-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R9QiCHxRXwxd/OAPU9ff+ok8fwA43uYa04QcVdk/TGOyjOqdetOt3ByhJqpTKIlW gzO8lKdw9QsnMTy3vbjhng== 0000950131-96-000565.txt : 19960222 0000950131-96-000565.hdr.sgml : 19960222 ACCESSION NUMBER: 0000950131-96-000565 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19960220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATIONERS INC CENTRAL INDEX KEY: 0000355999 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 363141189 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-01089 FILM NUMBER: 96523455 BUSINESS ADDRESS: STREET 1: 2200 E GOLF RD CITY: DES PLAINES STATE: IL ZIP: 60016-1267 BUSINESS PHONE: 7086995000 MAIL ADDRESS: STREET 1: 2200 E GOLF ROAD STREET 2: 2200 E GOLF ROAD CITY: DES PLAINES STATE: IL ZIP: 600161267 S-2 1 FORM S-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1996. REGISTRATION NO. 33- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- UNITED STATIONERS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 5112 36-3141189 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER) 2200 EAST GOLF ROAD THOMAS W. STURGESS DES PLAINES, ILLINOIS 60016-1267 CHAIRMAN OF THE BOARD (847) 699-5000 2200 EAST GOLF ROAD (ADDRESS, INCLUDING ZIP CODE, AND DES PLAINES, ILLINOIS 60016-1267 TELEPHONE NUMBER, INCLUDING AREA CODE, (847) 699-5000 OF REGISTRANT'S PRINCIPAL EXECUTIVE (NAME, ADDRESS, INCLUDING ZIP CODE, OFFICES) AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: MARY R. KORBY MICHAEL H. KERR, P.C. WEIL, GOTSHAL & MANGES LLP KIRKLAND & ELLIS 100 CRESCENT COURT, SUITE 1300 200 EAST RANDOLPH DRIVE DALLAS, TEXAS 75201-6950 CHICAGO, ILLINOIS 60601 (214) 746-7700 (312) 861-2000 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, as amended (the "Securities Act"), check the following box. [_] If the registrant elects to deliver its latest annual report to security- holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this form, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED MAXIMUM TITLE OF SHARES AGGREGATE AMOUNT OF TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------- Common Stock, par value $0.10 per share...................... $183,137,500 $63,150.86
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated pursuant to Rule 457(c) solely for purposes of calculating the registration fee, based upon the average of the high and low sale prices of such Common Stock as reported by the Nasdaq National Market. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATIONERS INC. 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-2
FORM S-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS ------------------ ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front and Outside Back Cover Pages; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; Risk Factors; The to Fixed Charges............... Company 4. Use of Proceeds................. Prospectus Summary; Use of Proceeds 5. Determination of Offering Price.......................... Outside Front Cover Page 6. Dilution........................ Not Applicable 7. Selling Security Holders........ Principal and Selling Stockholders 8. Plan of Distribution............ Outside Front Cover Page; Underwriting 9. Description of Securities to be Outside Front Cover Page; Prospectus Registered..................... Summary; Common Stock Price Range and Dividend Policy; Description of Capital Stock 10. Interests of Named Experts and Counsel........................ Not Applicable 11. Information with Respect to the Outside Front Cover Page; Prospectus Registrant..................... Summary; Risk Factors; The Company; Common Stock Price Range and Dividend Policy; Capitalization; Unaudited Pro Forma Financial Statements; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Principal and Selling Stockholders; Certain Transactions; Description of Capital Stock; Description of Indebtedness; Available Information; Consolidated Financial Statements 12. Incorporation of Certain Incorporation of Certain Documents by Information by Reference....... Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities..... Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1996 PROSPECTUS 7,000,000 SHARES LOGO UNITED STATIONERS INC. COMMON STOCK ----------- Of the 7,000,000 shares of Common Stock of the Company (the "Common Stock") offered, 3,500,000 shares are being sold by the Company and 3,500,000 shares are being sold by the Selling Stockholders. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders." The Common Stock is quoted on the Nasdaq National Market under the symbol "USTR." On February 16, 1996, the last reported sale price for the Common Stock as quoted on the Nasdaq National Market was $24.50 per share. See "Common Stock Price Range and Dividends." ----------- FOR INFORMATION CONCERNING CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 10. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING PUBLIC COMMISSIONS(1) THE COMPANY(2) STOCKHOLDERS - -------------------------------------------------------------------------------- Per Share.............. - -------------------------------------------------------------------------------- Total(3)...............
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $475,000. (3) The Selling Stockholders have granted the Underwriters a 30-day option to purchase up to an additional 1,050,000 shares of Common Stock on the same terms and conditions as set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Selling Stockholders will be , and , respectively. See "Underwriting." ----------- The shares are offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made on or about , 1996 at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167. BEAR, STEARNS & CO. INC. DEAN WITTER REYNOLDS INC. GOLDMAN, SACHS & CO. The date of this Prospectus is , 1996. [map entitled "Distribution Network"] [photographs of products and catalogs] [chart entitled "The Company's Role in the Office Products Industry"] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING." ---------------- United Stationers (R) is a registered trademark and service mark of the Company. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the consolidated financial statements, together with the related notes thereto, appearing elsewhere herein. As used in this Prospectus, unless otherwise indicated or the context otherwise requires, references herein to the "Offering" mean the offering of Common Stock pursuant to this Prospectus and references herein to the "Company" include (i) United Stationers Inc., its direct and indirect subsidiaries, including United Stationers Supply Co. ("USSC"), the principal operating subsidiary of the Company, and (ii) the business conducted by United Stationers Inc. ("United"), Associated Holdings, Inc. ("Associated") and Associated Stationers, Inc. ("ASI"), the operating subsidiary of Associated, prior to the merger of Associated with United and ASI with USSC on March 30, 1995 (collectively, the "Merger"). Operating data presented herein for 1995 on a pro forma basis gives effect to the Merger, the Offering and the other transactions related thereto as if the Merger, the Offering and such other transactions occurred on January 1, 1995. Comparative operating data is presented on a basis of 1995 pro forma data for the Company compared to 1994 combined data (without such pro forma adjustments) for United and Associated. All share and per share data has been restated to reflect the 100% stock dividend effective November 9, 1995. THE COMPANY The Company is the largest general line business products wholesaler in the United States, with 1995 pro forma net sales of $2.2 billion. The Company stocks and distributes the broadest and deepest product line in the industry, consisting of over 25,000 items, including traditional office supplies, office furniture and desk accessories, computer supplies, peripherals and hardware and facilities management supplies. The Company markets its products primarily through catalogs with a total annual circulation of more than 7.5 million copies, including a general line office products catalog that has more than 900 pages. The Company supplements its general line catalog with several specialized catalogs and related marketing programs designed for the office products, office furniture, computer products, facilities management supplies and certain other specialty markets. The Company purchases its products from more than 450 manufacturers who rely on it to inventory, market and distribute their products efficiently to a broad range of approximately 12,000 resellers, consisting primarily of office products dealers (including commercial, contract and retail), computer resellers, office furniture dealers, office products superstores, mail order companies and mass merchandisers. The Company's distribution and customer service capabilities, together with those of its resellers, create an efficient distribution channel for office products. The Company believes that resellers find it necessary to offer a broad selection of office products to meet the diverse preferences of individual end-users. The product line offered by the Company is much broader than that which resellers can efficiently and practically stock themselves. In addition, the high level of service and overnight delivery capability provided by the Company enables resellers to meet their end-user service demands. The Company's distribution and customer service capabilities are supported by its integrated management information systems and a nationwide network of 43 strategically located and fully integrated distribution centers. The Company operates primarily within the approximately $65 billion office products industry. The office products industry has experienced significant changes in recent years in the channels through which products are distributed from manufacturer to end-user. The growth of national office products superstores has led to a significant reduction in the number of resellers by forcing many smaller, less efficient retail dealers out of business. In addition, there is ongoing consolidation within the contract stationer distribution channel as certain national superstores continue to acquire contract stationers to create their own in-house contract stationer divisions. Furthermore, several larger contract stationers have sought to achieve growth and economies of scale through the acquisition of smaller regional contract stationers. These larger national contract stationers, as well as other resellers, have focused on profitability as well as return on assets while maintaining extensive product offerings, high order fill rates and overnight delivery capability. As a result, resellers typically offer far more products than they stock, and therefore rely on the Company to provide them with products not typically stocked but which end-users demand on an overnight basis. The Company experienced a 10.6% growth in net sales from combined 1994 net sales of United and Associated of $2.0 billion to 1995 pro forma net sales of the Company of $2.2 billion, with no single reseller accounting for more than 5% of the Company's pro forma net sales in 1995. 3 The Company serves an important role for both manufacturers and resellers. For manufacturers, the Company offers broad geographic market exposure for a wide range of their products, assumes credit risk, facilitates the introduction of new products into the marketplace by means of its widely distributed marketing materials and efficiently breaks bulk shipments into individual orders on an overnight basis. Due to the volume of its purchases, the Company is often able to qualify for better pricing and terms than are otherwise available to other office products distributors and resellers from such manufacturers. For resellers, the Company provides safety stock (inventory backup on commodity items) and stocks certain slower-moving high margin products where the demand is not sufficient for resellers to economically stock such items. In addition, the Company offers merchandising and pricing programs to address the individual needs of resellers. By efficiently aggregating demand for certain slower-moving high margin products, the Company benefits the manufacturer (by purchasing such products), the reseller (by allowing the reseller to sell such products without stocking them) and the end-user (by making such products available on an overnight basis). In addition, the Company's electronic order entry systems allow the reseller to seamlessly forward its customers' orders to the Company, resulting in the delivery of pre- sold products to the reseller or directly to its customers. The Company's business strategy is to improve its competitive position and increase its revenues and profitability by (i) maintaining a high level of customer service, (ii) increasing purchases from existing customers, (iii) broadening the Company's product line and customer base, (iv) emphasizing cost- effective operations and (v) increasing the overall efficiency of the Company's operations and systems. THE ACQUISITION On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares of pre-Merger United common stock for approximately $266.6 million in the aggregate pursuant to a tender offer (the "Tender Offer" and, collectively with the Merger, the "Acquisition"). See "The Company." The Merger was consummated to capitalize on the operating, purchasing and managerial synergies that were anticipated to result from the combination of the largest (United) and third largest (Associated) national office products wholesalers. Prior to completing the Merger, management developed a consolidation plan that represented a detailed program to achieve operating cost savings, including closing redundant distribution centers, as well as general and administrative and sales force consolidations. At the time of the Merger, management estimated that these synergies would result in annualized cost savings of approximately $26.0 million. The consolidation plan is expected to be substantially completed by March 30, 1996, and management believes that the full $26.0 million of annualized savings will be realized. THE OFFERING Common Stock Offered by the Company............... 3,500,000 shares Common Stock Offered by the Selling Stockholders.. 3,500,000 shares(1) -------------------------- Total............................................. 7,000,000 shares ========================== Common Stock Outstanding after the Offering....... 16,825,839 shares(2) Use of Proceeds................................... The net proceeds to the Company from the Offering will be used to redeem all of the outstanding shares of preferred stock of the Company and to redeem a portion of senior subordinated notes issued by the Company's operating subsidiary. See "Use of Proceeds." Nasdaq National Market Symbol..................... USTR
- -------- (1) Includes 938,350 shares of Common Stock to be issued upon exercise of warrants issued to the Company's senior lenders (the "Lender Warrants"), 182,189 shares of Common Stock to be issued upon exercise of warrants held by certain stockholders and their affiliates (the "Preferred B Warrants" and, together with the Lender Warrants, the "Warrants") and 197,044 shares of Common Stock to be issued upon conversion of shares of the Company's Nonvoting Common Stock, par value $0.01 per share ("Nonvoting Common Stock") by certain Selling Stockholders immediately prior to the Offering. Such information assumes that the Underwriters' over-allotment option is not exercised. 4 (2) Based on the number of shares outstanding at February 12, 1996 after giving effect to the exercise of Warrants and the conversion of shares of Nonvoting Common Stock described in Note (1) above and the conversion of the remaining 561,950 shares of Nonvoting Common Stock into shares of Common Stock immediately prior to the Offering. Does not include (i) 2,591,768 shares of Common Stock issuable upon exercise of stock options granted to employees and directors of the Company ("Employee Stock Options") and (ii) 289,088 shares issuable upon exercise of Lender Warrants that will remain outstanding after the Offering. ANTICIPATED NONRECURRING CHARGES The Company expects to recognize a nonrecurring noncash charge during the first quarter of 1996 of approximately $31.7 million ($19.0 million net of tax benefit of $12.7 million) in compensation expense arising because certain Employee Stock Options will become exercisable upon consummation of the Offering. Such compensation expense is based on options outstanding at January 31, 1996 and a stock price of $22.75 as of February 12, 1996. Each $1.00 change in the Common Stock price will result in an adjustment to such compensation expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0 million). See "Certain Transactions--Option and Restricted Stock Awards." In addition, the Company expects to recognize a nonrecurring charge during the second quarter of 1996 of approximately $11.1 million ($6.7 million net of tax benefit of $4.4 million). This charge includes (i) a $6.4 million redemption premium relating to the redemption of a portion of the outstanding Notes (as hereinafter defined) with a portion of the proceeds from the Offering, (ii) a $3.8 million noncash write-off of deferred financing costs related to such redemption and (iii) $0.9 million in fees payable to Chase Manhattan Bank, N.A. ("Chase Bank") and other senior lenders to permit the application of the Company's net proceeds from the Offering as described in this Prospectus. SUMMARY SUPPLEMENTAL COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA The following table presents unaudited summary supplemental combined historical financial data for United and Associated for the years ended December 31, 1993 and 1994. This supplemental data has not been prepared in accordance with generally accepted accounting principles, which do not allow for the combination of financial data for entities that are not under common ownership. Nevertheless, management believes that this combined historical financial data, when read in conjunction with the separate historical financial statements of the Company, United and Associated prepared in accordance with generally accepted accounting principles and included elsewhere herein, may be helpful in understanding the past operations of the companies that were combined in the Merger and in evaluating an investment in the shares of Common Stock being offered. This combined historical financial data for 1993 and 1994 represents a combination of the historical financial data for United and Associated for the periods indicated without any pro forma adjustments, and is supplemental to the historical financial data of United and Associated which immediately follows. The following table also presents unaudited summary pro forma financial data for the Company as of and for the year ended December 31, 1995. This pro forma data should be read in conjunction with the Unaudited Pro Forma Financial Statements included elsewhere herein, which are based on the historical consolidated financial statements of the Company and its predecessors (Associated and United) after giving effect to: (i) the Acquisition and other Merger-related adjustments, (ii) the refinancing of certain debt effected in May 1995 and the repurchase (the "Series B Repurchase") of all outstanding shares of the Company's Series B Preferred Stock, par value $0.01 per share ("Series B Preferred Stock"), with the proceeds of the 12 3/4% Senior Subordinated Notes due 2005 issued by USSC (the "Notes"), (iii) the Offering and application of the Company's net proceeds therefrom primarily to redeem all outstanding shares of Series A Preferred Stock, par value $0.01 per share, of the Company ("Series A Preferred Stock") and Series C Preferred Stock, par value $0.01 per share, of the Company ("Series C Preferred Stock" and, collectively with the Series A Preferred Stock, the "Preferred Stock") and to redeem a portion of the Notes and (iv) the exercise of certain Warrants and conversion of shares of Nonvoting Common Stock into shares of Common Stock by certain Selling Stockholders in connection with the Offering, all as described in the notes thereto. The summary supplemental combined historical and pro forma financial data is intended for informational purposes only and is not necessarily indicative of either financial position or results of operations in the future, or that would have occurred had the events described in the preceding paragraph occurred on the indicated dates as described elsewhere herein. The following information should be read in conjunction with, and is qualified in its entirety by, the historical consolidated financial statements of the Company and its predecessors, together with the related notes thereto, included elsewhere herein. 5 SUMMARY SUPPLEMENTAL COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1993 YEAR ENDED DECEMBER 31, 1994 1995 ------------------------------------ ------------------------------------ ------------ COMBINED COMBINED ASSOCIATED UNITED HISTORICAL(1) ASSOCIATED UNITED HISTORICAL(1) PRO FORMA(2) ---------- ---------- ------------- ---------- ---------- ------------- ------------ INCOME STATEMENT DATA(3)(4)(5): Net sales.............. $455,731 $1,469,645 $1,925,376 $470,185 $1,520,178 $1,990,363 $ 2,201,860 Cost of goods sold..... 350,251 1,124,480 1,474,731 357,276 1,194,328 1,551,604 1,726,021(6) -------- ---------- ---------- -------- ---------- ---------- ----------- Gross profit........... 105,480 345,165 450,645 112,909 325,850 438,759 475,839 Total operating ex- penses................ 94,502 298,782 393,284 94,788 284,929 379,717 394,430(6) -------- ---------- ---------- -------- ---------- ---------- ----------- Income from opera- tions................. $ 10,978 $ 46,383 $ 57,361 $ 18,121 $ 40,921 $ 59,042 81,409 ======== ========== ========== ======== ========== ========== Interest expense, net.. * * 50,953(7) ----------- Income before income taxes................. * * 30,456 Income taxes........... * * 12,762 ----------- Net income............. * * $ 17,694 =========== Net income per common and common equivalent share................. * * $ 1.00 Average number of com- mon and common equiva- lent shares used in calculation........... * * 17,633,011 OPERATING DATA: EBITDA(8).............. $ 16,481 $ 67,718 $ 84,199 $ 23,505 $ 62,498 $ 86,003 $ 111,880 EBITDA margin(9)....... 3.6% 4.6% 4.4% 5.0% 4.1% 4.3% 5.1% BALANCE SHEET DATA (AT YEAR END)(10): Working capital........ * * $ 360,948 Total assets........... * * 997,614 Total debt and capital leases(11)............ * * 503,153 Redeemable preferred stock................. * * -- Redeemable warrants.... * * -- Stockholders' equity... * * 151,006
