments
(including current portion of $68)........ $68
===
</TABLE>
Rental expense for all operating leases was approximately $11,546,000,
$14,917,000 and $13,549,000 in 1992, 1993 and 1994, respectively.
Accumulated amortization on assets under capital leases was $1,097,000 and
$1,132,000 at August 31, 1993 and 1994, respectively.
7. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes," which was
adopted in 1992.
The Company does not intend to provide Federal income taxes on the
undistributed earnings for its foreign subsidiaries. The Company's policy is to
leave the income in the country of origin until such time as all Federal income
tax due upon its distribution will be fully offset by foreign tax credits. As
of August 31, 1994, neither foreign subsidiary had undistributed earnings.
The Company provides for income taxes at statutory rates based on income
reported for financial statement purposes. A summary of income tax expense is
shown below (in thousands of dollars):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Taxes currently payable
Federal............................................ $ 8,565 $ 7,972 $ 7,059
Investment tax credit.............................. -- -- --
Other tax credits.................................. (37) (10) (5)
State.............................................. 2,501 2,274 1,591
Prepaid and deferred taxes........................... (2,130) 5,323 1,664
------- ------- -------
$ 8,899 $15,559 $10,309
======= ======= =======
</TABLE>
F-15
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 (in thousands of dollars):
<TABLE>
<CAPTION>
AUGUST 31, 1993 AUGUST 31, 1994
------------------- -------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Reserves for returns, rebates and
allowances............................ $14,250 $ -- $14,593 $ --
Reserves for direct acquisition costs.. 3,887 -- 1,700 --
Reserves for restructuring charges..... 1,720 -- 332 --
Reserves for worker's compensation
insurance............................. 3,818 -- 3,905 --
Accelerated depreciation............... -- 15,252 -- 17,360
Software capitalization................ -- 1,913 -- 1,595
Inventory reserves and related purchase
accounting differences................ -- 7,738 -- 7,143
All other.............................. 3,613 1,836 4,843 2,472
------- ------- ------- -------
Total.................................. $27,288 $26,739 $25,373 $28,570
======= ======= ======= =======
</TABLE>
In the consolidated balance sheets, these deferred assets and deferred
liabilities are classified as deferred tax assets or deferred income tax
liabilities, based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to
an asset or liability for financial reporting, including deferred tax assets
related to carryforwards, are classified according to the expected reversal
date of the temporary difference.
A valuation allowance of $1,504,000 was recorded at August 31, 1993. No
valuation allowance was recorded at August 31, 1994.
The table below records the differences between the statutory income tax rate
and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax.................................. 34.0% 34.7% 35.0%
State income taxes, net of the Federal income tax benefit..... 6.6 6.1 4.8
Losses from foreign subsidiaries.............................. 3.3 1.3 1.9
Liquidation of a foreign subsidiary........................... -- -- (3.9)
Non-deductible goodwill amortization.......................... -- .9 1.5
Other, net.................................................... -- (.9) .3
---- ---- ----
Effective income tax rate..................................... 43.9% 42.1% 39.6%
==== ==== ====
</TABLE>
F-16
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
AUGUST FEBRUARY 28,
ASSETS 31, 1994 1995
------ --------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................ $ 6,920 $ 9,712
Accounts receivable, net............................. 187,565 189,993
Inventories.......................................... 225,794 303,821
Prepaid expenses..................................... 15,512 18,907
--------- ---------
Total Current Assets............................... $ 435,791 $ 522,433
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost................. $ 243,928 $ 248,430
Less-Accumulated depreciation and amortization....... (114,364) (123,010)
--------- ---------
Net Property, Plant and Equipment.................. $ 129,564 $ 125,420
--------- ---------
GOODWILL, NET.......................................... $ 42,369 $ 41,811
--------- ---------
OTHER ASSETS, NET...................................... $ 10,826 $ 10,571
--------- ---------
TOTAL ASSETS........................................... $ 618,550 $ 700,235
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt and current maturities of long-term
obligations......................................... $ 6,338 $ 37,514
Accounts payable..................................... 121,793 151,679
Accrued liabilities.................................. 67,833 70,515
--------- ---------
Total Current Liabilities.......................... $ 195,964 $ 259,708
--------- ---------
DEFERRED INCOME TAXES.................................. $ 17,427 $ 17,433
--------- ---------
LONG-TERM OBLIGATIONS.................................. $ 159,149 $ 166,553
--------- ---------
STOCKHOLDERS' INVESTMENT............................... $ 246,010 $ 256,541
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT......... $ 618,550 $ 700,235
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
F-17
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 28,
1994 1995
------------ ------------
<S> <C> <C>
NET SALES................... $ 740,585 $ 833,838
COST OF SALES............... 573,251 658,252
---------- ----------
Gross profit on sales... $ 167,334 $ 175,586
WAREHOUSING, MARKETING AND
ADMINISTRATIVE EXPENSES.... 145,739 145,469
---------- ----------
Income from operations.. $ 21,595 $ 30,117
OTHER EXPENSE, net.......... 4,898 6,164
---------- ----------
Income before income
taxes.................. $ 16,697 $ 23,953
INCOME TAXES................ 6,929 9,648
---------- ----------
NET INCOME.................. $ 9,768 $ 14,305
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.. 18,584,999 18,593,123
========== ==========
NET INCOME PER COMMON SHARE. $ .53 $ .77
========== ==========
CASH DIVIDENDS PAID PER
COMMON SHARE............... $ .20 $ .20
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
F-18
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 28,
1994 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.......................................... $ 9,768 $ 14,305
Adjustments to reconcile net income to net cash used
in operating activities:
Loss on sale of fixed assets...................... $ 0 $ 147
Depreciation and amortization..................... 10,408 10,770
Increase in deferred income taxes................. 1,299 6
(Decrease)/increase in accounts payable........... (34,010) 29,885
(Decrease)/increase in accrued liabilities........ (13,495) 2,142
Decrease/(increase) in accounts receivable........ 10,639 (2,427)
Increase in inventories........................... (34,687) (78,027)
Increase in prepaid expenses...................... (806) (3,394)
Increase in other assets.......................... (1,032) (1,280)
-------- --------
Net Cash Used in Operating Activities........... $(51,916) $(27,873)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment........ $ (4,007) $ (4,838)
Proceeds from disposition of property, plant and
equipment.......................................... 695 26
-------- --------
Net Cash Used in Investing Activities........... $ (3,312) $ (4,812)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt......................... $ 0 $ 1,176
Payments on long-term obligations................... (414) (5,100)
Additions to long-term obligations.................. 60,329 43,166
Issuance of common shares........................... 24 186
Payment of dividends................................ (3,773) (3,834)
Disposition/(acquisition) of treasury stock......... 115 (117)
-------- --------
Net Cash Provided by Financing Activities....... $ 56,281 $ 35,477
-------- --------
Net increase in cash and cash equivalents............. $ 1,053 $ 2,792
Cash and cash equivalents at the beginning of the
period............................................... 7,889 6,920
-------- --------
Cash and Cash Equivalents at the End of the
Period......................................... $ 8,942 $ 9,712
======== ========
Income taxes paid..................................... $ 5,975 $ 7,188
Interest paid......................................... $ 5,074 $ 5,965
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
F-19
<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 Balance Sheet as of August 31, 1994, which is condensed from the
audited Balance Sheet at that date. These statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. These statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended August 31, 1994,
and the notes therein included elsewhere herein. 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 shrinkage, inflation and product mix. Any appropriate adjustments
to reflect actual experience will be recognized in the fourth quarter.
F-20
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized quarterly financial information for the six months ended February
28, 1995 and for the two fiscal years ended August 31, 1994 is as follows:
<TABLE>
<CAPTION>
QUARTER
-----------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL YEAR 1993
Net sales................................. $365,321 $378,818 $365,791 $360,185
Gross profit on sales..................... 81,824 86,809 86,056 89,830
Net income................................ 5,111 5,573 4,826 5,850
Earnings per share........................ 0.28 0.30 0.26 0.31
FISCAL YEAR 1994
Net sales................................. $370,597 $369,988 $360,022 $372,417
Gross profit on sales..................... 84,774 82,560 77,541 78,026
Net income................................ 5,924 3,844 2,235 3,746
Earnings per share........................ 0.32 0.21 0.12 0.20
FISCAL YEAR 1995
Net sales................................. $402,198 $431,640 $ -- $ --
Gross profit on sales..................... 84,957 90,629 -- --
Net income................................ 6,943 7,362 -- --
Earnings per share........................ 0.37 0.40 -- --
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Associated Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of ASSOCIATED
HOLDINGS, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31, 1993
and 1994, and the related consolidated statements of income, stockholders'
equity and cash flows from inception, January 31, 1992 through December 31,
1992, and for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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 Associated
Holdings, Inc. and subsidiary as of December 31, 1993 and 1994, and the results
of their operations and their cash flows from inception, January 31, 1992,
through December 31, 1992, and for the years ended December 31, 1993 and 1994
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois,
January 23, 1995 (except with
respect to the matters discussed
in Note 14 as to which the date
is February 13, 1995)
F-22
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
ASSETS 1993 1994
------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash....................................................... $ 991 $ 1,849
Accounts receivable, less allowance for doubtful accounts
of $4,058 and $4,036, respectively........................ 35,320 35,180
Vendor and other receivables............................... 9,691 9,959
Inventories................................................ 82,618 88,197
Other current assets....................................... 3,053 3,795
-------- --------
Total current assets..................................... 131,673 138,980
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land....................................................... 7,327 7,315
Buildings.................................................. 27,990 27,976
Machinery and equipment.................................... 18,829 18,875
Furniture and fixtures..................................... 4,226 4,111
-------- --------
58,372 58,277
Less -- Accumulated depreciation and amortization.......... 8,747 12,830
-------- --------
Net property, plant and equipment........................ 49,625 45,447
-------- --------
OTHER LONG-TERM ASSETS....................................... 9,681 8,052
-------- --------
$190,979 $192,479
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Cash overdrafts............................................ $ 9,145 $ 9,597
Current maturities of long-term debt....................... 4,828 5,901
Accounts payable........................................... 41,400 44,754
Accrued liabilities........................................ 16,734 18,994
Other current liabilities.................................. 2,264 3,280
-------- --------
Total current liabilities................................ 74,371 82,526
-------- --------
LONG-TERM OBLIGATIONS:
Long-term debt, less current maturities.................... 71,940 58,279
Deferred obligations and other long-term liabilities....... 10,815 2,060
-------- --------
Total long-term obligations.............................. 82,755 60,339
-------- --------
REDEEMABLE PREFERRED STOCK (Note 7):
Preferred Stock A, $0.01 par value; 15,000 authorized;
5,000 issued and outstanding; 1,138 and 1,788,
respectively, accrued..................................... 6,138 6,788
Preferred Stock B, $0.01 par value; 15,000 authorized;
5,943 and 6,560, respectively, issued and outstanding..... 5,943 6,560
Preferred Stock C, $0.01 par value; 15,000 authorized;
8,915 and 9,841, respectively, issued and outstanding..... 8,915 9,841
-------- --------
20,996 23,189
-------- --------
REDEEMABLE WARRANTS (Note 8)................................. 1,435 1,650
-------- --------
STOCKHOLDERS' EQUITY (Note 9):
Additional preferred stock, $0.01 par value; 200,000
authorized; 0 issued and outstanding...................... -- --
Common Stock Class A, $0.01 par value; 5,000,000
authorized; 896,258, and 954,911 respectively, issued and
outstanding; 0 and 5,435, respectively, accrued........... 9 10
Common Nonvoting Stock Class B, $0.01 par value; 5,000,000
authorized; 0 issued and outstanding...................... -- --
Capital in excess of par................................... 8,766 17,879
Warrants outstanding and accrued........................... 231 260
Retained earnings.......................................... 2,416 6,626
-------- --------
Total stockholders' equity............................... 11,422 24,775
-------- --------
$190,979 $192,479
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-23
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------
1992 1993 1994
------------ -------- --------
<S> <C> <C> <C>
NET SALES....................................... $365,944 $462,531 $477,445
COST OF GOODS SOLD.............................. 276,546 350,251 357,276
-------- -------- --------
Gross profit................................ 89,398 112,280 120,169
-------- -------- --------
OPERATING EXPENSES:
Warehouse and distribution expenses........... 60,593 78,482 77,859
Selling, general and administrative expenses.. 19,296 23,792 25,161
-------- -------- --------
79,889 102,274 103,020
-------- -------- --------
Income from operations...................... 9,509 10,006 17,149
INTEREST EXPENSE................................ 4,782 6,263 6,753
-------- -------- --------
Income before income taxes.................. 4,727 3,743 10,396
INCOME TAXES.................................... 1,777 781 3,993
-------- -------- --------
Net income.................................. 2,950 2,962 6,403
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED.... 1,449 2,047 2,193
-------- -------- --------
Net income attributable to common
stockholders' equity....................... $ 1,501 $ 915 $ 4,210
======== ======== ========
EARNINGS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE............................... $ 1.32 $ 0.78 $ 3.51
======== ======== ========
EARNINGS PER COMMON SHARE -- ASSUMING FULL
DILUTION....................................... $ 1.32 $ 0.78 $ 3.49
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-24
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE NUMBER CAPITAL
PREFERRED STOCK REDEEMABLE OF IN TOTAL
-------------------- WARRANTS COMMON COMMON EXCESS WARRANTS RETAINED STOCKHOLDERS'
A B C TOTAL OUTSTANDING SHARES STOCK OF PAR OUTSTANDING EARNINGS EQUITY
------ ------ ------ ------- ----------- ------- ------ ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 31, 1992... $5,000 $5,000 $7,500 $17,500 $1,000 896,258 $ 9 $ 7,778 $231 $ -- $ 8,018
Net income........ -- -- -- -- -- -- -- -- -- 2,950 2,950
Stock dividends
issued ($75.00
per share)....... -- 384 577 961 -- -- -- -- -- (961) (961)
Stock dividends
accrued (97.50
per share)....... 488 -- -- 488 -- -- -- -- -- (488) (488)
Payment on notes
receivable from
stockholders..... -- -- -- -- -- -- -- 947 -- -- 947
Issuance of
warrants......... -- -- -- -- 435 -- -- -- -- -- --
------ ------ ------ ------- ------ ------- --- ------- ---- ------ -------
DECEMBER 31, 1992.. 5,488 5,384 8,077 18,949 1,435 896,258 9 8,725 231 1,501 10,466
Net income........ -- -- -- -- -- -- -- -- -- 2,962 2,962
Stock dividends
issued ($100.00
per share)....... -- 559 838 1,397 -- -- -- -- -- (1,397) (1,397)
Stock dividends
accrued ($130.00
per share)....... 650 -- -- 650 -- -- -- -- -- (650) (650)
Payment on notes
receivable from
stockholders..... -- -- -- -- -- -- -- 41 -- -- 41
------ ------ ------ ------- ------ ------- --- ------- ---- ------ -------
DECEMBER 31, 1993.. 6,138 5,943 8,915 20,996 1,435 896,258 9 8,766 231 2,416 11,422
Net income........ -- -- -- -- -- -- -- -- -- 6,403 6,403
Stock dividends
issued ($100.00
per share)....... -- 617 926 1,543 -- -- -- -- -- (1,543) (1,543)
Stock dividends
accrued ($130.00
per share)....... 650 -- -- 650 -- -- -- -- -- (650) (650)
Payment on notes
receivable from
stockholders..... -- -- -- -- -- -- -- 51 -- -- 51
Issuance of common
shares........... -- -- -- -- -- 58,653 1 8,999 -- -- 9,000
Common shares
accrued.......... -- -- -- -- -- 5,435 -- 63 -- -- 63
Warrants accrued.. -- -- -- -- 215 -- -- -- 29 -- 29
------ ------ ------ ------- ------ ------- --- ------- ---- ------ -------
DECEMBER 31, 1994.. $6,788 $6,560 $9,841 $23,189 $1,650 960,346 $10 $17,879 $260 $6,626 $24,775
====== ====== ====== ======= ====== ======= === ======= ==== ====== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-25
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ----------------
1992 1993 1994
------------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 2,950 $ 2,962 $ 6,403
------- ------- -------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities--
Depreciation and amortization............... 5,366 6,475 6,356
Services provided under transition services
agreement.................................. 9,000 -- --
Provision for noncurrent taxes.............. 1,605 167 250
Common shares accrued....................... -- -- 63
Warrants accrued............................ -- -- 244
Changes in assets and liabilities, net of
effects from purchase of Lynn-Edwards for
the eleven months ended December 31, 1992--
(Increase) decrease in accounts
receivable............................... 7,582 (879) 140
Increase in vendor and other receivables.. (6,322) (2,368) (268)
Increase in inventory..................... (11,111) (14,998) (5,579)
Increase in other assets.................. (616) (3,990) (598)
Increase (decrease) in accounts payable... 10,988 (5,493) 3,354
Increase in accrued liabilities........... 4,740 1,381 2,260
(Decrease) increase in other liabilities.. (4,423) (1,449) 1,011
------- ------- -------
Total adjustments....................... 16,809 (21,154) 7,233
------- ------- -------
Net cash provided by (used in) operating
activities............................. 19,759 (18,192) 13,636
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of net assets of BCOP (Note 1).... (82,122) -- --
Acquisition of net assets of Lynn-Edwards
(Note 1)..................................... (2,673) 313 --
Acquisition costs............................. (7,712) (67) --
Capital expenditures.......................... (4,289) (3,273) (554)
Other......................................... -- (249) --
------- ------- -------
Net cash used in investing activities... (96,796) (3,276) (554)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial capitalization--
Revolver.................................... 36,081 -- --
Long-term debt.............................. 30,000 -- --
Issuance of common and preferred stock...... 19,325 -- --
Net borrowings (repayment) under revolver..... 2,230 9,500 (7,900)
Increase in cash overdrafts................... 1,787 6,108 452
Principal payments on debt.................... (8,067) (3,446) (4,827)
Borrowings under financing agreements......... 2,987 2,000 --
Collections from stockholders................. 947 41 51
------- ------- -------
Net cash provided by (used in) financing
activities............................. 85,290 14,203 (12,224)
------- ------- -------
NET CHANGE IN CASH.............................. 8,253 (7,265) 858
CASH, beginning of period....................... 3 8,256 991
------- ------- -------
CASH, end of period............................. $ 8,256 $ 991 $ 1,849
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-26
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA )
1. BASIS OF PRESENTATION:
Associated Holdings, Inc. ("AHI") and Associated Stationers, Inc. ("ASI"), a
wholly owned subsidiary of AHI, both Delaware corporations (collectively the
"Company"), were formed to acquire certain assets and assume certain
liabilities (the "Acquisition") of the Wholesale Division of Boise Cascade
Office Products Corporation ("BCOP").
The Acquisition was consummated effective January 31, 1992, for approximately
$87,122, of which $82,122 was paid in cash and $5,000 was paid in preferred
stock. The transaction was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to acquired assets
and liabilities based on their fair market values as of January 31, 1992, as
follows:
<TABLE>
<S> <C>
Cash and accounts receivable..................................... $36,774
Inventory........................................................ 50,324
Other current assets............................................. 277
Property, plant and equipment.................................... 49,150
Accounts payable................................................. (30,624)
Accrued expenses and other liabilities........................... (18,779)
-------
$87,122
=======
</TABLE>
On October 27, 1992, L. E. Acquisition Corp., a wholly owned subsidiary of
ASI and a Delaware corporation, acquired all of the outstanding capital stock
of Lynn-Edwards Corp. ("Lynn-Edwards"), a privately held office products
wholesaler, for approximately $2,360. Lynn-Edwards was headquartered in
Sacramento, California, and operated distribution centers in Sacramento and Los
Angeles, California. On October 28, 1992, the L. E. Acquisition Corp. name was
relinquished and the Lynn-Edwards Corp. name was assumed.
The acquisition of Lynn-Edwards was effective as of September 30, 1992. The
acquisition has been accounted for as a purchase transaction and, accordingly,
the purchase price was allocated to assets and liabilities based on their
estimated fair market values as of the effective date of the transaction. At
October 1, 1992, the allocation was based on preliminary estimates of the fair
value of the net assets. In July, 1993, agreement was reached with the selling
shareholders of Lynn-Edwards regarding the final purchase price. The excess of
the purchase price over the estimated fair value of net tangible assets
acquired of $5,242 is being amortized on a straight-line basis over 40 years.
On March 23, 1994, Lynn-Edwards was merged into ASI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include AHI and its wholly owned
subsidiary, ASI. The consolidated financial statements include Lynn-Edwards in
the results of operations since its acquisition date. All significant
intercompany accounts and transactions have been eliminated. Certain prior-year
amounts have been reclassified to conform to the current-year presentation.
Cash and Cash Equivalents
Cash equivalents are composed of highly liquid investments with an original
maturity of three months or less. As a result of the Company's cash management
system, checks issued but not
F-27
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
presented to the banks for payment may create negative book cash balances. Such
negative balances are classified as bank overdrafts.
Inventory
All inventory is purchased in a state ready for resale to customers and is
considered finished goods. Inventory is stated at the lower of cost or market.
Cost is determined using the first-in, first-out ("FIFO") method for all
inventory.
Property, Plant and Equipment
Property and equipment purchased by the Company through the acquisitions
referred to in Note 1 are stated at fair market value on the date of
acquisition as prescribed by the purchase method of accounting. Subsequent
purchases of property and equipment are stated at cost.