- -------- * Not meaningful as a result of the change in the capital structure of the Company due to the Merger. (1) Combined historical financial data represents a combination without pro forma adjustment of historical financial data for Associated derived from its audited consolidated financial statements for fiscal years ended December 31, 1993 and 1994, and historical financial data for United derived from its unaudited consolidated financial statements for the twelve-month periods ended December 31, 1993 and 1994. (2) Pro forma income statement and operating data for 1995 is presented giving effect to (i) the Acquisition and other Merger-related adjustments, (ii) the refinancing of certain debt and the Series B Repurchase effected with the proceeds of the Notes offered by USSC in May 1995 and (iii) the Offering and application of the Company's net proceeds therefrom as described in this Prospectus, all as described in the Notes to Unaudited Pro Forma Financial Statements included elsewhere herein, as if all such transactions were effected on January 1, 1995. Accordingly, the pro forma income statement is derived from the audited consolidated income statement of the Company for the year ended December 31, 1995 (which includes the twelve month results of operations of Associated but excludes United for the three months ended March 30, 1995) and the unaudited consolidated income statement of United for the three months ended March 30, 1995, giving effect to the adjustments mentioned above. (3) The pro forma income statement data for 1995 excludes the following nonrecurring charges for fiscal year 1995: (i) extraordinary charge of approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) due to the write-off of Associated's pre-Merger financing costs and original issue discount, (ii) restructuring charge of approximately $9.8 million ($5.9 million net of tax benefit of $3.9 million) for costs incurred and expected to be incurred subsequent to the Merger 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 6 expense relating to Associated's employee stock options of approximately $1.5 million ($0.9 million net of tax benefit of $0.6 million) recognized as a result of the Acquisition. Also excluded is $27.8 million of Merger- related expenses recognized by United during the three months ended March 30, 1995. (4) The pro forma income statement data for 1995 also excludes the following nonrecurring charges expected to be recognized in 1996 relating to the anticipated completion of the Offering and application of the Company's net proceeds therefrom: (i) a noncash charge of approximately $31.7 million ($19.0 million net of tax benefit of $12.7 million) in compensation expense arising because certain Employee Stock Options will become exercisable upon consummation of the Offering and (ii) a nonrecurring charge of approximately $11.1 million ($6.7 million net of tax benefit of $4.4 million), which charge includes (A) a $6.4 million redemption premium relating to the redemption of a portion of the outstanding Notes, (B) a $3.8 million noncash write-off of deferred financing costs related to such redemption and (C) $0.9 million in fees payable to Chase Bank and other senior lenders to permit the application of the Company's net proceeds from the Offering as described in this Prospectus. The compensation expense described in (i) above is based on options outstanding at January 31, 1996 and a stock price of $22.75 as of February 12, 1996. Each $1.00 change in the Common Stock price will result in an adjustment to such compensation expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0 million). See "Certain Transactions--Option and Restricted Stock Awards" and "--Interests of Certain Persons in the Offering." For pro forma balance sheet purposes, these nonrecurring charges have been reflected. (5) Effective January 1, 1995, Associated changed its method of accounting for the cost of inventory from the first-in, first-out ("FIFO") method to the last-in, first-out ("LIFO") method. This change resulted in the reduction of pre-tax income of the Company of approximately $8.8 million ($5.3 million net of tax benefit of $3.5 million). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General Comments" and Note 3 to the Consolidated Financial Statements of the Company included elsewhere herein. (6) Prior to completing the Merger, management developed a consolidation plan that represented a detailed program to achieve operating cost savings, including closing redundant distribution centers, as well as general and administrative and sales force consolidations. At the time of the Merger, management estimated that these synergies would result in annualized cost savings of approximately $26.0 million. The consolidation plan is expected to be substantially completed by March 30, 1996, and management believes that the full $26.0 million of annualized savings will be realized. Pro forma cost of goods sold and operating expenses (warehousing, marketing and administrative expenses) do not include any adjustments for the portion of such cost savings which were not realized by the Company in fiscal year 1995 due to the Merger not occurring until March 30, 1995 and the phased-in implementation of management's consolidation plan over the remaining nine months of fiscal year 1995. (7) The variable portion of pro forma interest expense is based on historical interest rates in effect during the year ended December 31, 1995 and approximates that based on current interest rates. Each 1/8 of 1% change in the base interest rate for variable rate debt has a $0.4 million effect on annual pro forma interest expense for the Company, without giving effect to the impact of any interest rate protection agreements. (8) EBITDA is defined as earnings before interest, taxes, and 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. 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. (9) EBITDA margin represents EBITDA as a percentage of net sales. (10) The pro forma balance sheet data is presented giving effect solely to (i) the Offering and application of the Company's net proceeds therefrom and (ii) the exercise of certain Warrants and conversion of shares of Nonvoting Common Stock into shares of Common Stock by certain Selling Stockholders in connection with the Offering as if these transactions were effected on December 31, 1995. See Notes (a)-(h) to the Unaudited Pro Forma Financial Statements included elsewhere herein. (11) Total debt and capital leases includes current maturities. 7 SUMMARY HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS) Set forth below and on the following pages is summary historical financial data for the Company and its predecessors. Although the Company was the surviving corporation in the Merger, the Acquisition was treated as a reverse acquisition for accounting purposes, with Associated as the acquiring corporation. Therefore, the income statement and operating data for the year ended December 31, 1995 reflect the financial information of Associated only for the three months ended March 30, 1995, and the results of the Company for the nine months ended December 31, 1995. The balance sheet data at December 31, 1995 reflects the consolidated balances of the Company, including the Merger- related adjustments.
ASSOCIATED THE COMPANY ------------------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------ ------------ 1993 1994 1995(1) ----------- ----------- ------------ INCOME STATEMENT DATA: Net sales............................. $ 455,731 $ 470,185 $1,751,462 Gross profit.......................... 105,480 112,909 380,940 Operating expenses: Warehousing, marketing and administrative expenses............ 94,502 94,788 313,624 Restructuring charge................ -- -- 9,759 Income from operations................ 10,978 18,121 57,557 Interest expense, net................. 7,235 7,725 46,186 Income before income taxes and ex- traordinary item..................... 3,743 10,396 11,371 Income taxes.......................... 781 3,993 5,128 Income before extraordinary item...... 2,962 6,403 6,243 Extraordinary item(2)................. -- -- (1,449) Net income............................ 2,962 6,403 4,794 Net income attributable to common stockholders......................... 915 4,210 2,796 OPERATING DATA: EBITDA(3)............................. 16,481 23,505 81,241 EBITDA margin(4)...................... 3.6% 5.0% 4.6% BALANCE SHEET DATA (AT YEAR END): Working capital....................... $ 57,302 $ 56,454 $ 355,465 Total assets.......................... 190,979 192,479 1,001,383 Total debt and capital leases(5)...... 86,350 64,623 551,990 Redeemable preferred stock............ 20,996 23,189 18,041 Redeemable warrants................... 1,435 1,650 39,692 Total stockholders' equity............ 11,422 24,775 30,024
- -------- (1) Effective January 1, 1995, Associated changed its method of accounting for the cost of inventory from the FIFO method to the LIFO method. This change resulted in the reduction of pre-tax income of the Company of approximately $8.8 million ($5.3 million net of tax benefit of $3.5 million). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General Comments" and Note 3 to the Consolidated Financial Statements of the Company included elsewhere herein. (2) Loss on early retirement of debt, net of tax benefit of $1.0 million. (3) EBITDA is defined as earnings before interest, taxes, depreciation and amortization and extraordinary item and is presented because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. (4) EBITDA margin represents EBITDA as a percentage of net sales. (5) Total debt and capital leases includes current maturities. 8
UNITED -------------------------------------------- SEVEN MONTHS ENDED YEAR ENDED -------------------- AUGUST 31, MARCH 31, MARCH 30, ---------------------- --------- --------- 1993 1994 1994(1) 1995 ---------- ---------- --------- --------- INCOME STATEMENT DATA: Net sales................... $1,470,115 $1,473,024 $ 871,585 $ 980,575 Gross profit on sales....... 344,519 322,901 195,865 206,718 Operating expenses: Warehousing, marketing and administrative expenses.. 298,405 286,607 170,420 174,021 Merger-related costs...... -- -- -- 27,780 Income from operations...... 46,114 36,294 25,445 4,917 Interest expense, net....... 9,550 10,461 5,837 7,500 Income (loss) before income taxes...................... 36,919 26,058 19,725 (2,542) Income taxes................ 15,559 10,309 8,185 4,692 Net income (loss)........... 21,360 15,749 11,540 (7,234) OPERATING DATA: EBITDA(2)................... 67,712 57,755 37,665 17,533 EBITDA margin(3)............ 4.6% 3.9% 4.3% 1.8%(4) BALANCE SHEET DATA (AT PERIOD END): Working capital............. $ 216,074 $ 239,827 $ 297,099 $ 257,600 Total assets................ 634,786 618,550 608,728 711,839 Total debt and capital leases(5).................. 150,251 155,803 227,626 233,406 Stockholders' investment.... 237,697 246,010 243,636 233,125
- -------- (1) The summary financial information at and for the seven-month period ended March 31, 1994 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. (2) EBITDA is defined as earnings before interest, taxes, depreciation and amortization and is presented because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. (3) EBITDA margin represents EBITDA as a percentage of net sales. (4) EBITDA margin for the seven-month period ended March 30, 1995 would have been 4.6% if adjusted to exclude Merger-related expenses. (5) Total debt and capital leases includes current maturities. 9 RISK FACTORS Prospective purchasers should consider carefully the following factors, together with the other information set forth in this Prospectus, prior to purchasing the Common Stock offered hereby. COMPETITION The Company operates in a highly competitive environment. The Company competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, computer products and related items. Some of such competitors are larger than the Company and have greater financial and other resources available to them than does the Company, and there can be no assurance that the Company can continue to compete successfully with such competitors. Increased competition in the office products industry, together with increased advertising, has heightened price awareness among end-users. As a result, purchasers of commodity office products have become extremely price sensitive, and therefore the Company has increased its efforts to market to resellers the continuing advantages of its competitive strengths (as compared to those of manufacturers and other wholesalers), such as marketing and catalog programs, speed of delivery, and the ability to offer resellers on a "one-stop shop" basis a broad line of business products from multiple manufacturers with lower minimum order quantities. See "Business--Competition." In addition, such heightened price awareness has led to margin pressure on commodity office products. In the event that such a trend continues, the Company's profit margins could be adversely affected. CONSOLIDATION Consolidation continues throughout all levels of the office products industry. Consolidation of commercial dealers and contract stationers has resulted in (i) an increased ability of those resellers to buy goods directly from manufacturers on their own or through their participation in buying groups and (ii) fewer independent resellers to purchase from wholesalers. In addition, over the last decade, office products superstores (which largely buy directly from manufacturers) have entered virtually every major metropolitan market. Continuing consolidation could adversely affect the Company's financial results. SUBSTANTIAL LEVERAGE As a result of the Acquisition, the Company has significant debt and debt service obligations. Assuming the Offering and the resulting use of proceeds to redeem all outstanding shares of Preferred Stock (including all accrued and unpaid dividends thereon through the date of such redemption) and to redeem a portion of the outstanding Notes (including a redemption premium thereon) had occurred on December 31, 1995, the Company would have had (i) $503.2 million of long-term indebtedness (including current maturities) and $151.0 million of total stockholders' equity and (ii) a long-term indebtedness to total stockholders' equity ratio of 3.3 to 1.0. See "Capitalization." The degree to which the Company is leveraged could have important consequences, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, potential acquisition opportunities, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness; (iii) the Company may be more vulnerable to economic downturns, may be limited in its ability to withstand competitive pressures and may have reduced flexibility in responding to changing business and economic conditions; and (iv) fluctuations in market interest rates will affect the cost of the Company's borrowings to the extent not covered by interest rate hedge agreements because interest under the Credit Facilities (as hereinafter defined) are payable at variable rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources of the Company" and "Description of Indebtedness." 10 ABILITY TO SERVICE DEBT The Company's ability to service its indebtedness will be dependent on its future performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. The Company believes that, based upon current levels of operations, it should be able to meet its debt service obligations when due. If, however, the Company were unable to service its indebtedness, it would be forced to pursue one or more alternative strategies such as selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital (which may substantially dilute the ownership interest of holders of Common Stock). There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources of the Company" and "Description of Indebtedness." RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The Indenture (the "Indenture") governing the $150 million in aggregate principal amount of Notes of USSC and the credit agreement governing the Company's senior credit facilities (the "Credit Agreement") contain numerous restrictive covenants that limit the discretion of management with respect to certain business matters. These covenants place significant restrictions on, among other things, the ability of the Company to incur additional indebtedness, to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. The Credit Agreement also contains a number of financial covenants that require the Company to meet certain financial ratios and tests. A failure to comply with the obligations in the Credit Agreement or the Indenture could result in an event of default under the Credit Agreement, or an event of default 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 which could have a material adverse effect on the Company. See "Description of Indebtedness." 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, among other things, the widespread use of computers and other technological advances (resulting in the elimination or reduction in use of traditional office supplies), efforts by various businesses to establish "paperless" work environments, increased recycling efforts and a trend toward non-traditional offices (such as home-offices). The Company's ability to continually monitor and react to such trends and changes in end-user demands will be necessary to avoid adverse effects on its sales and profitability. In addition, the Company's financial results could be adversely affected if and to the extent that end-user demand for a broad product selection or the need for overnight delivery were to substantially diminish or end-user demand for a higher proportion of low margin products were to substantially increase. IMPACT OF CHANGING MANUFACTURERS' PRICES The Company maintains substantial inventories to accommodate the prompt service and delivery requirements of its customers. Accordingly, the Company purchases its products on a regular basis in an effort to maintain its inventory at levels that it believes to be sufficient to satisfy the anticipated needs of its customers based upon historic buying practices and market conditions. Although the Company has historically been able to pass through manufacturer price increases to its customers on a timely basis, competitive conditions will influence how much of future price increases can be passed on to the Company's customers. Conversely, when manufacturers' prices decline, lower sales prices could result in lower margins as the Company sells existing inventory. Changes in the prices paid by the Company for its products therefore could adversely affect the Company's net sales, gross margins and net income. 11 EFFECT OF CHANGES IN THE ECONOMY Demand for office products is affected by, among other things, white collar employment levels. Changes in the economy resulting in decreased white collar employment levels may therefore adversely affect the Company's operations and profitability. In addition, pricing and, to an extent, profitability of the Company's product offerings, generally decrease under deflationary economic conditions. Deflationary swings in the economy may therefore adversely affect the Company's profitability. EFFECTS OF THE MERGER Changes to the Company's product selection, ordering systems, pricing, marketing strategies and personnel effected in connection with the Company's consolidation plan may adversely affect the Company's relationship with certain resellers in the future and thereby adversely affect the Company's financial performance. SERVICE INTERRUPTIONS Substantially all of the Company's shipping, warehouse and maintenance employees at certain of the Company's facilities in Chicago, Detroit, Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City are covered by various collective bargaining agreements, 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 (including its ability to deliver its products readily) as well as the Company's results of operations and financial condition. Although the Company has been able to maintain its 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 has not experienced any work stoppages for the financial periods presented herein. The Company's ability to receive and deliver products is largely dependent on the availability of trucks utilized by manufacturers and the Company. 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. RESTRICTIONS ON PAYMENT OF DIVIDENDS The Company conducts its business through USSC and has no operations of its own. The primary asset of the Company is all of the capital stock of USSC. Consequently, the Company's sole source for cash from which to make dividend payments will be dividends distributed or other payments made to it by USSC. The right of the Company to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors of USSC. In addition, the Indenture and the Credit Agreement contain certain restrictive covenants, including covenants that restrict or prohibit USSC's ability to pay dividends and make other distributions to the Company. Any determination to declare and pay dividends will be made by the Board of Directors of the Company (the "Board of Directors") in light of the Company's earnings, financial position, capital requirements, credit agreements and such other factors as the Board of Directors deems relevant at the time. See "Common Stock Price Range and Dividend Policy" and "Description of Indebtedness." DEPENDENCE ON KEY PERSONNEL The Company's success relies on the efforts and abilities of its executive officers and certain other key employees, particularly Mr. Thomas W. Sturgess, the Company's Chairman of the Board, President and Chief Executive Officer, Mr. Daniel H. Bushell, an Executive Vice President and the Chief Financial Officer of the Company, and Mr. Michael D. Rowsey and Mr. Steven R. Schwarz, each an Executive Vice President of the Company, the loss of any of whom could have a material adverse effect on the Company. The Company has entered into employment agreements having terms ranging from two to three years with the executive officers listed above. The Company currently does not have any "key man" life insurance for its key personnel. 12 BENEFITS TO PRINCIPAL STOCKHOLDERS AND MANAGEMENT Wingate Partners, L.P. ("Wingate Partners"), Wingate Partners II, L.P. ("Wingate II"), Wingate Affiliates, L.P. ("Wingate Affiliates") and Wingate Affiliates II, L.P. ("Wingate Affiliates II" and, collectively with Wingate Partners, Wingate II and Wingate Affiliates, "Wingate") will receive an estimated $43.2 million in net proceeds from the sale of an aggregate of 1,988,740 shares of Common Stock by them hereby ($56.1 million if the Underwriters' over-allotment option is exercised in full). In addition, of the estimated $75.5 million of net proceeds to be received by the Company from the Offering, approximately $4.9 million will be used to redeem all shares of Series A Preferred Stock held by Wingate. See "Use of Proceeds" and "Certain Transactions--Redemption of Series A Preferred Stock." Mr. Sturgess, the Company's Chairman, President and Chief Executive Officer, is 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. Although Mr. Sturgess has not actively participated in the management of such entities since December 31, 1995, he will ultimately receive approximately $1.7 million ($2.1 million if the Underwriters' over- allotment option is exercised in full) of the proceeds from Wingate's sale of Common Stock in the Offering and the redemption of Series A Preferred Stock held by Wingate in connection therewith. In addition, several other Selling Stockholders presently serve as directors and/or executive officers of the Company (or formerly served as directors and/or executive officers of Associated). See "Certain Transactions--Interests of Certain Selling Stockholders" and "Principal and Selling Stockholders." Furthermore, the consummation of the Offering will cause Employee Stock Options held by management of the Company to become immediately exercisable upon stockholder approval. See "Certain Transactions--Stock Option and Award Grants." INFLUENCE OF CERTAIN STOCKHOLDERS As of the date of this Prospectus and after giving effect to the Offering, Wingate, Cumberland Capital Corporation ("Cumberland") and Mr. Daniel J. Good and his affiliates will beneficially own approximately 24.1%, 7.8% and 2.5%, respectively, of the outstanding shares of Common Stock (18.6%, 6.0% and 1.9%, respectively, if the Underwriters' over-allotment option is exercised in full). Four of the current nine directors of the Company are indirect general partners of Wingate Partners or Wingate II. In addition, Mr. Gary G. Miller, who is the President and a stockholder of Cumberland, and Mr. Good serve as directors of the Company. Consequently, such persons and their affiliates will continue to have significant influence over the policies of the Company and any matters submitted to a stockholder vote. See "Management--Directors and Executive Officers," "Certain Transactions" and "Principal and Selling Stockholders." POSSIBLE VOLATILITY OF STOCK PRICE As a result of the Acquisition, the number of publicly traded shares of Common Stock was reduced from approximately 37.2 million shares to approximately 2.8 million shares (in each case adjusted to give effect to the 100% stock dividend effective November 9, 1995). Consequently, the market price for Common Stock has been subject to greater volatility as a result of the reduced number of publicly traded shares. In addition, the market price for shares of the Common Stock has varied significantly and may be volatile depending on news announcements and changes in general market conditions. See "Common Stock Price Range and Dividend Policy." In particular, news announcements regarding quarterly or annual results of operations, competitive developments or litigation impacting the Company could cause significant fluctuations in the Company's stock price. IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE Future sales by existing stockholders could adversely affect the prevailing market price of the Common Stock. Upon consummation of this Offering, the Company will have 16,825,839 shares of Common Stock outstanding. In addition, 289,088 shares will be issuable upon exercise of outstanding Warrants and 2,591,768 shares will be issuable upon exercise of outstanding Employee Stock Options. Of the shares of Common Stock that will be outstanding after this Offering, approximately 10,470,832 shares (not including 289,088 shares issuable upon exercise of outstanding Lender Warrants) will be freely tradable without restriction or further registration under the Securities Act. Subject to Rule 144 under the Securities Act (as currently in effect), after 13 expiration of certain lock-up agreements between the Underwriters and the Company and certain of its officers and directors and stockholders (or earlier with the consent of the representative of the Underwriters), approximately 6,355,007 shares (5,305,007 shares if the Underwriters' over-allotment option is exercised in full) will become eligible at various times for sale in the public market beginning on March 31, 1997. In addition, certain stockholders and holders of Lender Warrants have previously been granted registration rights entitling them to demand, in certain circumstances, that the Company register the shares of Common Stock and/or Lender Warrants held by them for sale under the Securities Act. In connection therewith, the Company has effected a shelf registration with respect to all shares of Common Stock issuable upon exercise of the Lender Warrants and all shares of Nonvoting Common Stock (which will be converted into Common Stock prior to the Offering) held by Chase Bank (collectively representing an aggregate of 851,038 shares of Common Stock after the Offering). See "Certain Transactions--Registration Rights Agreements." The Company also intends to register under the Securities Act the shares of Common Stock issuable upon exercise of certain Employee Stock Options after the amendment to the plan under which such options were granted has received stockholder approval, which approval is expected to be obtained at the Company's annual meeting to be held in May 1996. Following the consummation of this Offering, sales of substantial amounts of Common Stock in the public market, pursuant to Rule 144 or otherwise, or the availability of such shares for sale, could adversely affect the prevailing market price of the Common Stock and impair the Company's ability to raise additional capital through the sale of equity securities. See "Shares Eligible for Future Sale." POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN DOCUMENTS Assuming the redemption of all of the outstanding shares of Preferred Stock with a portion of the proceeds of the Offering, the Company will have available for issuance 1.5 million shares of preferred stock, which the Board of Directors is authorized to issue, in one or more series, without any further action on the part of the Company's stockholders. Subject to limitations imposed by law or the Company's Restated Certificate of Incorporation (as amended from time to time, the "Charter"), the Board of Directors is empowered to determine the designation of and the number of shares constituting each series of preferred stock; the dividend rate for each series; the terms and conditions of any voting, conversion and exchange rights for each series; the amounts payable on each series upon redemption or the Company's liquidation, dissolution or winding-up; the provisions of any sinking fund for the redemption or purchase of shares of any series; and the preferences and the relative rights among the series of preferred stock. At the discretion of the Board of Directors, and subject to its fiduciary duties, the preferred stock could be used to deter any takeover attempt, by tender offer or otherwise. In addition, preferred stock could be issued with voting and conversion rights which could adversely affect the voting power and/or economic value to holders of Common Stock. The issuance of preferred stock could also result in a series of securities outstanding that would have preferences over the Common Stock with respect to dividends and in liquidation. Upon completion of this Offering and after giving effect to the use of the proceeds therefrom, no shares of preferred stock will be outstanding. The Company's Charter and Restated Bylaws (as amended from time to time, the "Bylaws") contain certain other provisions that may be deemed to have anti- takeover effects and may delay, deter or prevent a takeover attempt that a stockholder of the Company might consider to be in the best interests of the Company or its stockholders. See "Description of Capital Stock--Special Provisions of the Charter and Bylaws." In addition, the Indenture provides that, upon the occurrence of a change of control (which term includes the acquisition by any person or group of more than 50% of the voting power of the outstanding Common Stock or certain significant changes in the composition of the Board of Directors), the Company shall be obligated to offer to repurchase all outstanding Notes at a purchase price of 101% of the principal amount thereof. Such obligation, if it arose, could have a material adverse effect on the Company. Such provision could also delay, deter or prevent a takeover attempt. See "Description of Indebtedness--Notes." 14 THE COMPANY United's operating subsidiary, USSC, began operations in 1922 under the name Utility Supply Company, and has operated under its current name since 1960. In June 1992, United acquired Stationers Distributing Company, Inc. ("SDC"), a privately held office products wholesaler (the "SDC Acquisition"). SDC was based in Fort Worth, Texas, and operated 22 distribution facilities throughout the continental United States. Prior to such acquisition, SDC had annual revenues of more than $400 million. Associated was formed in January 1992 by an investor group led by Wingate Partners to effect the acquisition (the "Associated Transaction") of the wholesale office products division of Boise Cascade Office Products Corporation ("BCOP"). To further its geographical presence and increase market share, in October 1992 Associated acquired (the "Lynn-Edwards Acquisition") Lynn-Edwards Corp., a privately held office products wholesaler based in Sacramento, California ("Lynn-Edwards"). On March 30, 1995, Associated purchased 92.5% of the then-outstanding shares of pre-Merger United common stock for approximately $266.6 million in the aggregate pursuant to the Tender Offer. Immediately thereafter, Associated merged with and into United, and ASI merged with and into USSC, with the Company and USSC continuing as the respective surviving corporations. As a result of share conversions in the Merger, immediately after the Merger, (i) the former holders of common stock and common stock equivalents of Associated owned shares of Common Stock and warrants or options to purchase shares of Common Stock constituting in the aggregate approximately 80% of the shares of Common Stock on a fully diluted basis, and (ii) holders of pre-Merger United common stock owned in the aggregate approximately 20% of the shares of Common Stock on a fully diluted basis. As a result of the Merger, USSC assumed $430 million of indebtedness incurred by ASI in connection with the Acquisition. In order to refinance a portion of such indebtedness, USSC subsequently sold $150 million aggregate principal amount of its Notes. See "Description of Indebtedness." The principal executive offices of the Company are located at 2200 East Golf Road, Des Plaines, Illinois 60016-1267, telephone number (847) 699-5000. 15 USE OF PROCEEDS The net proceeds to the Company from this Offering (after deducting applicable underwriting discounts and estimated expenses payable by the Company) are estimated to be approximately $75.5 million. Such net proceeds will be used substantially as follows: (i) Approximately $7.8 million will be used to redeem all outstanding shares of Series A Preferred Stock (including accrued and unpaid dividends thereon through the date of such redemption); (ii) Approximately $11.1 million will be used to redeem all outstanding shares of Series C Preferred Stock (including accrued and unpaid dividends thereon through the date of such redemption); (iii) Approximately $56.4 million will be contributed to USSC to enable USSC to exercise its Equity Clawback Option (as defined under "Description of Indebtedness--Notes") and thereby redeem a portion of the outstanding Notes and pay the redemption premium thereon of approximately $6.4 million; and (iv) Any remaining net proceeds to the Company will be used to pay certain fees and expenses incurred in connection with the consummation of the Offering, including a $0.9 million fee payable to Chase Bank and other senior lenders in connection with a waiver of certain provisions of the Credit Agreement in order to permit the application of the Company's net proceeds from the Offering as described in this Prospectus. The redemption of Preferred Stock and Notes described above will be effected as soon as practicable following consummation of the Offering. Pending such redemptions, the Company will use the net proceeds allocated to such redemptions to temporarily reduce borrowings outstanding under the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility"). The Notes mature on May 1, 2005, and bear interest at the rate of 12 3/4% per annum, payable semi-annually on May 1 and November 1 of each year. See "Description of Indebtedness--Notes" for a description of additional provisions of the Notes and the Company's use of the proceeds therefrom. A portion of the Series A Preferred Stock to be redeemed by the Company is beneficially owned by Wingate and certain directors and executive officers of the Company (including Thomas W. Sturgess, Chairman of the Board, President and Chief Executive Officer of the Company), some of whom are also Selling Stockholders. See "Certain Transactions--Interests of Certain Selling Stockholders" and "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of 3,500,000 shares of Common Stock by the Selling Stockholders. 16 COMMON STOCK PRICE RANGE AND DIVIDEND POLICY The Common Stock is quoted through the Nasdaq National Market under the symbol "USTR." The following table sets forth on a per share basis, for the periods indicated, the high and low closing sale prices per share for the Common Stock as reported by the Nasdaq National Market. All stock price information has been restated to reflect the 100% stock dividend effective November 9, 1995.
HIGH LOW ------- ------- 1995 First Quarter........................................ * * Second Quarter....................................... $ 9 5/16 $ 8 9/16 Third Quarter........................................ $15 1/2 $ 8 11/16 Fourth Quarter....................................... $27 3/4 $13 1/4 1996 First Quarter (through February 12, 1996)............ $30 1/4 $22 3/4
- -------- * Due to the significant changes in the Company's capital structure resulting from the Merger, stock price information for periods prior to the Merger has not been included as it is not comparable to the stock price information since the Merger. On February 12, 1996, the last reported sale price of the Common Stock as quoted on the Nasdaq National Market was $22.75 per share, and there were approximately 1,084 holders of record of Common Stock. The Company does not currently intend to pay any cash dividends on the Common Stock. Furthermore, as a holding company, the ability of the Company to pay dividends in the future is dependent upon the receipt of dividends or other payments from its operating subsidiary, USSC. The payment of dividends by USSC to the Company for purposes of paying dividends to holders of Common Stock is effectively prohibited by the Credit Agreement and the Indenture. See "Risk Factors--Restrictions on Payment of Dividends" and "Description of Indebtedness." 17 CAPITALIZATION The following table sets forth the unaudited capitalization of the Company at December 31, 1995 and at December 31, 1995 as adjusted to give effect to (i) the issuance and sale by the Company of shares of Common Stock offered hereby at an assumed public offering price of $22.85 per share and the application of the net proceeds therefrom to (A) redeem all of the outstanding shares of Preferred Stock and (B) to redeem a portion of the outstanding Notes, (ii) the exercise of Warrants and conversion of shares of Nonvoting Common Stock into shares of Common Stock by certain Selling Stockholders in connection with the Offering and (iii) termination of the put feature of the Lender Warrants resulting from the consummation of the Offering. See "Use of Proceeds" and "Principal and Selling Stockholders." The table set forth below should be read in conjunction with the Consolidated Financial Statements and Unaudited Pro Forma Financial Statements of the Company, together with the related notes thereto, included elsewhere herein.