Depreciation and amortization are determined by using the straight-line
method over the estimated useful lives of the fixed assets. The following
useful lives are used for recording depreciation for financial reporting
purposes:
<TABLE>
<S> <C>
Buildings......................... 40 years
Machinery and equipment........... 3-15 years
Furniture and fixtures............ 3-10 years
Assets held under capital lease... Lesser of useful lives or term of lease
</TABLE>
Repairs and maintenance are charged to expense as incurred.
Software Capitalization
Significant system development costs determined to have benefits for future
periods are capitalized at cost. Software costs and software development costs
of $513, $767 and $780 as of December 31, 1992, 1993 and 1994, respectively,
were capitalized and subject to amortization. Amortization expense is
recognized over the periods in which benefits are realized, generally not to
exceed five years. Amortization expense for the eleven months ended December
31, 1992 and for the years ended December 31, 1993 and 1994, was $88, $128 and
$157, respectively. Capitalized software, net of accumulated amortization, as
of December 31, 1993 and 1994, was $551 and $407, respectively.
Intangibles
Intangible assets, included in other long-term assets on the accompanying
consolidated balance sheets, consist principally of excess purchase price over
net tangible assets of businesses acquired ("goodwill"). Goodwill is amortized
on a straight-line basis over periods not exceeding 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 uses an estimate of the acquired business' undiscounted
future operating income compared to the carrying value of goodwill to determine
if a write-off is necessary. Gross goodwill as of December 31, 1993 and 1994
was $5,242. Accumulated goodwill amortization as of December 31, 1993 and 1994,
was $164 and $295, respectively.
The Company incurred legal and other direct costs in connection with the
issuance of its outstanding debt. These transaction costs of $4,217 and $2,945
at December 31, 1993 and 1994, respectively, net of accumulated amortization,
are included in other long-term assets. Accumulated transaction cost
amortization as of December 31, 1993 and 1994, was $2,034 and $3,306,
respectively. These costs are being amortized over the weighted average term of
the related outstanding debt.
F-28
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Effective January 31, 1992, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." Accordingly, the
Company records a provision for income taxes using the "liability" method of
accounting for income taxes. Deferred tax assets and liabilities, less an
appropriate valuation allowance, are recorded for all temporary differences
between financial and tax reporting and are the result of differences in the
timing of recognition of certain income and expense items for financial and tax
accounting purposes. Deferred tax expense (benefit) results from the net
changes during the year in the deferred tax assets and liabilities and the
valuation allowance.
3. DEBT:
Long-term debt consists of the following as of December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Revolver................................................. $47,810 $39,910
Term loan--
Tranche A, due in installments until December, 1996.... 15,000 11,000
Tranche B, due in installments from January, 1997
until December, 1998.................................. 10,000 10,000
Original issue discount -- tranche B..................... (582) (443)
Capital lease obligation, 8.87% interest rate............ 2,540 2,052
Equipment loan, 7.99% interest rate...................... 2,000 1,661
------- -------
76,768 64,180
Less -- Current maturities............................... (4,828) (5,901)
------- -------
$71,940 $58,279
======= =======
</TABLE>
In connection with the Acquisition, and as amended in connection with the
acquisition of Lynn-Edwards, the Company entered into a $95,000 Second Amended
and Restated Credit Agreement ("Credit Agreement"). The Credit Agreement
consists of a $65,000 revolving credit facility ("Revolver"), a $20,000 term
loan, Tranche A, and a $10,000 term loan, Tranche B ("Term Loan"). The proceeds
of the Revolver and the Term Loan were used to fund the Acquisition, to fund
the purchase of the outstanding capital stock of Lynn-Edwards, to pay off
certain indebtedness of Lynn-Edwards at the acquisition date and to pay
expenses related to these two transactions. In addition, proceeds were used to
finance the working capital requirements of the combined companies.
The Revolver provides for revolving credit loans up to the amount of the
commitment based on eligible receivables and inventory, as defined in the
Credit Agreement. Interest is payable at a rate per annum of 1 3/4% plus the
higher of either the prime rate or 1/2% plus the federal funds rate, as
defined. The Revolver terminates on January 31, 1997. Prepayments are required
when cash flow, as defined, exceeds specified levels. The Revolver interest
rates and outstanding amounts during the year and at the end of the year are as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ----------------
1992 1993 1994
------------ ------- -------
<S> <C> <C> <C>
Interest rate at end of year............... 7.75% 7.75% 10.25%
Weighted average interest
rate during year.......................... 8.00% 7.75% 8.90%
Average amount outstanding
during year............................... $26,811 $46,864 $39,556
Maximum month-end balance
during year............................... 36,081 58,510 53,810
======= ======= =======
</TABLE>
F-29
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Term loan tranche A is payable in 57 monthly installments which commenced on
April 30, 1992. Interest is payable at a rate per annum of 2% plus the higher
of either the prime rate or 1/2% plus the federal funds rate, as defined. The
weighted average interest rate was 8.25%, 8.00% and 9.15% during the eleven
months ended December 31, 1992 and the years 1993 and 1994, respectively. The
interest rate was 8.00% and 10.50% at December 31, 1993 and 1994, respectively.
Term loan tranche B is payable in 24 monthly installments, commencing on
January 31, 1997. Interest is payable at a rate per annum of 5% plus the higher
of either the prime rate or 1/2% plus the federal funds rate, as defined. The
weighted average interest rate was 11.25%, 11.00% and 12.15% during the eleven
months ended December 31, 1992 and the years 1993 and 1994, respectively. The
interest rate was 11.00% and 13.50% at December 31, 1993 and 1994,
respectively.
The Credit Agreement contains certain covenants and provisions which, among
others, include restrictions on dividend payments, required levels of total
capital, required ratio of current assets to current liabilities and
restrictions on capital expenditures. Borrowings under the Credit Agreement are
collateralized by substantially all of the real and personal property of the
Company.
The Company entered into a capital lease in December, 1992, for substantially
all of the equipment at the Carol Stream warehouse facility. As of December 31,
1993 and 1994, assets recorded under this capital lease were approximately
$3,002 with related accumulated amortization of $425 and $726, respectively. As
of December 31, 1993 and 1994, total obligations under this capital lease were
$2,540 and $2,052, respectively, of which $488 and $534 is recorded as a
current liability, respectively. The lease agreement contains certain financial
covenants and provisions, including a maximum level of debt to tangible net
worth, a required level of tangible net worth, and a ratio of cash flow, as
defined, to the current portion of long-term debt.
In 1993, Lynn-Edwards entered into a $2,000 term loan to finance the purchase
of capital equipment. The loan agreement contains certain financial covenants
and provisions, including a maximum level of debt to tangible net worth, a
required level of tangible net worth and a ratio of cash flow, as defined, to
current portion of long-term debt. The loan is amortized over 60 equal
installments.
Debt maturities, excluding the original issue discount, for the five years
following the period ended December 31, 1994, are as follows:
<TABLE>
<S> <C>
1995...................................... $ 5,901
1996...................................... 6,980
1997...................................... 46,276
1998...................................... 5,466
1999...................................... --
-------
$64,623
=======
</TABLE>
Maturities of long-term debt in 1997 include a balance under the Revolver of
$39,910.
Fair Market Value of Financial Instruments
The carrying value of cash and cash equivalents and short-term debt
approximates fair value because of the short-term maturity of the instruments.
Management believes that the fair value of the Revolver and Term Loan
approximates its carrying value as of December 31, 1993 and 1994, respectively,
because the interest rate on the debt is a floating rate tied to the prime
rate.
F-30
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASE OBLIGATIONS:
The Company leases certain facilities under noncancelable operating leases
expiring through July, 2004, with various renewal options.
The following table shows future minimum annual lease commitments on
noncancelable operating leases. The table excludes real estate taxes,
insurance, maintenance and other costs related to the properties which are paid
by the Company.
<TABLE>
<S> <C>
1995........................................................... $ 2,696
1996........................................................... 2,498
1997........................................................... 1,940
1998........................................................... 1,568
1999........................................................... 1,449
Thereafter..................................................... 3,804
-------
Total minimum lease payments................................... $13,955
=======
</TABLE>
Rent expense for operating leases was approximately $1,590 for the eleven
months ended December 31, 1992, and $2,711 and $2,952 for the years ended
December 31, 1993 and 1994, respectively.
5. RETIREMENT BENEFITS:
Defined Contribution Plan
The ASI Profit Sharing and Savings Plan ("the Plan") is a Section 401(k) plan
with a discretionary profit sharing component which commenced on April 1, 1992.
The Plan and the trust established pursuant to the Plan are intended to meet
the requirements of the Employee Retirement Income Security Act of 1974
("ERISA") and qualify under Sections 401(a) and 501(a) of the Internal Revenue
Code of 1986, as amended. The Plan covers substantially all full-time employees
of the Company. Pursuant to the Plan, the Company matched employee
contributions in the amount of $0.50 for each $1.00 contributed through July,
1993, and $0.25 for each $1.00 contributed subsequently, up to an employee
contribution maximum of 6.0% of compensation, as defined. The expense under the
above plan was $256 for the eleven months ended December 31, 1992 and $435 and
$277 for the years ended December 31, 1993 and 1994, respectively.
Postretirement Benefits
In December, 1990, the Financial Accounting Standards Board ("FASB") issued
Standard No. 106, "Accounting for Postretirement Benefits Other Than Pensions."
This standard requires that the expected cost of these postemployment benefits
be charged to expense during the years that the employees render service. The
Company does not offer postretirement benefits to its employees.
F-31
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
At January 31, 1992, the date of the Acquisition, the Company had a net
deferred tax asset primarily due to the higher tax basis allocated to the net
assets acquired, including intangible assets and certain reserves. A valuation
allowance was established at the date of the Acquisition for the entire amount
of the net deferred tax asset.