AT DECEMBER 31, 1995 ---------------------- HISTORICAL AS ADJUSTED ---------- ----------- (DOLLARS IN THOUSANDS) Current maturities of long-term debt and capital leases................................................. $ 23,886 $ 23,886 -------- -------- Long-term debt, excluding current maturities: Revolving credit facility............................. 185,000 186,163 Term loan facilities.................................. 159,153 159,153 12 3/4% Senior Subordinated Notes due 2005............ 150,000 100,000 Other long-term debt and capital leases............... 33,951 33,951 -------- -------- Total long-term debt and capital leases............. 528,104 479,267 -------- -------- Redeemable preferred stock: Series A.............................................. 7,437 -- Series C.............................................. 10,604 -- -------- -------- Total redeemable preferred stock.................... 18,041 -- -------- -------- Redeemable warrants(1).................................. 39,692 -- -------- -------- Stockholders' equity: Common stock, $0.10 par value; 40,000,000 shares au- thorized; 11,446,306 shares issued and outstanding; 16,825,839 shares issued and outstanding as adjust- ed(1)(2)(3).......................................... 1,145 1,680 Nonvoting common stock, $0.01 par value; 5,000,000 shares authorized; 758,994 shares issued and outstanding; no issued and outstanding shares as adjusted(3)(4)... 8 -- Additional paid in capital............................ 28,871 166,985 Lender warrants(1).................................... -- 8,022 Retained earnings (accumulated deficit)............... -- (25,681) -------- -------- Total stockholders' equity.......................... 30,024 151,006 -------- -------- Total capitalization (including current maturities of long-term debt and capital leases)...................................... $639,747 $654,159 ======== ========
- -------- (1) Immediately prior to the Offering, Lender Warrants exercisable for an aggregate of 938,350 shares of Common Stock and Preferred B Warrants exercisable for an aggregate of 182,189 shares of Common Stock will be exercised by certain Selling Stockholders. See "Principal and Selling Stockholders." The Lender Warrants have a put feature that will terminate upon the consummation of the Offering. See "Description of Capital Stock-- Lender Warrants." (2) Does not include (i) 2,591,768 shares of Common Stock issuable upon exercise of Employee Stock Options, (ii) 1,409,627 shares (289,088 shares on an as adjusted basis) of Common Stock issuable upon exercise of Warrants and (iii) 758,994 shares (no shares on an as adjusted basis) of Common Stock issuable upon conversion of outstanding shares of Nonvoting Common Stock. See "Description of Capital Stock--Capital Stock of the Company." (3) Immediately prior to the Offering, all shares of Nonvoting Common Stock will be converted into shares of Common Stock (on a one-for-one basis) by certain Selling Stockholders. See "Principal and Selling Stockholders." (4) Does not include 1,227,438 shares (289,088 shares on an as adjusted basis) of Nonvoting Common Stock issuable upon exercise of Lender Warrants. Lender Warrants are exercisable for shares of either Common Stock or Nonvoting Common Stock at the option of the holder thereof. See "Description of Capital Stock--Lender Warrants." 18 UNAUDITED PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma financial statements are based on the historical financial statements of the Company and its predecessors. The pro forma income statement gives effect to (i) the Acquisition and other Merger- related adjustments, (ii) the refinancing of certain debt effected in May 1995 and the Series B Repurchase effected with the proceeds of the Notes, (iii) the Offering and application of the Company's net proceeds therefrom primarily to redeem all outstanding shares of Preferred Stock and to redeem a portion of the Notes, and (iv) the exercise of certain Warrants and conversion of shares of Nonvoting Common Stock into shares of Common Stock by certain Selling Stockholders in connection with the Offering, all as described in the Notes to Unaudited Pro Forma Financial Statements included elsewhere herein, as if all such transactions were effected on January 1, 1995. Although the Company was the surviving corporation in the Merger, the Acquisition was treated as a reverse acquisition for accounting purposes, with Associated as the acquiring corporation. Accordingly, the pro forma income statement combines the audited consolidated income statement of the Company for the year ended December 31, 1995 (which includes the twelve month results of operations of Associated but excludes United for the three months ended March 30, 1995) and the unaudited consolidated income statement of United for the three months ended March 30, 1995. The pro forma balance sheet is presented giving effect solely to (i) the Offering and the application of the Company's net proceeds therefrom as described in this Prospectus and (ii) the exercise of certain Warrants and conversion of shares of Nonvoting Common Stock into shares of Common Stock by certain Selling Stockholders in connection with the Offering as if these transactions were effected on December 31, 1995. The pro forma income statement does not include any adjustments for the portion of estimated Merger-related cost savings which were not realized by the Company in fiscal year 1995. At the time of the Merger, management estimated that synergies from the integration and consolidation of Associated's and United's operations after the Merger would result in annualized cost savings of approximately $26.0 million, and developed a detailed twelve-month plan to achieve such cost savings. The consolidation plan is expected to be substantially completed by March 30, 1996, and management believes that the full $26.0 million of annualized savings will be realized. The pro forma income statement data for 1995 excludes the following nonrecurring charges for fiscal year 1995: (i) extraordinary charge of approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) due to the write-off of Associated's pre-Merger financing costs and original issue discount, (ii) restructuring charge of approximately $9.8 million ($5.9 million net of tax benefit of $3.9 million) for costs incurred and expected to be incurred subsequent to the Merger 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 Associated's employee stock options of approximately $1.5 million ($0.9 million net of tax benefit of $0.6 million) recognized as a result of the Acquisition. Also excluded is $27.8 million of Merger-related expenses recognized by United during the three months ended March 30, 1995. The pro forma income statement data for 1995 also excludes the following nonrecurring charges expected to be recognized in 1996 relating to the anticipated completion of the Offering and application of the Company's net proceeds therefrom: (i) a noncash charge of approximately $31.7 million ($19.0 million net of tax benefit of $12.7 million) in compensation expense arising because certain Employee Stock Options will become exercisable upon consummation of the Offering, and (ii) a nonrecurring charge of approximately $11.1 million ($6.7 million net of tax benefit of $4.4 million), which charge includes (A) a $6.4 million redemption premium relating to the redemption of a portion of the outstanding Notes, (B) a $3.8 million noncash write-off of deferred financing costs related to such redemption and (C) $0.9 million in fees payable to Chase Bank and other senior lenders to permit the application of the Company's net proceeds from the Offering as described in this Prospectus. The compensation expense described in (i) above is based on options outstanding at January 31, 1996 and a stock price of $22.75 as of February 12, 1996. Each $1.00 change in the Common Stock price will result in an adjustment to such compensation expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0 million). See "Certain Transactions--Option and Restricted Stock Awards" and "--Interests of Certain Persons in the Offering." For pro forma balance sheet purposes, these nonrecurring charges have been reflected. 19 The unaudited pro forma financial statements are intended for informational purposes only and are not necessarily indicative of the future financial position or future results of operations of the Company after the Offering, or of the financial position or results of operations of the Company that would have actually occurred had the Acquisition, the Merger, the refinancing of certain debt and the Series B Repurchase effected with a portion of the proceeds of the Notes, the Offering and the application of the Company's net proceeds therefrom as described in this Prospectus and the exercise of certain Warrants and conversion of shares of Nonvoting Common Stock into shares of Common Stock by certain Selling Stockholders in connection with the Offering occurred on the date or at the beginning of the period presented. The unaudited pro forma financial statements and the accompanying notes should be read in conjunction with, and are qualified in their entirety by, the Consolidated Financial Statements of the Company and its predecessors, together with the related notes thereto, included elsewhere herein. UNITED STATIONERS INC. UNAUDITED PRO FORMA BALANCE SHEET AT DECEMBER 31, 1995 (DOLLARS IN THOUSANDS)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ASSETS Current assets: Cash and cash equivalents............... $ 11,660 $ -- $ 11,660 Accounts receivable..................... 265,827 -- 265,827 Inventories............................. 381,618 -- 381,618 Other................................... 30,903 -- 30,903 ---------- -------- -------- Total current assets.................. 690,008 -- 690,008 Net property, plant and equipment......... 199,981 -- 199,981 Goodwill, net............................. 77,786 -- 77,786 Other..................................... 33,608 (3,769)(a) 29,839 ---------- -------- -------- Total Assets.......................... $1,001,383 $ (3,769) $997,614 ========== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt and capital leases......................... $ 23,886 $ -- $ 23,886 Accounts payable........................ 194,567 -- 194,567 Accrued expenses........................ 107,622 (1,062)(b) 106,560 Accrued income taxes.................... 8,468 (4,421)(c) 4,047 ---------- -------- -------- Total current liabilities............. 334,543 (5,483) 329,060 Deferred income taxes..................... 34,380 (12,698)(d) 21,682 Long-term obligations: Long-term debt.......................... 526,198 (48,837)(e) 477,361 Deferred obligations and other liabili- ties................................... 18,505 -- 18,505 Redeemable preferred stock................ 18,041 (18,041)(f) -- Redeemable warrants....................... 39,692 (39,692)(g) -- Stockholders' equity...................... 30,024 120,982 (h) 151,006 ---------- -------- -------- Total Liabilities and Stockholders' Equity .............................. $1,001,383 $ (3,769) $997,614 ========== ======== ========
See accompanying Notes to Unaudited Pro Forma Financial Statements. 20 UNITED STATIONERS INC. UNAUDITED PRO FORMA INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA THE COMPANY UNITED ADJUSTMENTS PRO FORMA FOR THE FOR THE THREE RELATING TO THE ADJUSTMENTS YEAR ENDED MONTHS ENDED ACQUISITION AND PRO FORMA RELATING DECEMBER 31, MARCH 30, THE ISSUANCE OF PRIOR TO TO THE 1995 1995 THE NOTES THE OFFERING OFFERING PRO FORMA ------------ ------------- --------------- ------------ ----------- ----------- INCOME STATEMENT DATA: Net sales.............. $ 1,751,462 $450,398 $ -- $ 2,201,860 $ -- $ 2,201,860 Cost of goods sold..... 1,370,522 355,499 -- 1,726,021 -- 1,726,021 ----------- -------- ------- ----------- ------- ----------- Gross profit........... 380,940 94,899 -- 475,839 -- 475,839 Operating expenses: Warehousing, marketing and administrative expenses............ 313,624 80,863 (57)(i) 394,430 -- 394,430 Merger-related costs............... -- 27,780 (27,780)(j) -- -- -- Restructuring charge.............. 9,759 -- (9,759)(k) -- -- -- ----------- -------- ------- ----------- ------- ----------- Total operating expenses.......... 323,383 108,643 (37,596) 394,430 -- 394,430 ----------- -------- ------- ----------- ------- ----------- Income (loss) from op- erations.............. 57,557 (13,744) 37,596 81,409 -- 81,409 Interest expense, net................... 46,186 3,372 9,114 (l) 58,672 (7,719)(p) 50,953 ----------- -------- ------- ----------- ------- ----------- Income (loss) before income taxes (benefit) and extraordinary item.... 11,371 (17,116) 28,482 22,737 7,719 30,456 Income taxes (bene- fit).................. 5,128 (1,207) 5,753 (m) 9,674 3,088 (m) 12,762 ----------- -------- ------- ----------- ------- ----------- Income (loss) before extraordinary item.... 6,243 (15,909) 22,729 13,063 4,631 17,694 Extraordinary item(1)............... (1,449) -- 1,449 (n) -- -- -- ----------- -------- ------- ----------- ------- ----------- Net income (loss)...... 4,794 (15,909) 24,178 13,063 4,631 17,694 Preferred stock dividends issued and accrued............. 1,998 -- (332)(o) 1,666 (1,666)(q) -- ----------- -------- ------- ----------- ------- ----------- Net income (loss) attributable to common stockholders... $ 2,796 $(15,909) $24,510 $ 11,397 $ 6,297 $ 17,694 =========== ======== ======= =========== ======= =========== Net income (loss) per common and common equivalent share (primary and fully diluted): Income before extraordinary item.. $ 0.33 $ 1.00 Extraordinary item... (.11) -- ----------- ----------- Net income per common and common equivalent share.... $ 0.22 $ 1.00 =========== =========== Average number of common shares used in primary calcula- tion................ 12,809,212 17,633,011 =========== =========== Average number of common shares used in fully diluted calculation......... 12,913,229 17,633,011 =========== =========== OPERATING DATA: EBITDA(2).............. $ 81,241 $ 111,880 EBITDA margin(3)....... 4.6% 5.1%
- -------- (1) Loss on early retirement of debt, net of tax benefit of $1.0 million. (2) EBITDA is defined as earnings before interest, taxes, depreciation and amortization and extraordinary item and is presented because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance. EBITDA should not be considered in isolation from, or as a substitute for, net income, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. (3) EBITDA margin represents EBITDA as a percentage of net sales. See accompanying Notes to Unaudited Pro Forma Financial Statements. 21 UNITED STATIONERS INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS The pro forma financial statements have been prepared giving effect to the following: (1) Associated acquired 92.5% of United's outstanding shares for approximately $266.6 million. Outstanding options to purchase United's shares were retired for approximately $3.0 million. Prior to the Acquisition, certain stockholders of Associated and their affiliates purchased shares of Associated common stock for $12.0 million. As a result of the Acquisition, stockholders of United whose shares were not acquired in the Tender Offer held a 20.0% ownership interest in the Company on a fully diluted basis immediately after the Acquisition. Chase Manhattan Investment Holdings, Inc. ("CMIHI"), an affiliate of Chase Bank, the agent and a lender under the Credit Agreement, received from the Company a 2.0% ownership interest in the Company on a fully diluted basis immediately after the Merger and received from the pre-Merger holders of Associated common stock an additional 2.0% ownership interest immediately after the May 1995 issuance of the Notes. The remaining 76.0% of the Common Stock on a fully diluted basis immediately after the May 1995 issuance of the Notes was held by former holders of Associated common stock, warrants and options. Shares of Associated common stock were converted into shares of Common Stock as a result of the Merger. (2) The total purchase price for the United common stock in the Acquisition, including the ownership interest held by the pre-Merger stockholders of United and transaction costs of $6.2 million, was approximately $294.5 million. The purchase price was allocated to the net assets of United based on fair values at the date of the Acquisition with the excess of cost over fair value allocated to goodwill. The purchase price allocation to property, plant and equipment is being amortized over the estimated useful lives ranging from 3 to 40 years and goodwill is being amortized over 40 years. The total purchase price of United by Associated and its allocation to assets and liabilities acquired are as follows (dollars in thousands): Purchase price: Price of United shares purchased by Associated................... $266,629 Fair value of United shares not acquired by Associated........... 21,618 Transaction costs................................................ 6,309 -------- Total purchase price............................................. $294,556 ======== Allocation of purchase price: Current assets................................................... $542,993 Property, plant and equipment.................................... 151,012 Goodwill......................................................... 74,503 Other assets..................................................... 7,699 Liabilities assumed.............................................. (481,651) -------- Total purchase price............................................. $294,556 ========
(3) The Offering price for the shares of Common Stock is assumed to be $22.85 per share. (4) The pro forma balance sheet reflects a noncash charge of approximately $31.7 million ($19.0 million net of tax benefit of $12.7 million) in compensation expense to be recognized because certain Employee Stock Options will become exercisable upon consummation of the Offering. Such compensation expense is based on options outstanding at January 31, 1996 and stock price information as of February 12, 1996. Each $1.00 change in the Common Stock price will result in an adjustment to such compensation expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0 million). See "Certain Transactions--Option and Restricted Stock Awards." For pro forma income statement purposes, this one-time nonrecurring noncash charge has been excluded. 22 (5) The variable portion of pro forma interest expense is based on historical interest rates in effect during the year ended December 31, 1995 and approximates that based on current interest rates. Each 1/8 of 1% change in the base interest rate for variable rate debt has a $0.4 million effect on annual pro forma interest expense for the Company, without giving effect to the impact of any interest rate protection agreements. (6) Income taxes have been provided for pro forma adjustments relating to the Acquisition and the issuance of Notes at historical rates and for pro forma adjustments relating to the Offering at 40.0%. Pro forma adjustments have been made to the Pro Forma Balance Sheet to reflect solely the following effects of the Offering and use of proceeds therefrom: (a) Write-off of deferred financing costs relating to the redemption of a portion of the Notes. (b) Payment of accrued interest in conjunction with redemption of a portion of the Notes using a portion of the proceeds of the Offering. (c) Adjustment to current income tax liability for tax effect of write-off of deferred financing costs and payment of redemption premium. (d) Adjustment to deferred taxes to reflect tax effect of compensation expense relating to Employee Stock Options. (e) Redemption of $50.0 million aggregate principal amount of Notes using a portion of the proceeds of the Offering and additional borrowings under the Revolving Credit Facility of $1.2 million to pay accrued interest on the Notes through the date of redemption and a portion of the fees payable to Chase Bank and the other senior lenders. (f) Redemption of all of the outstanding shares of Preferred Stock, together with accrued and unpaid dividends thereon through the date of such redemption using a portion of the proceeds of the Offering. (g) Exercise of a portion of the Lender Warrants and termination of the put feature of the remaining portion of the Lender Warrants.
(DOLLARS IN THOUSANDS) ---------- (h)Issuance of shares of Common Stock by the Company in conjunction with the Offering (net of underwriting discounts and commissions)................................................... $ 75,985 Adjustment to additional paid in capital for Offering-related fees.. (475) Adjustment to Common Stock and additional paid in capital due to exercise of certain Lender Warrants............................ 31,670 Reclassification of Lender Warrants not exercised due to termination of the put feature............................................. 8,022 Adjustment to Employee Stock Options (see (4) above)................ 31,746 Adjustment to retained earnings for compensation expense relating to Employee Stock Options (net of tax effect of $12,698).......... (19,048) Adjustment to retained earnings due to loss on early retirement of debt (net of tax effect of $4,421)............................. (6,633) Accrual of preferred stock dividends................................ (285) Conversion of Shares of Nonvoting Common Stock into Shares of Common Stock by certain Selling Stockholders in connection with the Offering....................................................... -- --------- $ 120,982 =========
Pro forma adjustments have been made to the Pro Forma Income Statement to reflect the following (dollars in thousands): (i) Assuming the Acquisition was effected on January 1, 1995: Incremental amortization of goodwill............................... $ 166 Incremental depreciation of plant, property and equipment.......... 1,277 Elimination of non-recurring compensation expense relating to Employee Stock Options recognized as a result of the Acquisition.. (1,500) ------ $ (57) ======
23 (j) Elimination of non-recurring Merger-related expenses recognized by United. (k) Elimination of non-recurring charge for restructuring costs incurred or expected to be incurred in connection with integration and consolidation subsequent to the Acquisition. (l) Incremental interest expense on debt and elimination of amortization of financing costs and original issue discount relating to retired debt (assuming that (i) the Acquisition and (ii) the issuance of the Notes and use of proceeds therefrom were each effected on January 1, 1995). (m) Income tax effect of the pro forma adjustments. (n) Eliminates effects of the May 1995 nonrecurring write-off of deferred financing costs and original issue discount relating to debt which was retired. (o) Adjustment of preferred stock dividends for the Series B Repurchase. (p) Adjustment to interest expense for the redemption of a portion of the Notes using a portion of the proceeds of the Offering. (q) Adjustment of preferred stock dividends for redemption of all of the outstanding shares of Preferred Stock using a portion of the proceeds of the Offering. 24 SELECTED CONSOLIDATED FINANCIAL DATA Set forth below and on the following pages is selected historical consolidated financial data for the Company and its predecessors. Although the Company was the surviving corporation in the Merger, the Acquisition was treated as a reverse acquisition for accounting purposes, with Associated as the acquiring corporation. Therefore, the income statement and operating and other data for the year ended December 31, 1995 reflect the financial information of Associated only for the three months ended March 31, 1995 and the results of the Company for the nine months ended December 31, 1995. The balance sheet data at December 31, 1995 reflects the consolidated balances of the Company, including various Merger-related adjustments. THE COMPANY/ASSOCIATED The selected consolidated financial data of Associated's predecessor set forth below for the fiscal year ended December 31, 1991 and for the one-month period ended January 31, 1992 (when the Associated Transaction was consummated) are derived from the unaudited financial statements of Associated's predecessor for such periods. Associated accounted for the Associated Transaction using the purchase method of accounting. There are material operational and accounting differences between Associated's predecessor and Associated resulting from the Associated Transaction. Accordingly, the historical financial data of Associated's predecessor may not be comparable in all material respects with data of Associated. The selected consolidated financial data of Associated set forth below for the period from January 31, 1992 to December 31, 1992 and for the fiscal years ended December 31, 1993 and 1994 has been derived from the consolidated financial statements of Associated which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data of the Company for the fiscal year ended December 31, 1995 (which for income statement and operating and other data includes Associated only for the three months ended March 30, 1995 and the results of the Company for the nine months ended December 31, 1995) has been derived from the consolidated financial statements of the Company which have been audited by Ernst & Young LLP, independent auditors. All selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Historical Results of Operations of the Company/Associated" and "--Liquidity and Capital Resources of the Company" and the Consolidated Financial Statements of the Company and Associated, together with the related notes thereto, included elsewhere herein. 25
PREDECESSOR(1)(2) ASSOCIATED THE COMPANY ------------------------ ------------------------------- ------------ JANUARY 1 JANUARY 31 YEAR ENDED TO TO YEAR ENDED YEAR ENDED DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ----------- ------------ ------------------ ------------ 1991(3) 1992(4) 1992 1993 1994 1995 ------------ ----------- ------------ -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales............... $411,343 $39,016 $359,779 $455,731 $470,185 $1,751,462 Cost of goods sold...... 308,090 29,874 276,546 350,251 357,276 1,370,522 -------- ------- -------- -------- -------- ---------- Gross profit........... 103,253 9,142 83,233 105,480 112,909 380,940 Operating expenses(5)... 88,374 7,723 72,880 94,502 94,788 323,383 -------- ------- -------- -------- -------- ---------- Income from opera- tions................. $ 14,879 $ 1,419 10,353 10,978 18,121 57,557 ======== ======= Interest expense, net... 5,626 7,235 7,725 46,186 -------- -------- -------- ---------- Income before income taxes and extraordinary item.... 4,727 3,743 10,396 11,371 Income taxes............ 1,777 781 3,993 5,128 -------- -------- -------- ---------- Income before extraor- dinary item........... 2,950 2,962 6,403 6,243 Extraordinary item(6)... -- -- -- (1,449) -------- -------- -------- ---------- Net income.............. $ 2,950 $ 2,962 $ 6,403 $ 4,794 ======== ======== ======== ========== Net income attributable to common stockhold- ers.................... $ 1,501 $ 915 $ 4,210 $ 2,796 ======== ======== ======== ========== Net income per common and common equivalent share (primary and fully diluted) Income before extraor- dinary item........... $ 0.19 $ 0.11 $ 0.51 $ 0.33 Extraordinary item..... -- -- -- (0.11) -------- -------- -------- ---------- Net income............. $ 0.19 $ 0.11 $ 0.51 $ 0.22 ======== ======== ======== ========== Cash dividends declared per share.............. -- -- -- -- -- -- OPERATING AND OTHER DA- TA: EBITDA(7)............... $ 18,028 $ 1,661 $ 14,875 $ 16,481 $ 23,505 $ 81,241 EBITDA margin(8)........ 4.4% 4.3% 4.1% 3.6% 5.0% 4.6%(9) Depreciation and amorti- zation(10)............. $ 3,149 $ 242 $ 4,522 $ 5,503 $ 5,384 $ 23,684 Capital expenditures, net.................... 273 (36) 4,289 3,273 554 8,017
THE PREDECESSOR(1) ASSOCIATED COMPANY -------------- -------------------------- ---------- AT DECEMBER 31, ---------------------------------------------------- 1991(3) 1992 1993 1994 1995 -------------- -------- -------- -------- ---------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital.......... $ 54,373 $ 46,396 $ 57,302 $ 56,454 $ 355,465 Total assets............. 140,756 179,069 190,979 192,479 1,001,383 Total debt and capital leases(11).............. -- 78,297 86,350 64,623 551,990 Redeemable preferred stock................... -- 18,949 20,996 23,189 18,041 Redeemable warrants...... -- 1,435 1,435 1,650 39,692 Total stockholders' or predecessor division eq- uity.................... 93,642 10,466 11,422 24,775 30,024
- -------- (1) The capital structure and accounting basis of the assets and liabilities of Associated's predecessor differ from those of Associated and the Company. 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) Associated's predecessor operated as a division 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 Associated's predecessor at and for the year ended December 31, 1991. (4) Derived from the unaudited financial statements of Associated's predecessor for the one month ended January 31, 1992. (5) Includes restructuring charge of $9.8 million for the year ended December 31, 1995. (6) Loss on early retirement of debt, net of tax benefit of $1.0 million. (7) EBITDA is defined as earnings before interest, taxes, depreciation and amortization and extraordinary item and is presented because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. (8) EBITDA margin represents EBITDA as a percentage of net sales. (9) EBITDA margin for the year ended December 31, 1995 would have been 5.2% if adjusted to exclude restructuring charge. (10) Excludes amortization of deferred financing costs. (11) Total debt and capital leases includes current maturities. 26 UNITED The selected consolidated financial data of United set forth below for each of the fiscal years in the four-year period ended August 31, 1994 has been derived from the consolidated financial statements of United which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data of United for the seven months ended March 30, 1995 (at which time United and Associated merged to create the Company) has been derived from the financial statements of United which have been audited by Ernst & Young LLP, independent auditors. The selected consolidated financial data at and for the seven-month period ended March 31, 1994 is unaudited and in the opinion of management reflects all adjustments considered necessary for a fair presentation of such data. All selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Historical Results of Operations of United" and "--Historical Liquidity and Capital Resources of United" and the Consolidated Financial Statements of United, together with the related notes thereto, included elsewhere herein.
SEVEN MONTHS YEAR ENDED AUGUST 31, ENDED -------------------------------------------- -------------------- MARCH 31, MARCH 30, 1991 1992 1993 1994 1994 1995 -------- ---------- ---------- ---------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) INCOME STATEMENT DATA: Net sales............... $951,109 $1,094,275 $1,470,115 $1,473,024 $871,585 $980,575 Cost of sales........... 732,401 848,588 1,125,596 1,150,123 675,720 773,857 -------- ---------- ---------- ---------- -------- -------- Gross profit on sales................ 218,708 245,687 344,519 322,901 195,865 206,718 Operating expenses...... 195,694 219,285 298,405 286,607 170,420 174,021 Merger-related costs.... -- -- -- -- -- 27,780(1) -------- ---------- ---------- ---------- -------- -------- Income from operations........... 23,014 26,402 46,114 36,294 25,445 4,917 Interest expense, net... 6,082 6,503 9,550 10,461 5,837 7,500 Other income (expense), net.................... (14) 364 355 225 117 41 -------- ---------- ---------- ---------- -------- -------- Income (loss) before income taxes......... 16,918 20,263 36,919 26,058 19,725 (2,542) Income taxes............ 7,008 8,899 15,559 10,309 8,185 4,692 -------- ---------- ---------- ---------- -------- -------- Net income (loss)..... $ 9,910 $ 11,364 $ 21,360 $ 15,749 $ 11,540 $ (7,234) ======== ========== ========== ========== ======== ======== Net income (loss) per common share........... $ 0.64 $ 0.71 $ 1.15 $ 0.85 $ 0.62 $ (0.39) Cash dividends declared per share.............. 0.40 0.40 0.40 0.40 0.30 0.30 OPERATING AND OTHER DATA: EBITDA(2)............... 41,912 46,645 67,712 57,755 37,665 17,553 EBITDA margin(3)........ 4.4% 4.3% 4.6% 3.9% 4.3% 1.8% Depreciation and amortization........... $ 18,912 $ 19,879 $ 21,243 $ 21,236 $ 12,103 $ 12,595 Net capital expenditures........... 15,765 8,291 29,958 10,499 4,287 7,764 BALANCE SHEET DATA (AT PERIOD END): Working capital......... 135,347 214,611 216,074 239,827 297,099 257,600 Total assets............ 409,958 601,465 634,786 618,550 608,728 711,839 Total debt and capital leases(4).............. 73,123 150,728 150,251 155,803 227,626 233,406 Stockholders' investment............. 181,584 223,387 237,697 246,010 243,636 233,125
- -------- (1) In connection with the Merger, United incurred approximately $27.8 million of Merger-related costs, consisting of severance payments under employment contracts ($9.6 million); insurance benefits under employment contracts ($7.4 million); legal, accounting and other professional services fees ($5.2 million); retirement of stock options ($3.0 million); and fees for letters of credit related to employment contracts and other costs ($2.6 million). 27 (2) EBITDA is defined as earnings before interest, taxes, depreciation and amortization and is presented because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. (3) EBITDA margin represents EBITDA as a percentage of net sales. (4) Total debt and capital leases includes current maturities. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On March 30, 1995, Associated merged with and into United. 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. Therefore, the results of operations for the year ended December 31, 1995 reflects the financial information of Associated only for the three months ended March 31, 1995 and the results of the Company for the nine months ended December 31, 1995. As a result of the Merger, the results of operations of the Company for the year ended December 31, 1995 are not comparable to those of previous periods. To facilitate a meaningful comparison, the following supplemental discussion and analysis is based on certain components of the combined historical results of operations without any pro forma adjustments for Associated and United for the years ended December 31, 1993 and 1994 and on the pro forma results of operations for the Company for the year ended December 31, 1995. The pro forma results of operations do not purport to be indicative of the results that would have been obtained had such transactions been completed for the periods presented or that may be obtained in the future. The following information should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements of the Company and its predecessors, together with the related notes thereto, included elsewhere herein. GENERAL COMMENTS Gross Profit Margins. Recently, a number of factors have adversely affected gross profit margins in the office products industry, including those of the Company. These factors reflect the increasingly competitive nature of the industry. Competitive pressures have increased due in part to the growth of large resellers such as national office products superstores that have heightened price awareness at the end-user level. The increasing price sensitivity of end-users has contributed to the decline in industrywide gross profit margins. These pressures are expected to continue in the future. The Company's gross profit margins vary across product categories, so that material changes in its product mix can impact the Company's overall margin. For example, the gross profit margin on the Company's sales of commodity products, such as copier paper and laser printer toner--product categories that have grown over the past few years--tend to be lower than the gross profit margins on most other product categories. While the recent increases in sales of these types of products have adversely affected the Company's overall gross profit margin, they have contributed to higher operating income. The Company expects such sales to increase as a percentage of revenues in the future. Restructuring Charge. In the first quarter of 1995, the Company recorded a restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9 million). The restructuring charge includes severance costs totaling $1.8 million. The Company's consolidation plan specifies that 330 distribution, sales and corporate positions, 180 of which relate to pre-Merger Associated, will be eliminated substantially within the one-year period following the Merger. As of December 31, 1995, approximately 90 former Associated employees had been terminated, with the related termination costs of approximately $1.0 million charged against the reserve. The restructuring charge also includes distribution center closing costs totaling $6.7 million and stockkeeping unit reduction costs totaling $1.3 million. The consolidation plan calls for the closing of eight redundant distribution centers, six of which relate to pre- Merger Associated facilities, and the elimination of overlapping inventory items from the Company's catalogs substantially within the one-year period following the Merger. Distribution center closing costs include (i) the net occupancy costs of leased facilities after they are vacated until expiration of leases and (ii) the losses on the sale of owned facilities and the facilities' furniture, fixtures and equipment. Stockkeeping unit reduction costs include losses on the sale of inventory items which have been discontinued solely as a result of the Acquisition. As of December 31, 1995, $0.4 million relating to distribution center closing costs had been charged against the reserve. See Note 4 to the Consolidated Financial Statements of the Company included elsewhere herein. 29 Employee Stock Options. In September 1995, the Board of Directors approved, subject to stockholder approval, an amendment to its employee stock option plan (the "Plan") that allows for the issuance of Employee Stock Options to key management employees of the Company exercisable for up to approximately 2.2 million additional shares of Common Stock. The Plan was designed to build increased employee commitment through participation in the growth and performance of the Company. Subsequently, Employee Stock Options exercisable for an aggregate of approximately 2.2 million shares of Common Stock were granted (subject to stockholder approval of the Plan amendment) to key management employees. The Employee Stock Options were granted at an exercise price below the then fair market value of the Common Stock. The exercise price of certain of such options is subject to increases on a quarterly basis beginning in 1996. See "Certain Transactions--Option and Restricted Stock Awards." The Company's stockholders will vote to approve such Plan amendment at the Company's annual meeting to be held in May 1996. The Employee Stock Options granted under the Plan do not vest to the employee until the occurrence of an event (a "Vesting Event") that causes the present non-public equity investors to have received at least a full return of their investment (at cost) in cash, fully tradable marketable securities or the equivalent. A Vesting Event will cause the Company to recognize compensation expense based upon the difference between the fair market value of the Common Stock and the exercise price of the Employee Stock Options. Based upon a stock price of $22.75 as of February 12, 1996, the Company expects to recognize a nonrecurring noncash charge and related tax effect during the first quarter of 1996 of $31.7 million in compensation expense ($19.0 million net of tax benefit of $12.7 million) relating to such Employee Stock Options because the consummation of the Offering will constitute a Vesting Event. See "Unaudited Pro Forma Financial Statements." Such compensation expense is based on options outstanding at January 31, 1996. Each $1.00 change in the Common Stock price will result in an adjustment to such compensation expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0 million). Change in Accounting Method. Effective January 1, 1995, Associated changed its method of accounting for the cost of inventory from the FIFO method to the LIFO method. Associated made this change in contemplation of its acquisition of United (accounted for as a reverse acquisition) so that its method would conform to that of United. Associated believed that in an inflationary environment the LIFO method provides a better matching of current costs and current revenues, and that earnings reported under the LIFO method are more easily compared to that of other companies in the wholesale industry where the LIFO method is common. In 1995, this change resulted in the reduction of pre- tax income of the Company of approximately $8.8 million ($5.3 million net of tax benefit of $3.5 million). See Note 3 to the Consolidated Financial Statements of the Company included elsewhere herein. 30 PRO FORMA AND COMBINED RESULTS OF OPERATIONS The following table of summary pro forma (see Note 4 to the Consolidated Financial Statements of the Company for additional information) and combined historical financial data is intended for informational purposes only and is not necessarily indicative of either financial position or results of operations in the future, or that would have occurred had the events described in the preceding paragraph occurred on the indicated dates as described elsewhere herein. The following information should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements of the Company and its predecessors, including the related notes thereto, included elsewhere herein. The following table also presents unaudited summary combined historical financial data for Associated and United for the years ended December 31, 1993 and 1994. This data has not been prepared in accordance with generally accepted accounting principles, which do not allow for the combination of financial data for entities that are not under common ownership. Nevertheless, management believes that this combined historical financial data, when read in conjunction with the separate historical financial statements of the Company, Associated and United prepared in accordance with generally accepted accounting principles and included elsewhere herein, may be helpful in understanding the past operations of the companies that were combined in the Merger. This combined historical financial data for 1993 and 1994 represents a combination of the historical financial data for Associated and United for the periods indicated without any pro forma adjustments, and is supplemental to the historical financial data of Associated and United included elsewhere herein.
COMBINED PRO FORMA ----------------------------------- ----------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1993 1994 1995 ----------------- ----------------- ----------------- (DOLLARS IN THOUSANDS) Net sales................ $1,925,376 100.0% $1,990,363 100.0% $2,201,860 100.0% Gross profit............. 450,645 23.4 438,759 22.0 475,839 21.6 Operating expenses....... 393,284 20.4 379,717 19.0 394,430 17.9 Income from operations... 57,361 3.0 59,042 3.0 81,409 3.7
Comparison of Pro Forma Results for the Fiscal Year Ended December 31, 1995 and Combined Results for the Fiscal Year Ended December 31, 1994 Net Sales. Net sales were $2,201.9 million for 1995, a 10.6% increase over net sales of $1,990.4 million in 1994. The increase in net sales is primarily the result of changes in unit volume rather than changes in prices. Sales grew in all geographic regions. In addition, the sales growth is also attributable to increases in the sales of computer and related products through the Company's MicroUnited Division. Gross Profit. Gross profit as a percent of net sales decreased to 21.6% in 1995 from 22.0% in 1994. The lower gross profit margin reflects a shift in product mix and a larger LIFO charge due to Associated's change in its method of accounting for inventory from the FIFO method to the LIFO method. Also, gross profit was adversely affected by the higher sales of computer and related products and commodity items which typically carry lower gross profit margins. Operating Expenses. Operating expenses as a percent of net sales decreased to 17.9% in 1995 from 19.0% in 1994. The decrease in operating expenses as a percent of net sales was primarily due to increased operating efficiencies, improved productivity and increased economies of scale as a result of the higher sales base. Income from Operations. Income from operations as a percent of net sales was 3.7% in 1995 compared to 3.0% in 1994 due to the aforementioned reasons. Comparison of Combined Results for the Fiscal Years Ended December 31, 1994 and 1993. Net Sales. Net sales were $1,990.4 million for 1994, a 3.4% increase over net sales of $1,925.4 million in 1993. The increase in net sales is primarily the result of changes in unit volume rather than changes in prices. 31 Gross Profit. Gross profit as a percent of net sales decreased to 22.0% in 1994 from 23.4% in 1993. The lower gross profit margin primarily reflects higher levels of rebates and volume allowances earned by the Company's customers as a result of ongoing consolidations. In addition, gross profit margin was affected by a LIFO charge (an increase to "cost of goods sold") of $2.1 million in 1994 versus LIFO income (a decrease to "cost of goods sold") of $5.0 million in 1993, and a shift in product mix. Operating Expenses. Operating expenses as a percent of net sales decreased to 19.0% in 1994 from 20.4% in 1993. The decrease is the result of streamlining the Company's work processes and reducing payroll and freight expense. Income from Operations. Income from operations as a percent of net sales was 3.0% in 1994 and 1993. HISTORICAL RESULTS OF OPERATIONS OF THE COMPANY/ASSOCIATED Comparison of Historical Fiscal Years Ended December 31, 1995 and 1994 Net Sales. Net sales were $1,751.5 million for 1995 compared to $470.2 million in 1994. The increase is primarily the result of the Merger. Sales in 1995 include only nine months of United's sales. Gross Profit. Gross profit as a percent of net sales decreased to 21.7% in 1995 from 24.0% in 1994. The lower gross profit margin reflects a shift in product mix, the Acquisition and the change in the method of accounting for inventory from the FIFO method to the LIFO method. See Note 3 to the Consolidated Financial Statements of the Company included elsewhere herein. Operating Expenses. Operating expenses as a percent of net sales decreased to 18.5% in 1995 from 20.2% in 1994. The actual results for 1995 include the impact of a restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9 million) in the first quarter of 1995. Operating expenses before the restructuring charge were 17.9% in 1995. The decrease in operating expenses as a percent of net sales before the restructuring charge was primarily due to increased operating efficiencies and improved productivity, partially offset by Merger-related compensation expense relating to an increase in the value of Employee Stock Options of approximately $1.5 million ($0.9 million net of tax benefit of $0.6 million). Income from Operations. Income from operations as a percent of net sales was 3.2% in 1995 (after the restructuring charge) compared to 3.8% in 1994. Before such restructuring charge, income from operations in 1995 was 3.8%. Interest Expense. Interest expense as a percent of net sales was 2.5% in 1995 compared to 1.6% in 1994. The increase reflects additional debt needed to consummate the Acquisition and higher interest rates in 1995. Income Before Income Taxes and Extraordinary Item. Income before income taxes and extraordinary item as a percent of net sales was 0.7% in 1995 compared to 2.2% in 1994. Income Before Extraordinary Item. Income before extraordinary item was $6.2 million in 1995 compared to $6.4 million in 1994. An extraordinary item, the loss on early retirement of debt related to the Merger of $2.4 million ($1.4 million net of tax benefit of $1.0 million), was recognized in the first quarter of 1995. The net income was $4.8 million in 1995 compared to $6.4 million in 1994. Excluding the extraordinary item, net income would have been $6.2 million. Fourth Quarter Results. Certain interim expense and inventory estimates are recorded throughout the 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 $0.9 million of additional net income, which is reflected in the fourth quarter of 1995. 32 Comparison of Historical Fiscal Years Ended December 31, 1994 and 1993 Net Sales. Net sales increased to $470.2 million in 1994 from $455.7 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 $112.9 million in 1994 from $105.5 million in 1993, a 7.0% increase, primarily due to increased unit volume as well as Associated's lower net cost of goods sold, as a percentage of sales, resulting from increased allowances granted to Associated by its suppliers. Management of Associated believes that increased vendor allowances were 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. Operating Expenses. Operating expenses as a percent of net sales decreased to 20.2% in 1994 from 20.7% in 1993. The decrease in operating expenses as a percent of net sales was primarily due to productivity improvements and lower freight costs partially offset by lump-sum incentive awards earned in 1994 by employees and management based on Associated's level of profitability. Income from Operations. Income from operations increased to $18.1 million in 1994 from $11.0 million in 1993, a 65.1% increase, and as a percentage of net sales was 3.8% in 1994, compared with 2.4% in 1993, for the reasons stated above. Interest Expense. Interest expense increased to $7.7 million in 1994 from $7.2 million in 1993, a 6.8% increase, as a result of an increase in the weighted average interest rate on outstanding debt 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 1.4% in 1994 from 0.6% in 1993 for the reasons stated above. HISTORICAL RESULTS OF OPERATIONS OF UNITED Comparison of the Seven Months Ended March 30, 1995 and 1994 Net Sales. Net sales were $980.6 million in the seven months ended March 30, 1995, a 12.5% increase from net sales of $871.6 million in the comparable period in 1994. The primary reason for the increase is growth in unit volume. Gross Profit on Sales. Gross profit as a percent of net sales was 21.1% for the seven months ended March 30, 1995, compared with 22.5% in the comparable period in 1994. This lower gross profit margin is primarily the result of a shift in the sale of computer related products that have lower gross profit margins and is consistent with the gross profit margins achieved in the latter half of United's fiscal year ended August 31, 1994. 33 Operating Expenses. Operating expenses as a percent of net sales increased to 20.6% in the seven-month period ended March 30, 1995 from 19.6% in the comparable period in 1994. The increase is primarily attributable to $27.8 million ($18.5 million net of tax benefit of $9.3 million) of non-recurring Merger-related costs consisting of severance payments under employment contracts; insurance benefits under employment contracts; legal, accounting and other professional services fees; the repurchase of stock options; and fees for letters of credit related to employment contracts and other costs. Operating expenses as a percent of net sales prior to the Merger-related costs were 17.7% for the seven-month period ended March 30, 1995. This decline from the comparable period in 1994 is a result of savings in employee-related payroll and freight expenses. Income From Operations. Income from operations as a percent of net sales was 0.5% in the seven-month period ended March 30, 1995, compared with 2.9% in the comparable period in 1994. The decrease was attributable to the Merger-related costs discussed under "Operating Expenses" above. Income from operations as a percent of net sales was 3.3% in the seven-month period ended March 30, 1995, excluding the Merger-related costs. Interest Expense. Interest expense was $7.6 million for the seven-month period ended March 30, 1995, compared with $6.1 million for the same period in 1994. The increase was due to higher interest expense from increased debt to meet working capital and other capital expenditure needs and higher interest rates on borrowings. Income Before Income Taxes. Income (loss) before income taxes as a percent of net sales was a loss of 0.3% in the seven-month period ended March 30, 1995, compared to income of 2.3% in the comparable period of 1994. The decrease in income before income taxes was attributable to the factors stated above. Income Taxes. The effective tax rate for the seven-month period ended March 30, 1995 was (184.6%), compared with 41.5% for the seven-month period ended March 31, 1994. The increase is primarily due to non-deductible Merger-related costs and non-deductible amortization of goodwill. Net Income. Net income (loss) was a loss of $7.2 million for the seven-month period ended March 30, 1995, compared with income of $11.5 million for the same period in 1994. The loss was primarily due to $27.8 million ($18.5 million net of tax benefit of $9.3 million) of non-recurring Merger-related costs discussed under "Operating Expenses" above. Net income (loss) per share was a loss of $0.39 in the seven-month period ended March 30, 1995, compared with income of $0.62 for the same period in 1994. 