For the eleven months ended December 31, 1992, and the years ended December
31, 1993 and 1994, and components of the provision for income taxes were as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ---------------
1992 1993 1994
------------ ------- ------
<S> <C> <C> <C>
Currently payable--
Federal...................................... $ 1,584 $ 227 $3,090
State........................................ 193 554 903
------- ------- ------
Total currently payable.................... 1,777 781 3,993
------- ------- ------
Deferred, net--
Federal...................................... 1,107 1,012 166
State........................................ 163 148 24
Valuation allowance reduction................ (1,270) (1,160) (190)
------- ------- ------
Total deferred, net........................ -- -- --
------- ------- ------
Provision for income taxes..................... $ 1,777 $ 781 $3,993
======= ======= ======
</TABLE>
The components of the deferred income tax provision (benefit) were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Accelerated tax depreciation...................... $ 308 $ (42) $ (266)
Amortization of intangible assets................. 822 897 897
Acquisition accruals.............................. 1,130 415 297
Sales discounts and deferred revenue.............. (119) (297) (1,014)
Other............................................. (871) 187 276
Valuation allowance reduction..................... (1,270) (1,160) (190)
------- ------- -------
Provision (benefit) for deferred income taxes..... $ -- $ -- $ --
======= ======= =======
</TABLE>
F-32
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of the statutory federal income tax rates to the effective
income tax rates were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31, YEARS ENDED DECEMBER 31,
--------------- -------------------------------
1992 1993 1994
--------------- --------------- --------------
% OF % OF % OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on the
federal statutory rate......... $ 1,607 34.0% $ 1,273 34.0% $3,535 34.0%
State and local income taxes --
net of federal income tax
benefit........................ 197 4.2 492 13.2 607 5.8
Reserves........................ 1,243 26.3 176 4.7 41 .4
Valuation allowance reduction... (1,270) (26.9) (1,160) (31.0) (190) (1.8)
------- ----- ------- ----- ------ ----
Provision for income taxes...... $ 1,777 37.6% $ 781 20.9% $3,993 38.4%
======= ===== ======= ===== ====== ====
</TABLE>
The amounts of deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1994
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Depreciation and amortization.... $ -- $ 603 $ -- $390
Intangible assets................ 2,766 -- 1,869 --
Allowance for doubtful accounts.. 1,598 -- 1,664 --
Inventory reserves and
adjustments..................... 1,433 -- 1,264 --
Accrued expenses................. 4,577 608 4,566 --
------- ------ ------- ----
10,374 1,211 9,363 390
Valuation allowance.............. (9,163) -- (8,973) --
------- ------ ------- ----
Total.......................... $ 1,211 $1,211 $ 390 $390
======= ====== ======= ====
</TABLE>
7. REDEEMABLE PREFERRED STOCK:
AHI has 245,000 authorized shares of preferred stock (nonvoting), consisting
of 15,000 shares of $0.01 par value Class A preferred stock, 15,000 shares of
$0.01 par value Class B preferred stock, 15,000 shares of $0.01 par value Class
C preferred stock, and 200,000 shares of $0.01 par value Additional 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. As of
December 31, 1993 and 1994, there were 5,000 shares of Class A preferred stock
issued and outstanding, and 1,138 and 1,788 shares which have been accrued as
dividends but not issued, respectively. As of December 31, 1993 and 1994, there
were 5,943 and 6,560 shares of Class B preferred stock and 8,915 and 9,841
shares of Class C preferred stock issued and outstanding, respectively. There
were no shares of Additional preferred stock issued and outstanding as of
December 31, 1993 or 1994. These shares are senior in preference to the common
stock of the Company.
Class A preferred stock must be redeemed by the Company on July 31, 1999.
Dividends are cumulative at a rate of 10% per annum, payable quarterly on April
30, July 31, October 31 and January 31. In the event that the Company does not
pay dividends in cash, the dividend rate increases to 13%
F-33
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per annum and is payable in stock. Class B and C preferred stock are junior in
relation to the Class A preferred stock. During the eleven months ended
December 31, 1992, 488 shares of Class A preferred stock were accrued but not
issued. During each of the years ended December 31, 1993 and 1994, 650 shares
of Class A preferred stock were accrued but not issued.
Class B preferred stock must be redeemed by the Company on July 31, 1999.
Class C preferred stock is redeemable in four equal quarterly installments on
April 30, 2001, July 31, 2001, October 31, 2001, and January 31, 2002.
Dividends for both Class B and C are cumulative at a rate of 9% per annum.
Dividends are payable quarterly on April 30, July 31, October 31 and January
31. In the event that the Company does not pay dividends in cash, the dividend
rate increases to 10% per annum and is payable in stock. During the eleven
months ended December 31, 1992, noncash dividends were declared and issued for
both Class B and C preferred stock in the amount of 384 and 577 shares,
respectively. During the year ended December 31, 1993, noncash dividends were
declared and issued for both Class B and C preferred stock in the amount of 559
and 838 shares, respectively. During the year ended December 31, 1994, noncash
dividends were declared and issued for both Class B and C preferred stock in
the amount of 617 and 926 shares, respectively.
Redemption of preferred stock, for the five years following the period ended
December 31, 1994, are as follows:
<TABLE>
<S> <C>
1995............................. --
1996............................. --
1997............................. --
1998............................. --
1999............................. $13,348
</TABLE>
All classes of preferred stock may be redeemed at the option of the issuer at
any time. All classes of preferred stock have a redemption and liquidation
value of $1,000 per share plus the aggregate of accrued and unpaid dividends on
such shares to date.
8. REDEEMABLE WARRANTS:
The Company has 190,218 warrants ("Lender Warrants") outstanding as of
December 31, 1993 and 1994, which allow the holders thereof to buy shares of
AHI common stock at an exercise price of $0.01 per share. Of the Lender
Warrants, 150,340 were valued at the date of inception at the negotiated amount
of $6.65 per warrant while the remaining 39,878 warrants were valued at $10.92
per warrant. In addition, 18,821 additional Lender Warrants have been accrued
but not issued, as of December 31, 1994. The exercise period expires January
31, 2002. These warrants were valued at $11.43 per warrant.
The Lender Warrants contain certain put rights which allow the holders
thereof to put the Warrants to AHI upon the earlier of January 31, 1997 or the
occurrence of certain extraordinary corporate events. The purchase price
payable upon the exercise of the put rights is the greater of the then fair
market value or equity value of the warrants, as defined, less the applicable
exercise price of the warrants. Payment of the Lender Warrants can only occur
after repayment of all debt outstanding under the Credit Agreement or with the
consent of the lenders and/or agent under the Credit Agreement.
9. STOCKHOLDERS' EQUITY:
Common Stock and Warrants
AHI has 10,000,000 authorized shares of common stock, consisting of 5,000,000
shares of $0.01 par value Class A voting common stock and 5,000,000 shares of
$0.01 par value Class B nonvoting common stock. Each holder of Class A common
stock is entitled to one vote for each share of common stock held of record by
such holder. No dividends on common shares were accrued or paid for the
F-34
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
eleven months ended December 31, 1992, or for the years ended December 31,
1993 and 1994. All common stock issued at the date of inception was valued at
the amount of cash paid for the stock or, in the case of services rendered or
to be rendered, at $10.00 per share.
As of December 31, 1993 and 1994, the Company has 23,129 warrants
outstanding which allow the holders to buy shares of AHI common stock at an
exercise price of $1 per share. At the date of inception, these warrants were
valued at $10.00 per warrant. In addition, 2,506 warrants have been accrued
but not issued, as of December 31, 1994. These warrants were valued at $11.43
per warrant. The exercise period expires January 31, 2002.
Earnings Per Share
The Company presents earnings per share on both a primary and fully diluted
basis. Earnings per common and dilutive common equivalent share amounts were
computed by dividing net income, after deducting dividends on preferred stock,
by the weighted average number of common and dilutive common equivalent shares
outstanding during the period. The weighted average number of shares includes
the dilutive effect of warrants computed using the treasury stock method, as
well as the common shares that would result from the conversion of the
deferred obligation related to the TS Agreement.
Earnings per common share assuming full dilution amounts were computed by
dividing net income, after deducting dividends on preferred stock, by the
weighted average number of fully diluted common shares outstanding during the
period. The weighted average number of shares includes the dilutive effect of
warrants computed using the treasury stock method, as well as the common
shares that would result from the conversion of the deferred obligation
related to the TS Agreement.
For the eleven months ended December 31, 1992, and the year ended December
31, 1993 employee stock options (discussed in Note 9) were not included in
either the weighted average number of common and dilutive common equivalent
shares or the weighted average shares on a fully diluted basis, as they would
have an anti-dilutive result. For the year ended December 31, 1994, the stock
options of one employee were included in the weighted average share
computations, as they had a dilutive result. The remainder of the employee
stock options were not included in the weighted average share computations for
the year ended December 31, 1994, as they would have an anti-dilutive effect.
The net income, preferred stock dividends and shares used to compute primary
and fully diluted earnings per share are presented in the following table.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -------------
1992 1993 1994
------------ ------ ------
<S> <C> <C> <C>
PRIMARY
Net Income........................................ $2,950 $2,962 $6,403
Preferred stock dividends issued and accrued...... 1,449 2,047 2,193
------ ------ ------
Net income attributable to common stockholders'
equity........................................... $1,501 $ 915 $4,210
====== ====== ======
Average number of common and dilutive common
equivalent shares................................ 1,139 1,171 1,199
FULLY DILUTED
Net income........................................ $2,950 $2,962 $6,403
Preferred stock dividends issued and accrued...... 1,449 2,047 2,193
------ ------ ------
Net income attributable to common stockholders'
equity........................................... $1,501 $ 915 $4,210
====== ====== ======
Average number of shares, assuming full dilution.. 1,139 1,171 1,205
</TABLE>
F-35
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE STOCK OPTION AND AWARD PLANS:
On January 31, 1992, the stockholders of AHI approved the adoption of the AHI
1992 Management Stock Option Plan (the "Plan"). The purpose of the Plan is to
promote the interests of the Company and its shareholders by providing the
officers and other key employees with additional incentive and the opportunity
through stock ownership to increase their proprietary interest in the Company
and their personal interest in its continued success. As of December 31, 1994,
86,735 shares of common stock have been authorized for grant under the Plan.
Under the terms of the Plan, the option price at the time any option is
granted will not be less than the fair market value per share. The shares
granted to date have an exercise price of $10 per share and vest at a rate of
25% annually, subject to certain internal rate of return hurdles. As of
December 31, 1994, six persons held such options. No options were exercisable
as of December 31, 1994. Changes in stock options outstanding were as follows:
<TABLE>
<CAPTION>
SHARES
-------
<S> <C>
Granted as of the date of Inception.............................. 21,684
Granted........................................................ 31,585
Exercised...................................................... --
Expired or terminated.......................................... --
-------
Granted as of December 31, 1992.................................. 53,269
Granted........................................................ --
Exercised...................................................... --
Expired or terminated.......................................... --
-------
Granted as of December 31, 1993.................................. 53,269
Granted........................................................ 4,163
Exercised...................................................... --
Expired or terminated.......................................... (25,904)
-------
Granted as of December 31, 1994.................................. 31,528
=======
</TABLE>
11. SUPPLEMENTAL CASH FLOW DISCLOSURES:
In addition to the information provided in the statement of cash flows, the
following are supplemental disclosures of cash flow information for the eleven
months ended December 31, 1992 and the twelve months ended December 31, 1993
and 1994;
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Cash paid during the year for--
Interest.......................................... $4,694 $6,119 $6,588
Income taxes...................................... 135 630 2,118
====== ====== ======
</TABLE>
The following are supplemental disclosures of noncash investing and financing
activities for the eleven months ended December 31, 1992 and the twelve months
ended December 31, 1993 and 1994;
. In 1992, the Company issued common stock warrants, valued at $435, in
connection with the acquisition of Lynn-Edwards.