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 SDC Acquisition in June 1992. 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 profit margin. Gross profit 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 the Company's customers as a result of ongoing consolidations. Gross profit margins over the last half of fiscal 1994 were relatively stable reflecting the slowing pace of dealer consolidations. In addition, gross profit 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. 34 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. Income Before Income Taxes. Income before income taxes decreased to $26.0 million in fiscal 1994 from $36.9 million in fiscal 1993, a 29.4% decrease, for the reasons stated above. Income Taxes. Income taxes decreased to $10.3 million in fiscal 1994 from $15.5 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. Fourth Quarter Results. 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. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY In connection with the consummation of the Acquisition, Associated received an equity investment of $12.0 million and borrowed an aggregate of $416.5 million under the Credit Facilities and $130.0 million under a subordinated bridge facility (the "Subordinated Bridge Facility"). The proceeds of such investment and borrowings were used to (i) finance the purchase of shares of Common Stock pursuant to the Tender Offer, (ii) refinance certain existing indebtedness of Associated (including all amounts outstanding under the Associated credit facilities in effect prior to the Merger) and indebtedness of the Company (including certain amounts outstanding under the United credit and overline facilities in effect prior to the Merger), (iii) repurchase United employee stock options and (iv) pay fees and expenses relating to the Acquisition. The credit facilities under the Credit Agreement (the "Credit Facilities") consist of $200.0 million of term loan borrowings (the "Term Loan Facilities") and up to $325.0 million of revolving loan borrowings under the Revolving Credit Facility. On May 3, 1995, USSC completed the issuance of $150.0 million of the Notes. The net proceeds of the Notes (after an underwriter discount of $4.5 million) were used 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 Term Loan Facilities and accrued interest thereon (totaling approximately $6.5 million), to pay a dividend to the Company to effect the Series B Repurchase and to pay certain expenses. The Term Loan Facilities consist of a $125.0 million Tranche A term loan facility (the "Tranche A Facility") and a $75.0 million Tranche B term loan facility (the "Tranche B Facility"). Amounts outstanding 35 under the Tranche A Facility are required to be repaid in 20 consecutive installments, the first four of which (each in the aggregate principal amount of $3.63 million) are due on the last day of each of the first four calendar quarters which commenced with the quarter ended June 30, 1995. Subsequent quarterly payments under the Tranche A Facility are each in the aggregate principal amount of $6.05 million for each of the eight consecutive calendar quarters commencing with the quarter ending June 30, 1996 and $7.26 million for each of the eight consecutive calendar quarters commencing with the quarter ending June 30, 1998. Amounts outstanding under the Tranche B Facility are required to be repaid in 28 consecutive quarterly installments, the first twenty of which (in the aggregate principal amount of $0.24 million each) are due on the last day of each of the first twenty calendar quarters which commenced with the quarter ended June 30, 1995. The remaining eight installments in the aggregate principal amount of $8.47 million 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 is limited to the lesser of $325.0 million or a borrowing base equal to: 80% of Eligible Receivables (as defined); plus 50% of Eligible Inventory (as defined) (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). The Revolving Credit Facility provides that, for each fiscal year commencing January 1, 1996, the Company must repay revolving loans so that for a consecutive period of 30 consecutive days in each fiscal year the aggregate revolving loans do not exceed $200.0 million. The Revolving Credit Facility matures on March 31, 2000. The Revolving Credit Facility was amended as of December 21, 1995 to increase the amount available thereunder from $300.0 million to an aggregate of $325.0 million. As of December 31, 1995, $87.4 million remained available for borrowing under the Revolving Credit Facility. The Term Loan Facilities and the Revolving Credit Facility are secured by first priority pledges of the stock of USSC, all of the stock of the domestic direct and indirect subsidiaries of USSC, certain of the stock of all of the foreign direct and indirect subsidiaries of USSC and security interests in, and liens upon, all accounts receivable, inventory, contract rights and other certain personal and certain real property of USSC and its domestic subsidiaries. The Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for financings of this type. As of January 31, 1996, the Company was in compliance in all material respects with all covenants contained in the Credit Agreement. The Credit Facilities permit capital expenditures for the Company of up to $12.0 million for its fiscal year ending December 31, 1996, plus $4.1 million of unused capital expenditures and approximately $3.1 million of unused excess cash flow (as defined) for the Company's fiscal year ended December 31, 1995. Capital expenditures will be financed from internally generated funds and available borrowings under the Credit Facilities. The Company expects gross capital expenditures to be approximately $10 to $12 million in 1996. Management believes that the Company's cash on hand, anticipated funds generated from operations and available borrowings under the Credit Facilities, together with the net proceeds to be received by the Company from the Offering, will be sufficient to meet the short-term (less than twelve months) and long-term operating and capital needs of the Company as well as to service its debt in accordance with its terms. There is, however, no assurance that this will be accomplished. On July 28, 1995, the Company effected the Series B Repurchase. Quarterly dividends currently accrue on the Company's two outstanding series of Preferred Stock at the rate of 10.0% for Series A Preferred Stock and 9.0% for Series C Preferred Stock per annum (or, when dividends are not paid in cash, 13.0% for Series A Preferred Stock and 10.0% for Series C Preferred Stock), and may be paid in the form of additional shares of the respective series of preferred stock (except, in the case of the Series C Preferred Stock, for dividends payable after January 31, 1999). All shares of Preferred Stock will be redeemed by the Company with a portion of the proceeds of the Offering. See "Use of Proceeds." 36 The Company is a holding company and, as a result, the Company's primary source of funds is cash generated from operating activities of its operating subsidiary, USSC, and bank borrowings by USSC. The Credit Agreement and the Indenture contain restrictions on the ability of USSC to transfer cash to the Company. 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 Associated credit agreement in effect prior to the Merger contained restrictions on the ability of ASI to transfer cash to Associated. The statement of cash flows for Associated and the Company for the periods indicated is summarized below:
ASSOCIATED THE COMPANY -------------------- ----------- YEAR ENDED DECEMBER 31, -------------------------------- 1993 1994 1995 ---------- --------- ----------- (DOLLARS IN THOUSANDS) Net Cash Provided by (Used in) Operating Activities.............................. $ (12,084) $ 14,088 $ 26,329 Net Cash Used in Investing Activities.... (3,276) (554) (266,291) Net Cash Provided by (Used in) Financing Activities.............................. 8,095 (12,676) 249,773
Net cash provided by operating activities for 1995 was $26.3 million. The increase in 1995 was due to the Acquisition. Net cash provided by operating activities for 1994 increased to $14.1 million from a use of cash of $12.1 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 $12.1 million of cash in operations in 1993 relating to 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 or services rendered in the amount of $9.0 million pursuant to a transition services agreement entered into in connection with the Associated Transaction. During 1994, Associated settled its obligations under such transition services agreement by issuing 58,653 pre-Merger shares of Associated common stock. Net cash used in investing activities in 1995 was $266.3 million, reflecting the Acquisition. 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 provided by financing activities in 1995 was $249.8 million, reflecting the additional debt needed to consummate the Acquisition. Net cash used in financing activities in 1994 was $12.7 million, which was attributable to the pay down of debt. Net cash provided by financing activities in 1993 was $8.1 million due to $11.5 million of borrowings and an equipment loan partially offset by scheduled principal payments of $3.4 million. HISTORICAL LIQUIDITY AND CAPITAL RESOURCES OF UNITED United was a holding company and, as a result, United's primary source of funds was cash generated from operating activities of its operating subsidiary, USSC, and bank borrowings by USSC. United's statement of cash flows for the periods indicated is summarized below:
SEVEN MONTHS ENDED -------------------- YEAR ENDED AUGUST 31, ------------------------- MARCH 31, MARCH 30, 1992 1993 1994 1994 1995 ------- ------- ------- --------- --------- (DOLLARS IN THOUSANDS) Net Cash Provided by (Used in) Operating Activities............... $(2,538) $36,002 $ 8,108 $(55,757) $(47,533) Net Cash Used in Investing Activities............... (45,629) (29,958) (10,499) (4,287) (7,764) Net Cash Provided by (Used in) Financing Activities............... 48,542 (10,097) 1,422 62,514 62,912
37 Operating Activities. The decrease in net cash used in operating activities from $55.8 million in the seven months ended March 31, 1994 to $47.5 million in the seven months ended March 30, 1995 was primarily due to increases in accounts payable and accrued liabilities partially offset by an increase to inventory. 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. Investing Activities. The increase in net cash used in investing activities from $4.3 million in the seven months ended March 31, 1994 to $7.8 million in the seven months ended March 30, 1995 was primarily due to the acquisition of property, plants and equipment. 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 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 SDC Acquisition. Net capital expenditures in fiscal 1994, 1993 and 1992 were $10.5 million, $30.0 million and $8.2 million, respectively. Financing Activities. The increase in net cash provided by financing activities from $62.5 million in the seven months ended March 31, 1994 to $62.9 million in the seven months ended March 30, 1995 was primarily due to increases in short-term debt partially offset by an increase in payments on long-term obligations. Net cash provided by financing activities in fiscal 1992 primarily reflects additional debt to finance the SDC Acquisition. 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. INFLATION AND CHANGING PRICES Inflation during the last three years has not been a significant factor to operations. The Company'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 the Company, the Company generally seeks to increase its prices to its customers. Significant deflation may, however, adversely affect the Company's profitability. See "Risk Factors--Effect of Changes in the Economy." 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 businesses begin operating under new annual budgets. The Company experiences significant seasonality in terms of its working capital needs, with highest requirements in December through February reflecting a build up in inventory prior to and during the peak sales period. The Company believes that its current availability under the Revolving Credit Facility is sufficient to satisfy such seasonal capital needs for the foreseeable future. 38 BUSINESS OVERVIEW The Company is the largest general line business products wholesaler in the United States, with 1995 pro forma net sales of $2.2 billion. The Company stocks and distributes the broadest and deepest product line in the industry, consisting of over 25,000 items, including traditional office supplies, office furniture and desk accessories, computer supplies, peripherals and hardware and facilities management supplies. The Company markets its products primarily through catalogs with a total annual circulation of more than 7.5 million copies, including a general line office products catalog that has more than 900 pages. The Company supplements its general line catalog with several specialized catalogs and related marketing programs designed for the office products, office furniture, computer products, facilities management supplies and certain other specialty markets. The Company purchases its products from more than 450 manufacturers who rely on it to inventory, market and distribute their products efficiently to a broad range of approximately 12,000 resellers, consisting primarily of office products dealers (including commercial, contract and retail), computer resellers, office furniture dealers, office products superstores, mail order companies and mass merchandisers. 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 national office products wholesaler in the United States, the Company has substantial purchasing power and can realize significant economies of scale. The Company's size and nationwide service capabilities also enable it to (i) service the demands of large national reseller accounts, (ii) seek cost-effective sourcing of products in the United States and, in many cases, worldwide and (iii) mitigate the effect of local or regional economic downturns. The Company obtains products from over 450 manufacturers, for many of whom the Company believes it is a very significant customer. In addition, the Company's size allows it to maintain a broad and deep product selection reflected by its more than $380 million (as of December 31, 1995) inventory investment. This permits its resellers to hold less inventory while still providing end-users with a high level of service. The Company believes that it publishes the largest number of catalogs in the office products industry with a wide array of product catalogs with a total annual circulation of more than 7.5 million copies, including a general line office products catalog that has more than 900 pages. 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. High Level of Customer Service. The Company provides its customers with a broad product selection, a high degree of product availability, prompt 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 their office products needs. The Company's broad product selection, inventory procurement and management procedures, substantial inventory investment and advanced distribution facilities enable it to achieve a high order fill rate. The Company's integrated management information system has been designed, in part, to enable management to monitor five key measures of customer satisfaction: order fill rate, order accuracy, inventory accuracy, on-time delivery and accessibility of the Company's personnel to customers. The Company makes substantially all of its orders available nationwide by next day delivery to assist resellers in successfully meeting end-users' demands. In addition, the Company provides its customers with a variety of support services such as its "wrap and label" 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. The Company also offers an office furniture set-up program in which the Company delivers furniture directly to end-users on the reseller's behalf, thereby enabling the reseller to offer a wide range of furniture on a cost-effective basis. 39 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 interactive order systems that link the Company to selected resellers and such resellers to their ultimate end-users. The Company's integrated management information system enables 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 gross 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 more than 12,000 resellers as customers, the Company believes that it has the broadest customer base in the industry. The Company's customers include office products dealers (including commercial, contract and retail), computer resellers, office furniture dealers, office products superstores, mail order companies and mass merchandisers. No single reseller accounted for more than 5% of the Company's pro forma net sales in 1995. The Company plans to continue to expand its customer base by (i) maintaining and building its business with commercial dealers and contract stationers (including the contract stationer divisions of national office products superstores) who, through consolidation, have continued to increase in size, (ii) developing additional programs for marketing and buying groups that represent groups of dealers and (iii) continuing to focus on niche markets, including specialty dealers (e.g., furniture, computer and sanitary supply distributors). Advanced Distribution Capabilities. The Company's network of 43 distribution centers located throughout the United States includes more than seven million square feet of warehouse space and employs advanced technology to distribute products to customers efficiently. For example, as described above, the Company has developed EDI capabilities and interactive order systems that link the Company to selected resellers and such resellers to the ultimate end-user. In 1995, approximately 90% of all of the Company's orders were received electronically. The Company also uses a proprietary computer-based system to enhance order fill rates by automatically searching alternative distribution centers for products and routing those products for shipment. Growth of Private Brand Products. The Company offers a line of approximately 1,750 private brand products, including approximately 1,200 products under the Universal(TM) brand name, which the Company believes is the broadest private brand product offering in the industry. Private brand products represented approximately 10% of the Company's pro forma net sales in 1995. 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 many manufacturers, by enabling the manufacturer to increase sales without diluting its brand name pricing structure. To further develop the Universal(TM) brand, the Company operates a trading office 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 and distribution industries. Management also has had significant experience in integrating companies in the office products industry through the SDC Acquisition by United and the Lynn-Edwards Acquisition by Associated, each in 1992. The Company believes that such experience has contributed to the successful combination of Associated and United into the Company. See "-- Consolidation Plan and Benefits of the Merger." 40 BUSINESS STRATEGY The Company's business strategy is to improve its competitive position and increase its revenues and profitability by (i) maintaining a high level of customer service, (ii) increasing purchases from existing customers, (iii) broadening the Company's product line and customer base, (iv) emphasizing cost effective operations and (v) increasing the overall efficiency of the Company's operations and systems. Maintaining a 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 competitive distribution models by providing its customers with a broad product selection, a high degree of product availability, prompt 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 order 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. Increasing Purchases from Existing Customers. The Company believes that there is an 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. As resellers increasingly focus on asset management and return on investment, they increasingly rely on the Company's inventory and service levels to continue to meet end-user requirements for a high order fill rate on an overnight basis. The Company believes that this focus on inventory minimization will continue in the foreseeable future, which creates an opportunity to capture a greater portion of shipments by office products manufacturers. Broadening Product Line and Customer Base. The Company's product line expansion plans include developing its ancillary product categories, such as office furniture, computer supplies and peripherals and facilities management supplies. The Company believes that its ancillary product categories 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 general line office products dealers, to expand its customer base. At the same time, the Company intends to continue to refine its existing product line offering to eliminate certain redundant items while preserving the diversity of such offering. The Company also plans to continue to expand its customer base by maintaining and building its business with commercial dealers, contract stationers (including the contract stationer divisions of national office products superstores) and mass merchandisers, and by developing additional programs for marketing and buying groups. Emphasizing Cost Effective Operations. The Company intends to continue to 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 procurement costs through manufacturers' 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) streamlining of work practices and procedures, and (vii) increased absorption of fixed costs over an increasing sales base. Increasing the Efficiency of Operations and Systems. The Company intends to continue to enhance its systems and streamline its operations. These enhancements include internal systems development as well as customer systems interfaces. The Company is working to make its systems more user friendly from both a customer and internal standpoint. In addition, increased electronic linkages for transactions with customers and suppliers enable both the Company and its business partners to reduce their costs and execute transactions faster and more accurately. As the Company's proprietary electronic linkages become more flexible and easier to use, it enables the Company to garner a growing percentage of its customers' business. 