. On January 31, 1992, the Company issued common stock warrants valued at
$1,231 for services rendered in connection with the Acquisition.
. On January 31, 1992, the Company issued common stock valued at $462 for
services to be rendered to ASI through 2002.
F-36
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
. On January 31, 1992, the Company issued common stock valued at $315 for
services rendered in connection with the Acquisition.
. On January 31, 1992, the Company issued Class A preferred stock valued at
$185 for services rendered in connection with the Acquisition.
. On January 31, 1992, the Company issued Class B preferred stock valued at
$5,000 as partial payment for the Acquisition.
. In 1994, the Company issued $9,000 of common stock to retire a $9,000
deferred obligation related to a Transition Services Agreement ("TS
Agreement").
. In 1994, the Company accrued $63 for common stock shares to be issued at
less than fair market value.
. In 1994, the Company accrued $244 for warrants which have an exercise
price less than the fair market value of the common stock.
12. TRANSACTIONS WITH RELATED PARTIES:
The Company has management and advisory services agreements with three
investor groups which own the majority of AHI's Class A common and Class A
preferred stock. These investor groups provided certain financial advisory
services to the Company in connection with the Acquisition in exchange for an
aggregate of $1.0 million; 31,480 shares of AHI Class A common stock with a
recorded value of $315,000; and 185 shares of AHI Class A preferred stock with
a recorded value of $185,000.
In addition, these same investor groups provide certain oversight and
monitoring services to the Company, in exchange for management fees and out-of-
pocket expenses. The expense related to the above agreements was $475 and $90
of out-of-pocket expenses for the eleven months ended December 31, 1992, $283
and $47 of out-of-pocket expenses for the year ended December 31, 1993 and $500
and $68 of out-of-pocket expenses for the year ended December 31, 1994.
Pursuant to the Credit Agreement, the aggregate payments under these agreements
cannot exceed $500 per year plus reasonable out-of-pocket expenses.
In addition, on January 31, 1992, two of these same investor groups received
an aggregate of 46,258 shares of AHI Class A common stock (shares can be
rescinded if the agreement is terminated prior to January 31, 2002) as deferred
compensation for future services. The deferred compensation related to these
shares had a recorded value of $463,000 at January 31, 1992 and were fully
amortized during the 11 month period ended December 31, 1992.
On January 31, 1992, the Company entered into the TS Agreement with the
holder of the Class B preferred stock (nonvoting). The TS Agreement stipulated
that the Company receive certain services for between two months and two years
from January 31, 1992. The services included dual facility services (including
inventory purchases), information systems services and freight consolidation
services. In return, the Company made monthly payments, as defined. Under this
agreement, the Company purchased services of $21,000 (including inventory
purchases of $13,175) during the eleven months ended December 31, 1992 and
$1,980 and $825 during the twelve months ended December 31, 1993 and 1994,
respectively. The TS Agreement also allowed for deferment of up to $9,000 in
payments. During the eleven months ended December 31, 1992, the Company
deferred $9,000 in payments. This deferred obligation is recorded in deferred
obligations and other long-term liabilities on the balance sheet at December
31, 1993.
During 1994, per the TS Agreement, the Company settled the obligation by
issuing 58,653 shares of AHI Class A common stock to the holder of the Class B
preferred stock.
F-37
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
The holder of the Class B preferred stock is also a supplier to the Company.
The total inventory purchases from this supplier were $17,963 during the eleven
months ended December 31, 1992 and $21,903 and $26,728 during the twelve months
ended December 31, 1993 and 1994, respectively. As of December 31, 1993 and
1994, $1,413 and $2,293 were due to this supplier and recorded in trade
accounts payable.
The holder of the Class B preferred stock is also a customer of the Company.
Net sales to this customer were $11,860 during the eleven months ended December
31, 1992 and $19,153 and $33,447 during the twelve months ended December 31,
1993 and 1994, respectively. Accounts receivable from this customer were $145
and $299 as of December 31, 1993 and 1994, respectively.
On January 31, 1992, the Company entered into a data processing facilities
management agreement with the holder of the Class C preferred stock
(nonvoting). The agreement expires in July 2002, and has minimum monthly
payments which began in August 1992, ranging from $522 to $689. Payments
pursuant to the above agreement were $3,023 for the eleven months ended
December 31, 1992 and $10,336 and $10,630 for the twelve months ended December
31, 1993 and 1994, respectively. The Company had prepaid $956 and $1,934 as of
December 31, 1993 and 1994, respectively, for future services. In addition,
$1,755 and $1,931 was accrued as of December 31, 1993 and 1994, respectively,
for services provided which had not yet been billed. At December 31, 1994, the
remaining aggregate minimum monthly payments over the term of the agreement
were $50,078.
Per the agreement, in the event the agreement is terminated for cause by the
holder of the Class C preferred stock prior to expiration, the Company agrees
to pay 80% of the remaining minimum monthly charges. In the event the agreement
is terminated by the Company, the Company agrees to pay the lesser of $11,000
or 80% of the remaining minimum monthly charges, as well as the redemption or
purchase of the Class C preferred stock as discussed in Note 7.
13. CONCENTRATION OF CREDIT RISK:
The Company's principal customers are in the retail office supply industry.
Their financial position has been considered in determining the Company's
allowance for doubtful accounts.
14. SUBSEQUENT EVENT:
On February 13, 1995, AHI and United Stationers Inc. ("USI") entered into a
Merger Agreement. Under the terms of the Merger Agreement, the current
shareholders of USI would receive $15.50 per share for 92.5% of their shares
and the remaining 7.5% of their shares would represent (in aggregate) 20% of
the common stock of the combined entity, which will continue to be publicly
traded.
In connection with the possible merger, ASI paid commitment fees to a lender
subsequent to December 31, 1994.
F-38
<PAGE>
ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY
SUPPLEMENTAL CONSOLIDATED
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized quarterly financial information for the two years ended December
31, 1994 is as follows:
<TABLE>
<CAPTION>
QUARTER
-------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL YEAR 1993
Net sales.............................. $115,936 $105,226 $124,993 $116,376
Gross profit on sales.................. 28,115 24,749 30,804 28,612
Net income (loss)...................... 467 (1,223) 3,077 641
Earnings (loss) per share.............. (0.03) (1.48) 2.19 0.10
FISCAL YEAR 1994
Net sales.............................. $123,850 $109,979 $120,982 $122,634
Gross profit on sales.................. 29,688 27,870 31,273 31,338
Net income (loss)...................... 903 511 2,719 2,270
Earnings (loss) per share.............. 0.31 (0.03) 1.80 1.42
</TABLE>
F-39
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1995 1994
------ ----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................... $ 21,611 $ 1,849
Accounts receivable, net............................ 201,056 45,139
Inventories......................................... 396,085 88,197
Other current assets................................ 25,135 3,795
-------- --------
Total Current Assets.............................. $643,887 $138,980
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost................ $236,150 $ 58,277
Less--Accumulated depreciation and amortization..... (13,820) (12,830)
-------- --------
Net Property, Plant and Equipment................. $222,330 $ 45,447
-------- --------
GOODWILL, NET......................................... $ 71,628 $ 4,948
-------- --------
OTHER ASSETS, NET..................................... $ 38,104 $ 3,104
-------- --------
TOTAL ASSETS.......................................... $975,949 $192,479
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term debt and current maturities of long-term
obligations........................................ $ 17,138 $ 5,901
Accounts payable.................................... 183,994 54,351
Accrued liabilities................................. 88,694 18,994
Other liabilities................................... 13,435 3,280
-------- --------
Total Current Liabilities......................... $303,261 $ 82,526
-------- --------
DEFERRED TAXES........................................ $ 31,469 $ 2,060
-------- --------
LONG-TERM OBLIGATIONS:
Senior Revolver Loan................................ $199,708 $ 37,850
Bridge Loan......................................... 130,000
Senior Term Loan--Tranche A......................... 110,000 6,000
Senior Term Loan--Tranche B......................... 74,000 9,557
Other Long-Term Debt................................ 42,011
Other Long-Term Liabilities......................... 4,401 4,872
-------- --------
TOTAL LONG-TERM OBLIGATIONS........................... $560,120 $ 58,279
-------- --------
REDEEMABLE PREFERRED STOCK............................ $ 23,761 $ 23,189
-------- --------
REDEEMABLE WARRANTS................................... $ 11,879 $ 1,650
-------- --------
STOCKHOLDERS' EQUITY.................................. $ 45,459 $ 24,775
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.............. $975,949 $192,479
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
F-40
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
<S> <C> <C>
NET SALES....................................... $ 137,272 $ 123,850
COST OF GOODS SOLD.............................. 103,568 94,162
--------- ---------
Gross profit................................ $ 33,704 $ 29,688
--------- ---------
OPERATING EXPENSES:
Warehousing, marketing and administrative
expenses..................................... $ 28,949 $ 26,752
Restructuring charge (Note 1)................. 9,759
--------- ---------
Total operating expenses.................... $ 38,708 $ 26,752
--------- ---------
Income (loss) from operations............... $ (5,004) $ 2,936
INTEREST EXPENSE, net........................... 2,203 1,732
--------- ---------
Income (loss) before income taxes and
extraordinary item........................... $ (7,207) $ 1,204
INCOME TAXES (BENEFIT).......................... (2,973) 462
--------- ---------
Income (loss) before extraordinary item..... $ (4,234) $ 742
EXTRAORDINARY ITEM--loss on early retirement of
debt, net of taxes ($967) (Note 5)............ (1,449)
--------- ---------
NET INCOME (LOSS)............................... $ (5,683) $ 742
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED.... 573 534
--------- ---------
Net income (loss) attributable to common
shareholders............................... $ (6,256) $ 208
========= =========
Net Income (Loss) Attributable to Common and
Common Equivalent Share (Primary and Fully
Diluted):
Earnings (loss) before extraordinary item..... $ (.80) $ .05
Extraordinary item............................ (.24)
--------- ---------
Net income (loss) attributable to common and
common equivalent share.................... $ (1.04) $ .05
========= =========
Average Number of Common Shares Used in Primary
Calculation.................................... 5,998,077 4,090,433
========= =========
Average Number of Common Shares Used in Fully
Diluted Calculation............................ 5,998,077 4,138,023
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
F-41
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------
MARCH 31, 1995 MARCH 31, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities.... $ 2,087 $ 3,183
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of the Company--net of cash
acquired of approximately $14,500............. $(257,259)
Capital expenditures........................... (182) $ (242)
--------- -------
Net cash used in investing activities........ $(257,441) $ (242)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt............................... $ 536,708
Retirements and payments of debt............... (266,920) $(1,000)
Net borrowings (repayment) under revolver...... 18,100 (1,500)
Financing costs................................ (24,873)
Issuance of common stock....................... 12,000
Other.......................................... (154) (151)
--------- -------
Net cash provided by (used in) financing
activities.................................. $ 274,861 $(2,651)
--------- -------
NET CHANGE IN CASH............................... $ 19,507 $ 290
Cash and Cash Equivalents, beginning of period... 2,104 991
--------- -------
Cash and Cash Equivalents, end of period......... $ 21,611 $ 1,281
========= =======
Other Cash Flow Information
Cash payments during the quarter for:
Income taxes paid............................ $ 1,834 $ 304
Interest paid................................ 2,050 1,720
Noncash investing and financing activities:
Common stock issued in exchange for services
related to financing the acquisition of the
Company..................................... $ 2,100
Common stock issued to retire a deferred
obligation related to an agreement for
contracted services......................... $ 9,000
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
F-42
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BUSINESS COMBINATION AND RESTRUCTURING CHARGE
On March 30, 1995, pursuant to an Agreement and Plan of Merger, dated as of
February 13, 1995 (the "Merger Agreement"), between Associated Holdings, Inc.,
a Delaware corporation ("Associated") and United Stationers Inc., a Delaware
corporation (the "Company") and Associated's related Offer to Purchase dated
February 21, 1995 (the "Offer"), Associated purchased 17,201,839 shares of
Common Stock, $0.10 par value (the "Shares"), of the Company at a purchase
price of $15.50 per share, or approximately $266.6 million, from the Company's
stockholders. On March 30, 1995, pursuant to the terms of the Merger Agreement,
Associated was merged with and into the Company, with the Company surviving
(the "Merger"), and immediately thereafter, Associated Stationers, Inc., a
Delaware corporation and wholly owned subsidiary of Associated ("ASI") was
merged with and into United Stationers Supply Co., an Illinois corporation and
wholly owned subsidiary of the Company ("USSC"), with USSC surviving. The
acquisition of the Shares by Associated pursuant to the Offer together with the
Merger is referred to herein as the "Acquisition."
Immediately following the Merger, the number of outstanding Shares was
5,998,077 (or 6,973,720 on a fully diluted basis), of which (i) the former
holders of Class A Common Stock, $0.01 par value, and Class B Common Stock,
$0.01 par value, of Associated ("Associated Common Stock") and warrants or
options to purchase Associated Common Stock in the aggregate owned 4,603,333
Shares constituting approximately 76.7% of the outstanding Shares and
outstanding warrants or options for 975,643 Shares (collectively 80.0% on a
fully diluted basis) and (ii) pre-Merger holders of Shares (other than
Associated-owned Shares and treasury Shares) in the aggregate owned 1,394,744
Shares constituting approximately 23.3% of the outstanding Shares (or 20.0% on
a fully diluted basis). As used in this paragraph, the term "Shares" includes
shares of Nonvoting Common Stock, $0.01 par value, of the Company, which are
immediately convertible into Shares for no additional consideration.
To finance the Offer, refinance existing debt of ASI, the Company and USSC,
repurchase stock options and pay related fees and expenses, Associated, ASI,
USSC and the Company entered into (i) new credit facilities ("New Credit
Facilities") with a group of banks and financial institutions providing for
term loan borrowings of $200.0 million and revolving loan borrowings of up to
$300.0 million and (ii) a senior subordinated bridge loan facility in the
aggregate principal amount of $130.0 million (the "Subordinated Bridge
Facility"). In addition, simultaneously with the consummation of the Offer,
Associated obtained $12.0 million from the sale of additional shares of
Associated Common Stock, which proceeds were used to finance the purchase of a
portion of the Shares pursuant to the Offer.
On May 3, 1995, USSC completed the issuance of $150.0 million of 12 3/4%
Senior Subordinated Notes (the "Notes") due 2005. The net proceeds of the Notes
(after discount and fees of approximately $5.5 million) were used to pay
certain expenses, to repay the $130.0 million Subordinated Bridge Facility
(together with $1.6 million in accrued and unpaid interest thereon), to repay a
portion of the Tranche A and Tranche B term loans (totaling approximately $6.5
million) and provide working capital. In the event the necessary consents are
obtained, the Company is permitted to redeem the Series B Preferred Stock
(approximately $7.0 million).
Although the Company was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation. The total purchase price of
approximately $293.4 million was allocated to assets and liabilities of the
Company based on the estimated fair value as of the date of acquisition. The
allocation was based on preliminary estimates which may be revised at a later
date. The excess of consideration paid over the estimated
F-43
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
fair value of net assets acquired in the amount of $66.7 million has been
recorded as goodwill and is being amortized on a straight-line basis over 40
years.
Effective for 1995, the Company changed its fiscal year from a year-end of
August 31 to December 31. A report on Form 8-K was filed on April 26, 1995,
reporting that the Company had changed its fiscal year end to December 31. A
Form 10-K will be filed by the Company by June 28, 1995 which will include
audited financial statements for the period from September 1, 1994 through
March 30, 1995, the date on which the Merger was consummated.
The Condensed Consolidated Balance Sheet combines Associated and the Company
as of March 31, 1995 and reflects a preliminary allocation of the purchase
price which may be revised at a later date. The Condensed Consolidated Balance
Sheet as of December 31, 1994 reflects Associated only. The Condensed
Consolidated Statements of Operations reflects the results of operations for
Associated only for the three months ended March 31, 1995 and March 31, 1994.
The Condensed Consolidated Statement of Cash Flows for the three months ended
March 31, 1995 and March 31, 1994 reflects that of Associated only, including
the effects of the Acquisition and Merger.
The actual results for the quarter ended March 31, 1995 include a
restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9
million) for costs expected to be incurred in connection with integration and
transition (e.g., severance and the cost of closing certain facilities operated
by Associated prior to the Merger) and compensation expense relating to
employee stock options of approximately $1.5 million ($0.9 million net of tax
benefit of $0.6 million). The actual results for the quarter ended March 31,
1995 also include an extraordinary write-off 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. See Note 5--Extraordinary
Item.
The unaudited Pro Forma Combined Financial Statements for the two companies
for the year ended December 31, 1994 were included in the Company's Form 8-K
dated April 14, 1995.
The following summarized unaudited pro forma operating data for the three
months ended March 31, 1995 and 1994 is presented giving effect to the
Acquisition as if it had been consummated at the beginning of the respective
periods and, therefore, reflects the results of the Company and Associated on a
consolidated basis for the period from January 1, 1995 through March 31, 1995
and January 1, 1994 through March 31, 1994, respectively. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of the results of operations that actually would have resulted
had the combination been in effect on the dates indicated, or which may result
in the future. The pro forma results exclude one-time non-recurring charges or
credits directly attributable to the transaction. The estimated cost savings
that the Company expects to realize ($26.0 million on a total year basis and
$6.5 million on a quarterly basis) pursuant to its consolidation plan that has
been approved by the Board of Directors of the Company have been reflected in
the pro forma results as if the Company's consolidation plan had been
implemented in full for the periods reflected. The Company plans to implement
its consolidation plan over a 12-month period following the Acquisition.
The pro forma income statement adjustments consisted of (i) estimated cost
savings of $6.5 million that the Company expects to realize, (ii) increased
depreciation expense resulting from the write-up of certain fixed assets to
fair value, (iii) additional incremental goodwill amortization, (iv) additional
incremental interest expense due to debt issued, net of debt retired, (v)
reduction in preferred stock dividends due to the assumed retirement of the
Series B Preferred Stock, which the Company is permitted to redeem pursuant to
its New Credit Facilities.
F-44
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA QUARTER
ENDED MARCH 31
-------------------
1995 1994
--------- ---------
(IN THOUSANDS OF
DOLLARS, EXCEPT
SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Net sales............................................... $ 587,170 $ 503,919
Net income.............................................. $ 9,409 $ 4,405
Preferred stock dividends issued and accrued............ $ 442 $ 393
Net income available to common stockholders............. $ 8,967 $ 4,012
Net income per common and common equivalent share:
Primary............................................... $ 1.30 $ 0.98
Fully diluted......................................... $ 1.30 $ 0.97
Weighted average number of common shares outstanding:
Primary............................................... 6,894,076 4,090,433
Fully diluted......................................... 6,898,757 4,138,023
</TABLE>
The pro forma net sales amount of $587.2 million for the first quarter of
1995 reflects $449.9 million in net sales for the Company and $137.3 million
for Associated. The pro forma net sales amount of $503.9 million for the first
quarter of 1994 reflects $380.1 million in net sales for the Company and $123.8
million for Associated.
These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations that actually
would have resulted had the combination been in effect on the dates indicated,
or which may result in the future.
(2) CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, Associated changed its method of valuing its
inventory from the FIFO to the LIFO method. The Company previously valued the
majority of its inventory under the LIFO method with the remainder of inventory
valued under the FIFO method. Associated changed its method to conform to that
of the Company. This change resulted in a charge to pre-tax income of
approximately $0.5 million ($0.3 million net of tax benefit) or $.05 per common
and common equivalent share for the quarter ended March 31, 1995. The
cumulative effect of this accounting change for years prior to 1995 is not
determinable, nor are the pro forma effects of retroactive application of the
LIFO method to prior years. The Associated LIFO reserve as of March 31, 1995
was $0.5 million.
(3) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited,
except for the Associated Consolidated Balance Sheet as of December 31, 1994,
which is condensed from the audited Consolidated Balance Sheet of Associated at
that date. Certain prior-year amounts have been reclassified to conform with
current-year presentations. 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. Other than
the restructuring charge, the extraordinary item and the compensation expense
relating to
F-45
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
(ASSOCIATED HOLDINGS, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
employee stock options, 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, inflation and product
mix. Any appropriate adjustments to reflect actual experience, which
historically have been immaterial, will be recognized in the fourth quarter.
(4) EXTRAORDINARY ITEM
The Extraordinary Item reflects the write-off of financing costs and original
issue discount relating to the retired debt which was being amortized over the
life of the original debt.
(5) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON AND COMMON EQUIVALENT SHARES
Net income (loss) per common and common equivalent shares is based on net
income (loss) after preferred stock dividend requirements. Net income per
common and common equivalent share in the first quarter of 1994 on a primary
and fully diluted basis are computed using the weighted average number of
shares outstanding adjusted for the effect of stock options and warrants
considered to be dilutive common stock equivalents. For the first quarter of
1995, the stock options and warrants were excluded from the calculation of net
loss attributable to common and common equivalent shares as they would be anti-
dilutive.