41 CONSOLIDATION PLAN AND BENEFITS OF THE MERGER Prior to completing the Merger, management developed a consolidation plan that represented a detailed program to achieve operating cost savings, including closing redundant distribution centers, as well as general and administrative and sales force consolidations. At the time of the Merger, management estimated that these synergies would result in annualized cost savings of approximately $26.0 million. The consolidation plan is expected to be substantially completed by March 30, 1996, and management believes that the full $26.0 million of annualized savings will be realized. Management expects that such savings will result from vendor allowances, distribution center consolidations, corporate overhead reduction, sales force consolidation, and computer services and telecommunications cost reductions. THE OFFICE PRODUCTS INDUSTRY The Company operates in a large, fragmented and 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, including resellers buying through wholesalers and resellers purchasing directly from manufacturers. Due to consolidation, the distinct boundaries that once clearly defined distribution channels have become blurred. The industry today consists principally of manufacturers, wholesalers, office products dealers (including commercial, contract and retail), computer resellers, office furniture dealers, office products superstores, mail order companies and mass merchandisers. Office Products Wholesalers. The wholesale segment of the office products industry consists of national, specialty and regional wholesalers. The Company, which offers 25,000 items, and S.P. Richards (a division of Genuine Parts), which has historically offered 18,000 items, are the only two national office products wholesalers, and compete with one another on the basis of breadth and depth of product offering, price and the provision of extensive marketing and distribution services for their reseller customers. Specialty office products wholesalers focus on limited product lines such as computer supplies, legal supplies, writing instruments, office furniture or facilities management supplies. Regional office products wholesalers generally offer a broad range of office products and marketing services on a smaller and more limited scale and within a much more limited geographic area than national office products wholesalers. For manufacturers, the wholesaler provides broad geographic market exposure for a wide range of their products, assumes credit risk, facilitates the introduction of new products into the marketplace by means of marketing materials, carries inventory and processes smaller orders than manufacturers can economically service. Wholesalers serve a fulfillment function, as a sizable percentage of orders received from wholesalers are pre-sold by their customers to end-users. Wholesalers also provide resellers with prompt service and delivery, a source for placing orders for small quantities and the opportunity to obtain credit, minimize investment in inventory and access marketing resources and technical support. In order for resellers 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. Office Products Dealers. Office products dealers include commercial dealers, contract stationers (e.g., Boise Cascade Office Products, BT Office Products International, Corporate Express, U.S. Office Products and the contract stationer divisions of national office product superstores) and retail dealers. 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. 42 Retail office products dealers typically serve small- and medium-sized businesses, home offices and individuals. For many years, retail dealers consisted principally of a large number of independent dealers, operating one or a few relatively small stores in a single local area. During the last decade, however, the office products retail market has undergone significant change, including the elimination or consolidation of many retail dealers (including most traditional stationery stores), as a result of the emergence and rapid growth of discount office supply retailers, which are known as superstores. To compete with the lower prices generally offered on commodity products by superstores, many independent retail dealers have joined marketing or buying groups to negotiate on a collective basis directly with manufacturers and wholesalers, or have altered their business model to adapt to lower gross margins and reduce their operating expenses. Computer Resellers. Because computer supplies are now widely used in offices, more office products are computer related and, therefore, are sold through computer resellers (e.g., Computer Discount Warehouse, CompUSA). In addition, most computer resellers now offer a limited selection of more traditional office products. Office Furniture Dealers. Office furniture is a major product category within the office products industry. Although nearly all general-line office products dealers sell office furniture, about 75% of all new office furniture is sold through office furniture specialists. Office Products Superstores. Office products superstores (e.g., Office Depot, OfficeMax, Staples) employ a warehouse format, are typically open for business seven days a week, stock a select number of items in inventory (typically in the range of 6,000 products), purchase in volume and typically take delivery at their stores 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 operate and advertise nationally. Office products superstores may also purchase from wholesalers for "fill-in" needs and to fill customer orders from special wholesaler catalogs made available to end-users in certain superstores when the superstore does not carry an item. This allows the office products superstores to expand the range of products offered without increasing their on hand inventory levels. Mail Order Companies. Mail order marketers of office products (e.g., Quill, Reliable Office Products, Viking Office Products) typically serve small and medium-sized business customers and home offices. While their procurement and order fulfillment functions are similar to contract stationers, they rely exclusively on catalogs and other database marketing programs, rather than direct sales forces, to sell their product offerings. Their operations are based upon large, proprietary customer data bases and sophisticated circulation strategies drawn from end-user marketing programs. Mail order companies purchase from both wholesalers and manufacturers. Mass Merchandisers. The mass market retailers (e.g., Kmart, Price/Costco, Sears, Target, Wal-Mart Stores/Sam's Club) have recently taken a growing interest in office products. Office supplies is one of many categories of products typically available in these stores. Certain of these retailers rely on wholesalers to fulfill a portion of their customers' orders. PRODUCTS The Company markets a broad array of products, which include traditional office products; computers and related supplies, office furniture; and other products (including facilities management supplies). As part of the Company's business strategy to acquire incremental sales and increase market share through ancillary product offerings, the Company began to focus on niche product segments in 1991 and has expanded steadily upon this concept since then. The Company's product offerings, composed of more than 25,000 items, may be divided into four primary categories: Traditional Office Products. The Company's core business continues to be traditional office products, which includes both brand-name products and the Company's private brand products. Traditional office products include writing instruments, paper products, organizers and calendars and various office accessories. The 43 Company's traditional office product offerings are quite deep, including, for example, more than 1,000 different stockkeeping units of ring binders and 800 types of file folders. Traditional office products constituted the majority of the Company's 1995 pro forma net sales. Computers and Related Supplies. The Company sells computer supplies, peripherals and hardware with major brand names to computer resellers and office products dealers. Such office technology constituted approximately 27% of the Company's 1995 pro forma net sales. Office Furniture. The Company's sale of office furniture such as leather chairs, wooden and steel desks and computer furniture has enabled it to become the nation's largest office furniture wholesaler, with the Company currently offering nearly 3,000 furniture items from 70 different manufacturers. Office furniture constituted approximately 15% of the Company's 1995 pro forma net sales. The Company's "Pro-Image" program enables resellers with no previous expertise to provide high-end furniture and office design services to end- users. The Company offers national delivery and product "set-up" capabilities to office products dealers as well as to attract new furniture dealers. Other Products. The Company's newest product categories encompass 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. Another one of the Company's niche markets is business presentation products, including audio visual equipment, flip charts and dry erase boards. Additionally, the Company offers its "Signature Image" program, which provides resellers with access into the advertising specialties market (such as imprinted and logo items). CUSTOMERS The Company sells principally to resellers of office products, consisting primarily of commercial dealers and contract stationers, retail dealers, superstores, mail order companies and mass merchandisers. In addition, the Company sells to office furniture dealers, computer resellers and janitorial and sanitary supply distributors. No single reseller accounted for more than 5% of the Company's pro forma net sales in 1995. Commercial dealers and contract stationers are the most significant reseller channel for office products distribution and typically serve large businesses, institutions and government agencies. Through industry consolidation, the number of such dealers has decreased, with the remaining dealers getting larger. Net sales to these commercial dealers and contract stationers as a group are growing rapidly. The number of retail dealers has been declining for some time as the result of individual retail dealers' inability to compete successfully with the growing number of superstores and, more recently, as a result of dealerships being acquired and brought under an umbrella of common ownership. However, many retail office products dealers adapted to this highly competitive environment. 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, contract stationers (including the contract stationer divisions of national office product superstores) and retail dealers, it has also initiated relationships with most major office products superstore chains. In addition, the Company supplies inventory and other fulfillment services to the retail operations of certain superstores, including their direct-to-business delivery programs. MARKETING AND CUSTOMER SUPPORT Substantially all of the Company's 25,000 products are sold through its comprehensive office products catalogs and flyers. These materials include general line catalogs, promotional pieces and specialty catalogs for the office products, office furniture, facilities management supplies and other specialty markets. The Company 44 produces numerous catalogs for placement with dealers' end-user customers, including the following annual catalogs: General Line Catalog; Office Furniture Catalog featuring furniture and accessories; Universal Catalog promoting the Company's private-brand merchandise; Computer Products Catalog offering hardware, supplies, accessories and furniture; Workplace Solutions Catalog featuring janitorial, maintenance, food service, warehouse and mailroom supplies; Business Communications Catalog, featuring products and supplies used for meetings and presentations; and separate Legal and Healthcare Catalogs offering office products used within such professions. In addition, the Company produces the following quarterly promotional catalogs: Action 2000 and Office Saver, each featuring over 1,000 high-volume commodity items, and Computer Concepts, featuring computer supplies, peripherals, accessories and furniture. The Company also produces separate 8-page quarterly flyers covering general office supplies, office furniture and Universal(TM) products. Because commercial dealers, contract stationers and retail dealers typically distribute only one wholesaler's catalogs in order to streamline and concentrate order entry, the Company attempts to maximize the distribution of its catalogs by offering advertising credits to resellers, which can be used to offset the cost of catalogs. In addition to marketing its products and services through the use of its catalogs, the Company employs a sales force of approximately 160 salespersons. The sales force is responsible for sales and service to resellers with which the Company has an existing relationship, as well as for establishing new relationships with additional resellers. The Company supplements the efforts of its sales force through telemarketing. The Company concentrates its marketing efforts on providing value-added services to resellers. The Company distributes products that are generally available at similar prices from multiple sources, and most of its customers purchase their products from more than one source. As a result, the Company seeks to differentiate itself from its competitors through a broader product offering, a higher degree of product availability, a variety of high quality customer services and prompt distribution capabilities. In addition to emphasizing its broad product line, extensive inventory, computer integration and national distribution capabilities, the Company's marketing programs have relied upon two additional major components. First, the Company produces an extensive array of catalogs for commercial dealers, contract stationers and retail dealers that are usually custom imprinted with each reseller's name and sold to these resellers who, in turn, distribute the catalogs to their customers. Second, the Company provides its resellers with a variety of dealer support and marketing services, including business management systems, promotional programs and pricing services. These services are designed to aid the reseller in differentiating itself from its competitors by addressing the steps in the end-user's procurement process. To assist its resellers with pricing, the Company offers a matrix pricing software program. Traditionally, many resellers have priced products on a discount from the manufacturer's suggested retail price, but recently pricing has shifted toward a net pricing approach, whereby the reseller 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 resellers with a resource to assist them in identifying the optimum pricing mix between high and low margin items and, as a result, enables resellers to manage their gross margins. The Company offers to its resellers a variety of electronic order entry systems and business management and marketing programs which enhance the resellers' ability to manage their businesses profitably. For instance, the Company maintains EDI systems that link the Company to selected resellers, and interactive order systems that link the Company to selected resellers and such resellers to the ultimate end-user. In addition, the Company's electronic order entry systems allow the reseller to seamlessly forward its customers' orders to the Company, resulting in the delivery of pre-sold products to the reseller or directly to its customers. The Company estimates that in 1995, approximately 90% of its orders were received electronically. DISTRIBUTION At the time of the Merger, certain of the Company's 47 regional distribution centers were redundant and, accordingly, management determined to close eight of such facilities. To date, four redundant facilities have been closed and four remaining facilities are expected to be closed in early Spring of 1996. As a result, the Company 45 will have a network of 40 regional distribution centers (including one expected to open in Pittsburgh, Pennsylvania in the first quarter of 1996) located in 36 metropolitan areas in 25 states, most of which will carry the Company's full line of inventory. In addition, the Company has achieved cost savings from the more efficient post-Merger operation of two distribution centers in each of four market areas, where the size of the Company's sales base requires multiple facilities. The Company supplements its regional distribution centers with 26 local distribution points throughout the United States that serve as reshipment points for orders filled at the regional distribution centers. The Company utilizes more than 250 trucks, substantially all of which are contracted for by the Company, to enable direct delivery from the regional distribution centers and local distribution points to resellers. The Company's distribution capabilities are augmented by its proprietary, computer-driven system. If a reseller places an order for an item that is out of stock at the Company location which usually serves the particular reseller, the Company's system will automatically search for the item at alternative distribution centers. If the item is available at an alternative location, the system will automatically forward the order to that alternate location, which will then coordinate shipping with the primary facility and, for the majority of resellers, provide a single on-time delivery. The system effectively provides the Company with added inventory support, 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 order fill rate and efficient levels of inventory balances. See "Risk Factors--Service Interruptions." Another service offered by the Company to resellers is its "wrap and label" 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 label" program is attractive to resellers because it eliminates the need to break down case shipments and to repackage the orders before delivering them to the end-user. PURCHASING AND MERCHANDISING As the largest national office products wholesaler in the United States, the Company has substantial purchasing power and can realize significant economies of scale. See "--Competitive Strengths--Largest Office Product Wholesaler." The Company obtains products from over 450 manufacturers, for many of whom the Company believes that it is a significant customer. In 1995 on a pro forma basis, no supplier accounted for more than 11% of the Company's aggregate purchases. As a centralized corporate function, the Company's merchandising department interviews and selects suppliers and products for inclusion in the catalogs. Selection is based upon end-user acceptance and demand for the product and the manufacturer's total service, price and product quality offering. COMPETITION The Company competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, computers and related items. 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. See "--Marketing and Customer Support" and "--Distribution." Manufacturers typically sell their products through a variety of distribution channels, including wholesalers and resellers. Competition between the Company and other wholesalers is based primarily on net pricing to resellers, breadth of product lines, availability of products, speed of delivery to resellers, order fill rates and the quality of 46 its marketing and other services. The Company believes it is competitive in each of these areas. Most wholesale distributors of office products conduct operations regionally and locally, sometimes with limited product lines such as writing instruments or computer products. Only one other national wholesaler carries a general line of office products. Consolidation has occurred in recent years throughout all levels of the office products industry. Consolidation of commercial dealers and contract stationers has 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. Increased competition in the office products industry, together with increased advertising, has heightened price awareness among end-users. As a result, purchasers of commodity type office products have become extremely price sensitive, and therefore the Company has increased its efforts to market to resellers the continuing advantages of its competitive strengths (as compared to those of manufacturers and other wholesalers), such as marketing and catalog programs, speed of delivery, and the ability to offer resellers on a "one-stop shop" basis a broad line of business products from multiple manufacturers with lower minimum order quantities. In addition, such heightened price awareness has led to margin pressure on commodity office products. In the event that such trend continues, the Company's profit margins could be adversely affected. See "Risk Factors--Competition." EMPLOYEES At December 31, 1995, the Company employed approximately 4,800 persons. The Company considers its relationships with its employees to be good. Approximately 900 of the shipping, warehouse and maintenance employees at certain of the Chicago, Detroit, Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City facilities are covered by collective bargaining agreements. The agreements expire at various times during the next three years. 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 1999, with an option to renew for two five-year terms. Distribution Centers. The Company presently operates 43 distribution centers in 24 states. Four of such centers are scheduled to close by early Spring of 1996, and one is scheduled to open in Pittsburgh, Pennsylvania 47 during the first quarter of 1996. The Company also operates 26 local distribution points. The following table sets forth information regarding the principal leased and owned distribution centers.