F-46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR UNITED. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF THE NEW NOTES IN ANY JURIS-
DICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. 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 UNITED OR THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Summary................................................................... 3
Risk Factors.............................................................. 18
The Company............................................................... 23
Use of Proceeds........................................................... 23
The Acquisition........................................................... 24
Capitalization............................................................ 25
Pro Forma Combined Financial Information.................................. 26
Selected Consolidated Financial Data...................................... 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 37
Business.................................................................. 47
Management................................................................ 59
Certain Transactions...................................................... 73
Financing the Acquisition................................................. 80
Description of Capital Stock.............................................. 83
Ownership of Voting Securities............................................ 88
Description of the New Notes.............................................. 90
The Exchange Offer........................................................ 118
Certain Federal Income Tax Considerations................................. 125
Plan of Distribution...................................................... 125
Legal Matters............................................................. 126
Experts................................................................... 126
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
LOGO
[LOGO OF UNITED STATIONERS APPEARS HERE]
UNITED STATIONERS SUPPLY CO.
12 3/4% SENIOR SUBORDINATED
NOTES DUE 2005
--------------------------
PROSPECTUS
--------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable in connection with the
offering of the securities to be registered and offered hereby. All of such
expenses are estimates, other than the registration fee payable to the
Securities and Exchange Commission.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $51,724.14
Printing and Engraving Expenses..................................
Legal Fees and Expenses..........................................
Accounting Fees and Expenses.....................................
Miscellaneous....................................................
----------
Total.......................................................... $
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and the By-laws of the Company provide for the
indemnification of directors and officers to the fullest extent permitted by
the Business Corporation Act of the State of Illinois ("IBCA"). 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.
Indemnification is not available if such person has been adjudged to have
been liable to the Company, unless and only to the extent the court in which
such action was brought determines that, despite the adjudication of liability,
but in view of all the circumstances, the person is reasonably and fairly
entitled to indemnification for such expenses as the court shall deem proper.
The Company has the power to purchase and maintain insurance for such persons.
The statute also expressly provides 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 By-laws of the
Company and of Section 8.75 of the IBCA is not intended to be exhaustive and is
qualified in its entirety by such Articles of Incorporation, By-laws and the
IBCA.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange 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 of expenses incurred or
paid by a director, officer or controlling person thereof in the successful
defense of any action, suit or proceeding) is asserted by a director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 3, 1995, the Company sold $150,000,000 aggregate principal amount of
12 3/4% Senior Subordinated Notes due 2005 (the "Old Notes") in a private
placement in reliance on Rule 144A under the Securities Act, at a price equal
to 100% of the stated principal amount of such Old Notes.
Exemption from registration with respect to the above-described sale was
claimed under Section 4(2) of the Securities Act regarding transactions by an
issuer not involving any public offering.
ITEM 16. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <C> <S>
3.1 -- Articles of Incorporation of the Company (2).
3.2 -- By-Laws of the Company (1).
4.1 -- Indenture, dated as of May 3, 1995, among the Company, as Issuer,
United, as Guarantor, and The Bank of New York, as Trustee (3).
4.2 -- Form of Old Note (included in Exhibit 4.1, Exhibit A) (3).
4.3 -- Form of New Note (2).
5 -- Opinion of Weil, Gotshal & Manges as to the securities registered
hereby (2).
9.1 -- Voting Trust Agreement, dated as of January 31, 1992, among United,
the stockholders party thereto and Messrs. Sturgess, Hegi, Miller,
Good and Johnson, as voting trustees (2).
9.2 -- First Amendment to Voting Trust Agreement, dated as of March 30,
1995, among United, the stockholders party thereto and Messrs.
Sturgess, Hegi, Miller, Good and Johnson, as voting trustees (2).
9.3 -- Letter agreement, dated March 30, 1995, between United (as
successor-in-interest to Associated) and Boise Cascade regarding
the Voting Trust Agreement (2).
10.1 -- Credit Agreement, dated as of March 30, 1995, among the Company,
United, certain Lenders named therein and Chase Bank, as Agent and
Lender (3).
10.2 -- Waiver and Amendment No. 1, dated as of April 13, 1995, among the
Company, United, each of the lenders party thereto and Chase Bank
(2).
10.3 -- Assumption Agreement, dated as of March 30, 1995, among the
Company, United and Chase Bank, as agent (2).
10.4 -- Revolving Credit Notes, dated March 30, 1995, issued under the
Credit Agreement (2).
10.5 -- Tranche A Term Loan Notes, dated March 30, 1995, issued under the
Credit Agreement (2).
10.6 -- Tranche B Term Loan Notes, dated March 30, 1995, issued under the
Credit Agreement (2).
10.7 -- Security Agreement, dated as of March 30, 1995, between the Company
and Chase Bank, as agent (2).
10.8 -- Form of Indenture of Mortgage, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of March 30, 1995, by the
Company in favor of Chase Bank (2).
10.9 -- Registration Rights Agreement, dated as of April 26, 1995, among
the Company, United and the Initial Purchaser (2).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
10.10 -- Purchase Agreement, dated April 26, 1995, among the Company,
United and the Initial Purchaser (2).
10.11 -- Registration Rights Agreement, dated as of January 31, 1992,
between United (as successor-in-interest to Associated) and CMIHI
(2).
10.12 -- Amendment No. 1 to Registration Rights Agreement, dated as of
March 30, 1995, among United (as successor-in-interest to
Associated), CMIHI and certain other holders of Lender Warrants
(2).
10.13 -- Amended and Restated Registration Rights Agreement, dated as of
March 30, 1995, among United (as successor-in-interest to
Associated), Wingate Partners, Cumberland Capital Corporation,
Good Capital Co., Inc., Boise Cascade and certain other United
stockholders (2).
10.14 -- Warrant Agreement, dated as of January 31, 1992, among United (as
successor-in-interest to Associated), the Company (as successor-
in-interest to ASI) and CMIHI (2).
10.15 -- Amendment No. 1 to Warrant Agreement, dated as of October 27,
1992, among United (as successor-in-interest to Associated), the
Company (as successor-in-interest to ASI), CMIHI and the other
parties thereto (2).
10.16 -- Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995,
among United (as successor-in-interest to Associated), the Company
(as successor-in-interest to ASI), CMIHI and the other parties
thereto (2).
10.17 -- Warrant Agreement, dated as of January 31, 1992, between United
(as successor-in-interest to Associated) and Boise Cascade (2).
10.18 -- Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995,
between United (as successor-in-interest to Associated) and Boise
Cascade (2).
10.19 -- Investment Banking Fee and Management Agreements, dated as of
January 31, 1992, among United, the Company and each of Wingate
Partners, Cumberland Capital Corporation and Good Capital Co.,
Inc. (2).
10.20 -- 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 Capital Corporation and
Good Capital Co., Inc. (2).
10.21 -- Employment Agreements, dated as of January 31, 1992, among United
(as successor-in-interest to Associated), the Company (as
successor-in-interest to ASI) and each of Michael D. Rowsey,
Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe,
Duane J. Ratay and Daniel H. Bushell (2).
10.22 -- 1992 Management Stock Option Plan, dated as of January 31, 1992
(2).
10.23 -- Amendment No. 1 to 1992 Management Stock Option Plan, dated as of
March 30, 1995 (2).
10.24 -- 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 (2).
10.25 -- Amendment to Stock Option Grants, dated as of March 30, 1995,
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 (2).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
10.26 -- Executive Stock Purchase Agreements, dated as of January 31, 1992,
among United (as successor-in-interest to Associated) Wingate
Partners, ASI Partners, L.P. and each of Michael D. Rowsey, Robert
W. Eberspacher, Lawrence E. Miller and Daniel J. Schleppe (2).
10.27 -- First Amendments to Executive Stock Purchase Agreements, dated as
of March 30, 1995, among United (as successor-in-interest to
Associated) Wingate Partners, ASI Partners, L.P. and each of
Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and
Daniel J. Schleppe (2).
10.28 -- Agreement for Data Processing Services, dated January 31, 1992,
between the Company (as successor-in-interest to ASI) and
Affiliated Computer Services, Inc. (2).
21 -- Subsidiaries of the Company (2).
23.1 -- Consent of Weil, Gotshal & Manges (included in the opinion filed
as Exhibit 5 to the Registration Statement) (2).
23.2 -- Consent of Arthur Andersen LLP, independent certified public
accountants (1).
23.3 -- Consent of Arthur Andersen LLP, independent certified public
accountants (1).
24 -- Form T-1 of The Bank of New York, as Trustee under the Indenture
filed as Exhibit 4.1 (2).
</TABLE>
- --------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Incorporated by reference from United's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1995.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is either not
present or not present 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 17. UNDERTAKINGS.
(a) See Item 14.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes:
(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-4
<PAGE>
(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; 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 that 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) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of Regulation S-X at the start of any
delayed offering or throughout a continuous offering.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS,
ON THE 1ST DAY OF JUNE, 1995.
United Stationers Supply Co.
/s/ Thomas W. Sturgess
By:__________________________________
Thomas W. Sturgess Chairman of the
Board
EACH PERSON WHOSE SIGNATURE TO THIS REGISTRATION STATEMENT APPEARS BELOW
HEREBY APPOINTS THOMAS W. STURGESS AND DANIEL H. BUSHELL, AND EACH OF THEM,
EITHER ONE OF WHOM MAY ACT WITHOUT THE JOINDER OF THE OTHER, 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 AMENDMENTS 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, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Thomas W. Sturgess Chairman, President June 1, 1995
- ------------------------------------- and Chief Executive
THOMAS W. STURGESS Officer (principal
executive officer
of the Company)
/s/ Daniel H. Bushell Vice President and June 1, 1995
- ------------------------------------- Chief Financial
DANIEL H. BUSHELL Officer (principal
financial and
accounting officer
of the Company)
/s/ Michael D. Rowsey Director June 1, 1995
- -------------------------------------
MICHAEL D. ROWSEY
/s/ Steven R. Schwarz Director June 1, 1995
- -------------------------------------
STEVEN R. SCHWARZ
II-6
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
UNITED STATIONERS SUPPLY CO.
ARTICLE I
---------
OFFICES
The principal office of the corporation in the State of Illinois shall be
located in the Chicago Metropolitan area. The corporation may have such other
offices, either within or without the State of Illinois, as the business of the
corporation may require from time to time.
The registered office of the corporation required by The Business
Corporation Act to be maintained in the State of Illinois may be identical with
the principal office in the State of Illinois, and the address of the registered
office may be changed from time to time by the board of directors.
ARTICLE II
----------
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held on the second Wednesday in January, in each year, at the hour of 2:00
P.M., for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting, or at any adjournment thereof,
the board of directors shall cause the election to be held at a meeting of the
shareholders as soon thereafter as conveniently may be.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the chairman of the board, president, by the board of directors or by
the holders of not less than one-fifth of all the outstanding shares of the
corporation.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, either within or without the State of Illinois, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. A waiver of notice signed by a majority of the board of directors
may designate any place, either within or without the State of Illinois, as the
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
<PAGE>
registered office of the corporation in the State of Illinois, except as
otherwise provided in Section 5 of this article.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, or in the case of a merger
or consolidation not less than twenty nor more than forty days before the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, president, or the secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at his address as it appears
on the records of the corporation, with postage thereon prepaid.
SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall
meet at any time and place, either within or without the State of Illinois, and
consent to the holding of a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may be
taken.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may provide that the
share transfer books shall be closed for a stated period but not to exceed, in
any case, sixty days. If the share transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days, or
in the case of a merger or consolidation, at least twenty days, immediately
preceding such meeting. In lieu of closing the share transfer books, the
board of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
days and, for a meeting of shareholders, not less than ten days, or in the case
of a merger or consolidation not less than twenty days, immediately preceding
such meeting. If the share transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the board of directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
<PAGE>
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
SECTION 7. VOTING LISTS. The officer or agent having charge of the
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the registered office
of the corporation and shall be subject to inspection by any shareholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting. The original share ledger
or transfer book, or a duplicate thereof kept in this State, shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
share ledger or transfer book or to vote at any meeting of shareholders.
SECTION 8. QUORUM. A majority of the outstanding shares of the
corporation, represented in person or by proxy, shall constitute a quorum at
any meeting of shareholders; provided, that if less than a majority of the
outstanding shares are represented at said meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. If
a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by The Business Corporation
Act, the articles of incorporation or these by-laws.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
SECTION 10. VOTING OF SHARES. Subject to the provisions of Section 12 of
this article, each outstanding share, regardless of class, shall be entitled to
one vote upon each matter submitted to vote at a meeting of shareholders.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent, or proxy as the by-laws of such corporation may prescribe, or, in the
absence
<PAGE>
of such provision, as the board of directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by his
administrator or executor, either in person or by proxy. Shares standing in the
name of a guardian, conservator, or trustee may be voted by such fiduciary,
either in person or by proxy, but no guardian, conservator, or trustee shall be
entitled, as such fiduciary, to vote shares held by him without a transfer of
such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 12. CUMULATIVE VOTING. In all elections for directors, every
shareholder shall have the right to vote, in person or by proxy, the number of
shares owned by him, for as many persons as there are directors to be elected,
or to cumulate said shares, and give one candidate as many votes as the number
of directors multiplied by the number of his shares shall equal, or to
distribute them on the same principle among as many candidates as he shall see
fit.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action to be taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
<PAGE>
ARTICLE III
-----------
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by its board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the corporation shall be five. Each director shall hold office until the next
annual meeting of shareholders or until his successor shall have been elected
and qualified. Directors need not be residents of Illinois or shareholders of
the corporation.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after, and at
the same place as, the annual meeting of shareholders. The board of directors
may provide, by resolution, the time and place, either within or without the
State of Illinois, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place, either within or without the State of Illinois, as the place
for holding any special meeting of the board of directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
five (5) days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting 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 regular or special meeting of the board of directors need be specified
in the notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for transaction of business at any meeting of
the board of directors, provided, that if less than a majority of such number of
directors are present at said meeting, a majority of
<PAGE>
the directors present may adjourn the meeting from time to time without further
notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
SECTION 8. VACANCIES. Any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors, may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
SECTION 9. COMPENSATION. The board of directors, by the affirmative vote
of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise. By resolution of the board of directors the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
SECTION 10. PRESUMPTION OF ASSENT. 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 conclusively 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 shall
forward such dissent by registered mail to the secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
SECTION 11. Unless otherwise restricted by the articles of incorporation
or these by-laws, members of the board of directors, or any committee designated
by the board of directors, may participate in a meeting of the board of
directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 12. The board of directors may, by resolution passed by a majority
of the whole board of directors, designate one or more committees, each
committee to consist of two or more of the directors of the corporation. The
board may designate one or more directors as alternate members of
<PAGE>
any committee, who may replace any absent or disqualified member at any
meeting of the committee.
In the absence or disqualification of any member of a committee or
committees or in the event that any such member is unable or refuses to act,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such member.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
SECTION 13. Each committee shall keep regular minutes of its proceedings
and report the same to the board of directors when required.
ARTICLE IV
----------
OFFICERS
SECTION 1. NUMBER AND TITLE. The officers of the corporation shall be
chosen by the board of directors and shall be a chairman of the board, a
president, a vice president, a secretary and a treasurer. The board of
directors may also choose a vice chairman of the board, additional vice
presidents and one or more assistant secretaries and assistant treasurers. Any
two or more offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held
<PAGE>
after each annual meeting of shareholders. If the election of officers shall
not be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Vacancies may be filled or new offices filled at any
meeting of the board of directors. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer or agent shall not
of itself create contract rights.
SECTION 3. REMOVAL. Any officer or agent elected or appointed by the board
of directors may be removed by the board of directors whenever in its judgment
the best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the
board may be the chief executive officer of the corporation and, if so
designated by the board of directors, shall have the general direction of the
affairs of the corporation, except as otherwise prescribed by the board of
directors. The chairman shall preside at all meetings of the shareholders, of
the board of directors and of the executive committee, if any, and shall
designate the acting secretary for such meetings to take the minutes thereof for
delivery to the secretary. The chairman may execute contracts in the name of
the corporation and appoint and discharge agents and employees of the
corporation; and shall be ex-officio a member of all committees.
SECTION 5A. THE VICE CHAIRMAN OF THE BOARD. The vice chairman of the board
may be the chief executive officer of the corporation and, if so designated by
the board of directors, shall have the general direction of the affairs of the
corporation, except as otherwise prescribed by the board of directors. The vice
chairman shall in the event that the chairman of the board is absent or has
allowed the office of chairman of the board to be vacated, or is unable or
refuses to act, perform the duties of the chairman of the board. The vice
chairman may execute contracts in the name of the corporation and appoint and
discharge agents and employees of the corporation and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe. The vice chairman shall be ex-officio a member of all
committees.
<PAGE>
SECTION 6. PRESIDENT. The president shall be the chief operating officer of
the corporation, and as such shall direct the operations of the corporation. The
president shall assume such other duties as the board of directors may assign
from time to time. In the event that the chairman of the board and the vice
chairman of the board each are one of the following: absent, or has allowed the
office of chairman or vice chairman to be vacated, or is unable or refuses
to act; the president shall perform all duties and functions of the chairman of
the board. The president may sign, with the secretary, assistant secretary,
treasurer or assistant treasurer, certificates for shares of the corporation,
and may sign any policies, deeds, mortgages, bonds, contracts, or other
instruments which the board of directors have authorized to be executed except
in cases where the signing and execution thereof shall be expressly delegated by
the board of directors or by these by-laws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed;
appoint and discharge agents and employees of the corporation, and in general,
shall perform all duties incident to the office of president. The president
shall be ex-officio a member of all committees.
SECTION 7. THE VICE-PRESIDENTS. In the absence of the president or in the
event of his inability or refusal to act, the vice-president (or in the event
there be more than one vice-president, the vice-presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. Any vice-president may sign, with the secretary or an assistant
secretary, certificates for shares of the corporation; and shall perform such
other duties as from time to time may be assigned to him by the president or by
the board of directors.
SECTION 8. THE TREASURER. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the board of directors shall determine. He
shall: (a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Article V
of these by-laws; (b) in general perform all the duties incident to the office
of treasurer and such other duties as from time to time may be assigned to him
by the president or by the board of directors.
SECTION 9. THE SECRETARY. The secretary shall: (a) keep the minutes of
the shareholders' and of the board of directors' meetings in one or more books
provided for that
<PAGE>
purpose; (b) see that all notices are duly given in accordance with the
provisions of these by-laws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these by-laws; (d) keep a register of the post-office address of each
shareholder which shall be furnished to the secretary by such shareholder; (e)
sign with the president, or a vice-president, certificates for shares of the
corporation, the issue of which shall have been authorized by resolution of the
board of directors; (f) have general charge of the stock transfer books of the
corporation; (g) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the president or by the board of directors.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers shall respectively, if required by the board of directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the board of directors shall determine. The assistant secretaries as
thereunto authorized by the board of directors may sign with the president or a
vice-president certificates for shares of the corporation, the issue of which
shall have been authorized by a resolution of the board of directors. The
assistant treasurers and assistant secretaries, in general, shall perform such
duties as shall be assigned to them by the treasurer or the secretary,
respectively, or by the president or the board of directors.
SECTION 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution
<PAGE>
of the board of directors. Such authority may be general or confined to
specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the board of directors may
select.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be in such form as may be determined by the board of
directors. Such certificates shall be signed by the president and by the
secretary or an assistant secretary and shall be sealed with the seal of the
corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the corporation as the board of directors may prescribe.
SECTION 2. TRANSFERS OF SHARES. Transfers of shares of the corporation
shall be made only on the books of the corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed the
owner thereof for all purposes as regards the corporation.
<PAGE>
ARTICLE VII
-----------
FISCAL YEAR
Until September 1, 1986, the fiscal year of the corporation shall end on the
last Sunday in August in each year. At and after September 1, 1986, the fiscal
year of the corporation shall end on August 31 in each year.
ARTICLE VIII
------------
DIVIDENDS
The board of directors may from time to time, declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE IX
----------
SEAL
The board of directors shall provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois."
ARTICLE X
---------
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these by-laws or under the provisions of the Articles of Incorporation or
under the provisions of The Business Corporation Act of the State of Illinois, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
<PAGE>
ARTICLE XI
----------
AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted at any meeting of the board of directors of the corporation by a
majority vote of the directors present at the meeting.
ARTICLE XII
-----------
INDEMNIFICATION
SECTION 1. The corporation shall 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or who is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), 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. 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. The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, 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 except that no
<PAGE>
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 in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent of
the corporation has been successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in Sections 1 and 2 of
this Article XII, or in the 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 4. Any indemnification under Sections 1 and 2 of this Article XII
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case, upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article XII.
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, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the shareholders.
SECTION 5. Expenses incurred 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, as authorized by the Board of Directors in
the specific case, 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 in this Article.
SECTION 6. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any by-law, agreement, vote of shareholders or disinterested
directors, or otherwise, 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 the heirs, executors and administrators of such a
person.
<PAGE>
SECTION 7. The corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and 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 provisions of this Article.
SECTION 8. For purposes of this Article, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of United Stationers Inc. as of
August 31, 1993 and 1994 and for the years ended August 31, 1992, 1993 and 1994
and to the reference to our Firm under the caption "Experts" included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
June 2, 1995
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of Associated Holdings, Inc. as
of December 31, 1993 and 1994 and from inception, January 31, 1992, through
December 31, 1992 and for the years ended December 31, 1993 and 1994 and to the
reference to our Firm under the caption "Experts" included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
June 2, 1995