APPROXIMATE SQUARE FEET METROPOLITAN ------------------------DATE OF LEASE STATE CITY AREA SERVED OWNED LEASED EXPIRATION(1) - ----- ------------------ --------------------- ----------- ------------------------- Arizona................. Tempe Phoenix -- 110,000 3/31/01 California.............. City of Industry(2) Los Angeles 344,487 125,000 5/31/98 Sacramento(3) Sacramento -- 149,800 5/30/03 Sacramento Sacramento -- 267,284 7/31/08 Colorado................ Denver(4) Denver 104,244 -- -- Denver Denver -- 132,618 5/31/96 Florida................. Hialeah(1)(4) Miami -- 134,400 12/31/99 Jacksonville(2) Jacksonville 95,500 -- -- Tampa Tampa 128,000 -- -- Ft. Lauderdale Miami -- 151,500 7/01/03 Georgia................. Norcross Atlanta 287,700 -- -- Illinois................ Carol Stream Chicago -- 139,444 6/30/97 Forest Park Chicago 222,280 106,000 3/31/97 Greenville St. Louis 210,000 -- -- Indiana................. Indianapolis Indianapolis 128,000 -- -- Louisiana............... Harahan(1) New Orleans -- 39,385 11/20/96 Maryland................ Harmans(1)(2) Baltimore/Wash., D.C. 323,980 170,000 2/29/96 Massachusetts........... Woburn Boston 372,000 -- -- Michigan................ Livonia Detroit 229,700 33,500 11/22/96 Minnesota............... Brooklyn Park Minneapolis/St. Paul 127,480 -- -- Eagan Minneapolis/St. Paul 210,468 -- -- Missouri................ Kansas City Kansas City -- 77,244 5/31/00 New Jersey.............. Edison New York 257,579 133,177 6/30/98 Pennsauken Philadelphia 231,000 25,316 3/31/96 New York................ Coxsackie Albany 256,500 -- -- North Carolina.......... Charlotte Charlotte 104,000 -- -- Ohio.................... Cincinnati Cincinnati 108,778 -- -- Cincinnati(4) Cincinnati -- 81,400 6/30/96 Columbus Columbus -- 126,665 8/31/99 Twinsburg Cleveland 206,136 -- -- Valley View(4) Cleveland 233,508 -- -- Oklahoma................ Tulsa Tulsa 75,100 22,500 12/31/97 Oregon.................. Portland Portland -- 65,850 2/28/97 Pennsylvania............ Pittsburgh Pittsburgh -- 84,176 1/31/01 Tennessee............... Memphis Memphis -- 78,280 3/31/10 Nashville Nashville -- 66,000 4/30/98 Nashville Nashville -- 59,250 9/30/96 Texas................... Dallas(1)(2) Dallas/Fort Worth 223,230 159,873 12/31/98 Houston Houston -- 143,859 6/30/96 Lubbock Lubbock -- 58,725 4/27/98 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 -- --
- -------- (1) Except as specifically indicated, with respect to facilities subject to more than one lease, references are to the earliest possible expiration date. (2) A portion of such property is subleased to a third party. (3) A portion of the lease covering 30,947 square feet of such property expires on March 31, 1996. (4) The Company expects to close such facility by early Spring of 1996. 48 The Company also owns 73,907 square feet of warehouse space in Fort Worth, Texas, which it leases to a third party. In addition, the Company leases approximately 84,000 square feet of warehouse space in Elkridge, Maryland and 81,726 square feet of warehouse space in Charlotte, North Carolina, both of which have been vacated, and the Company intends to sublease such properties (which leases expire on July 31, 2004 and July 31, 1997, respectively) to third persons. All property rights of the Company are pledged to secure its obligations under the Credit Facilities. See "Description of Indebtedness--Credit Facilities." 49 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below is certain information with respect to those individuals who are currently serving as members of the Board of Directors or as executive officers of the Company.
NAME AGE POSITION ---- --- -------- Thomas W. Sturgess...... 45 Chairman of the Board, President and Chief Executive Officer Daniel H. Bushell....... 44 Executive Vice President, Chief Financial Officer and Assistant Secretary Michael D. Rowsey....... 43 Director and Executive Vice President Steven R. Schwarz....... 42 Executive Vice President Robert H. Cornell....... 56 Vice President, Human Resources Otis H. Halleen......... 61 Vice President, Secretary and General Counsel James A. Pribel......... 42 Treasurer Ted S. Rzeszuto......... 43 Vice President and Controller Albert Shaw............. 46 Vice President, Operations Ergin Uskup............. 58 Vice President, Management Information Systems and Chief Information Officer Gary G. Miller.......... 45 Director and Assistant Secretary James T. Callier, Jr.... 60 Director Daniel J. Good.......... 55 Director Frederick B. Hegi, Jr... 52 Director Jeffrey K. Hewson....... 52 Director James A. Johnson........ 41 Director Joel D. Spungin......... 58 Director
Set forth below is a description of the backgrounds of the directors and executive officers of the Company. There is no family relationship between any directors or executive officers of the Company. Officers of the Company are elected by the Board of Directors and hold office until their respective successors are duly elected and qualified. THOMAS W. STURGESS became President and Chief Executive Officer of the Company on May 31, 1995 and Chairman of the Board of the Company upon consummation of the Merger. 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. Since 1987, Mr. Sturgess has served as a general partner of various Wingate entities, including the indirect general partner of each of Wingate Partners and Wingate II. Mr. Sturgess has not actively participated in the management of Wingate Partners or the Wingate entities since December 31, 1995. Mr. Sturgess currently serves as a non-executive 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. He is a director of Loomis Armored Inc., a provider of armored car and related services ("Loomis"), and Century Products Company, a manufacturer and distributor of baby seats and other juvenile products ("Century Products"). DANIEL H. BUSHELL became Executive Vice President and Chief Financial Officer of the Company upon consummation of the Merger. Mr. Bushell has served as Assistant Secretary of the Company since January 1996, and served as Secretary of the Company from June 1995 through such date. Mr. Bushell also served as Assistant Secretary of the Company from the consummation of the Merger until June 1995. Prior thereto, Mr. Bushell had been Chief Administrative and Chief Financial Officer of Associated and ASI since January 1992. From 1978 to January 1992, Mr. Bushell served in various capacities with ACE Hardware Corporation, most recently as Vice President of Finance. MICHAEL D. ROWSEY was elected to the Board of Directors upon consummation of the Merger and became Executive Vice President of the Company upon consummation of the Merger with primary responsibility for field operations. Prior to the Merger, Mr. Rowsey had been a director of Associated since 1992 and President and Chief Operating Officer of Associated since January 1992. From 1979 to January 1992, Mr. Rowsey served in various capacities with BCOP, most recently as the North Regional Manager. 50 STEVEN R. SCHWARZ became Executive Vice President of the Company upon consummation of the Merger with primary responsibility for marketing and merchandising. Prior thereto, he was Senior Vice President, Marketing of United since June 1992 and had previously been Senior Vice President, General Manager, 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. ROBERT H. CORNELL became Vice President, Human Resources of the Company upon consummation of the Merger. Prior thereto, he was Vice President, Human Resources of United since February 1988, and since 1987 had been Vice President, Human Resources for USG Interiors Inc., a subsidiary of USG Corporation. OTIS H. HALLEEN became Vice President, Secretary and General Counsel of the Company as of January 30, 1996. Since November 1, 1995 he has served as Vice President, Secretary and General Counsel at USSC. From 1986 through March 1995 he had been Vice President, Secretary and General Counsel of United. JAMES A. PRIBEL became Treasurer of the Company upon consummation of the Merger. Prior thereto he was Treasurer of United since 1992. Prior thereto he had been Assistant Treasurer of USSC since 1984 and had served in various positions since joining USSC in 1978. TED S. RZESZUTO became Vice President and Controller of the Company upon consummation of the Merger. Prior thereto he was Vice President and Controller of United since 1987 and Controller of United since 1985 and prior thereto had served in various accounting positions since joining USSC in 1975. ALBERT SHAW became Vice President, Operations of the Company shortly after consummation of the Merger. Prior thereto, he was Vice President, Midwest Region of USSC since March 1994. He had been a Vice President of USSC since 1992 and prior to that had served in various management positions since joining USSC in 1974. ERGIN USKUP became Vice President, Management Information Systems and Chief Information Officer of the Company upon consummation of the Merger. Prior thereto, he was Vice President, Management Information Systems and Chief Information Officer of United since February 1994, and since 1987 had been Vice President, Corporate Information Services for Baxter International Inc., a global manufacturer and distributor of health care products. GARY G. MILLER was elected to the Board of Directors upon consummation of the Merger and became Assistant Secretary of the Company on June 27, 1995. Mr. Miller served as Vice President and Secretary of the Company from consummation of the Merger until June 27, 1995. Prior thereto, Mr. Miller had been a director of Associated since 1992 and Vice President and Secretary of Associated since January 1992. Mr. Miller also currently serves as President of Cumberland, a private investment firm which is located in Fort Worth, Texas. In addition, from 1977 to December 1993, Mr. Miller served as Executive Vice President, Chief Financial Officer and a director of AFG Industries, Inc., and its parent company, Clarity Holdings Corp. He is Chairman of the Board of both CFData Corp., a nationwide provider of check collection and check verification services, and Fore Star Golf, Inc., which was formed in 1993 to own and operate golf course facilities. JAMES T. CALLIER, JR. was elected to the Board of Directors upon consummation of the Merger. Prior to the Merger, he had been a director of Associated since 1992. Mr. Callier is a general partner of Wingate Partners, and has served as President of Callier Consulting, Inc., an operating management firm, since 1985. Mr. Callier currently serves as Chairman of the Board of Century Products, as a director of Redman and Loomis and as an advisory director of Wingate II. DANIEL J. GOOD was elected to the Board of Directors upon consummation of the Merger. Prior to the Merger, he had been a director of Associated since 1992. Mr. Good is Chairman of Good Capital Co., Inc. ("Good Capital"), an investment firm in Lake Forest, Illinois. Until June 1995, Mr. Good was Vice Chairman of Golden Cat Corp., the largest producer of cat litter in the United States, and prior thereto he was Managing Director of Merchant Banking for Shearson Lehman Bros. and President of A.G. Becker Paribas, Inc. Mr. Good serves as a director of Supercuts, Inc. 51 FREDERICK B. HEGI, JR. was elected to the Board of Directors upon consummation of the Merger. Prior to the Merger, he had been a director of Associated since 1992. Mr. 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, ITCO Holding Company, Inc., the parent corporation of ITCO Tire Company, Tahoka First Bancorp, Inc., a bank holding company, and Cedar Creek Bancshares, Inc., a bank holding company, and as a director of Century Products, Lone Star Technologies, Inc., a diversified company engaged in the manufacturing of steel pipe, Cattle Resources, Inc., a manufacturer of animal feeds and operator of commercial cattle feedlots and various funds managed by InterWest Partners. JEFFREY K. HEWSON was elected to the Board of Directors in 1991. Mr. Hewson served as President and Chief Executive Officer of the Company from consummation of the Merger until May 31, 1995. Prior thereto, he was President and Chief Operating Officer of United since April 1991. He had been Executive Vice President of United 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 upon consummation of the Merger. Prior to the Merger, he had been a director of Associated since 1992. Mr. Johnson is a general partner of various Wingate entities, including the indirect general partner of Wingate II. From 1980 until he joined Wingate Partners in 1990, Mr. Johnson served as a Principal of Booz-Allen & Hamilton, an international management consulting firm. Mr. Johnson currently serves as a director of Century Products. JOEL D. SPUNGIN has served as a member of the Board of Directors since 1972 and prior to the consummation of the Merger was Chairman of the Board of Directors and Chief Executive Officer of United since August 1988. From October 1989 until April 1991, he was also President of United. Prior to that, since March 1987, Mr. Spungin was Vice Chairman of the Board and Chief Executive Officer of United. Previously, since August 1981, Mr. Spungin was President and Chief Operating Officer of United. He also serves as a general partner of DMS Enterprises, L.P., a management advisory and investment partnership, and as a director of AAR Corp. Messrs. Sturgess, Rowsey, Miller, Callier, Good, Hegi and Johnson were elected to the Board of Directors pursuant to a voting trust. See "Certain Transactions--Voting Trust." Such voting trust will terminate upon the consummation of the Offering. The Charter provides that the Board of Directors shall be divided into three classes, each class as nearly equal in number as possible, and each term consisting of three years. The directors currently in each class are as follows: Class I (having terms expiring in 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. See "Description of Capital Stock--Special Provisions of the Charter and Bylaws--Classified Board of Directors." 52 CERTAIN TRANSACTIONS VOTING TRUST As of February 12, 1996, approximately 74.1% of the outstanding shares of Common Stock were held in a voting trust (the "Voting Trust") pursuant to a Voting Trust Agreement dated as of January 31, 1992. The Voting Trust will terminate upon consummation of the Offering. 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 the Company with (i) at 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 Messrs. Michael Rowsey, Robert Eberspacher, Daniel Schleppe and Larry Miller and (iv) such number of directors designated by Wingate Partners as will represent a majority of the total number of directors. Messrs. Sturgess, Rowsey, Miller, Callier, Good, Hegi and Johnson were elected to the Board of Directors pursuant to the Voting Trust. LENDER WARRANTS In connection with the Associated Transaction, Associated entered into a warrant agreement (the "Lender Warrant Agreement") with CMIHI pursuant to which Associated issued to CMIHI and certain of Associated's senior lenders the Lender Warrants entitling the holders thereof to acquire an aggregate of 150,340 pre-Merger 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 pre-Merger shares of Associated common stock (the "Tranche A Warrants") and 115,646 pre-Merger shares of Associated common stock (the "Tranche B Warrants"), respectively. In connection with the Lynn-Edwards Acquisition in 1992, the Tranche B Warrant holders received additional Tranche B Warrants exercisable for an additional 39,878 pre-Merger 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 pre-Merger 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 an Associated stockholder pursuant to a transition services agreement. The Tranche A and Tranche B Warrants were assumed by the Company upon consummation of the Merger, and currently allow the holders thereof to acquire an aggregate of 244,924 and 982,514 shares of Common Stock (or, at such holder's option, shares of Nonvoting Common Stock), respectively, at an exercise price of $0.10 per share. Prior to the Merger, Wingate and Daniel J. Good purchased from one of Associated's former senior lenders Tranche B Warrants exercisable for an aggregate of 462,286 shares of Common Stock for an aggregate of approximately $1.7 million. The number of shares of Common Stock into which the Lender Warrants are exercisable has been increased by approximately 0.12% (representing an antidilution adjustment relating to the issuance of certain Employee Stock Options). See "Description of Capital Stock--Lender Warrants." PREFERRED B WARRANTS In connection with the Associated Transaction, Associated issued Preferred B Warrants entitling the holders thereof to acquire an aggregate of 23,129 pre- Merger shares of Associated common stock for an exercise price of $1.00 per share. Associated amended the Preferred B Warrants prior to the consummation of the Merger to apply to the shares of Common Stock in the same manner as they formerly applied to Associated common stock. Accordingly, the holders thereof are presently entitled to acquire an aggregate of 182,189 shares of Common Stock for an exercise price of approximately $0.15 per share. In July 1995, Wingate, ASI Partners III, L.P. and certain affiliates of Daniel J. Good purchased all of the Preferred B Warrants from the holder thereof for an aggregate purchase price of approximately $1.2 million. The number of shares of Common Stock into which the Preferred B Warrants are exercisable has been increased by approximately 18.1% (representing an antidilution 53 adjustment relating to the issuance of certain Employee Stock Options). See "--Option and Restricted Stock Awards." See "Principal and Selling Stockholders" and "Description of Capital Stock--Preferred B Warrants." REGISTRATION RIGHTS AGREEMENTS 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. The Company 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, in October 1995 the Company effected a "shelf" registration under the Securities Act of all shares of Common Stock issuable or issued upon exercise of the Lender Warrants. In connection with the Associated 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 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. The Company assumed the obligation of Associated under the Stockholder Registration Rights Agreement by operation of law as a result of the Merger, and such agreement has been amended accordingly. Under the amended agreement, a holder of 20.0% of the shares of Common Stock subject to the Stockholders Registration Rights Agreement can, in certain circumstances, require the Company to effect up to three registrations of all or part of such holder's shares of Common Stock. The Company is not required to honor any request to register shares of Common Stock if the request is 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 of Common Stock, the Company must send notice to the other holders subject to such agreement and permit them to also request to have their respective shares of Common Stock registered under the Securities Act. Registrations effected at the request of the holders will be at the expense of the Company (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 services to Associated and ASI in connection with the Associated Transaction in exchange for a one-time fee of $500,000 (which was paid in January 1992 upon the consummation of the Associated Transaction). The Company assumed the obligation of Associated under such agreement by operation of law as a result of 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 the Company and USSC 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 Credit Agreement related to certain Company performance criteria. Upon consummation of the Acquisition, the Company paid aggregate fees to Wingate Partners of $2.3 million for services rendered in connection therewith. Pursuant to the $350,000 annual fee limit previously in effect under such agreement, Wingate Partners earned an aggregate of $603,000, $350,000 and $210,000 with respect to each of the fiscal years ended 1995, 1994 and 1993, respectively, for such oversight and monitoring services. Under the amended agreement, the Company 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. 54 Effective as of the consummation of the Offering, the Investment Banking Fee and Management Agreement will be terminated and replaced with a Consulting Agreement, pursuant to which Wingate Partners will continue to provide consulting services to the Company. In exchange for the provision of such services during the remainder of 1996, the Company has agreed to pay Wingate Partners a consulting fee of $50,000 per month through December 31, 1996. For consulting services to be provided in 1997 and beyond, the Company has agreed to pay, commencing January 1997, an annual consulting fee equal to the product of $725,000 multiplied by a fraction equal to the ratio of Wingate's beneficial ownership of Common Stock as of the beginning of such year to its beneficial ownership of Common Stock immediately prior to the Offering. In addition, the Company has agreed to pay annual directors fees of $25,000 to any members of the Board of Directors that have been or may in the future be nominated by Wingate Partners (other than Mr. Sturgess). Messrs. Callier, Hegi and Johnson, as nominees of Wingate Partners, will be eligible to receive such fees upon the effectiveness of the Consulting Agreement. Such agreement will terminate on the earlier to occur of January 31, 2002 or such time as Wingate beneficially owns less than 5% of the Common Stock. 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 Associated Transaction in exchange for a one-time fee of $500,000 (which was paid in January 1992 upon consummation of the Associated Transaction). The Company assumed the obligation of Associated under such agreement by operation of law as a result of 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 the Company and USSC 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 Credit Agreement related to certain Company performance criteria and (ii) previously issued shares of Associated common stock converted pursuant to the Merger into 154,125 shares of Common Stock. Subject to certain exceptions, the issuance of such shares of Common Stock is subject to rescission if the agreement is terminated before January 31, 2002. Upon consummation of the Acquisition, the Company paid aggregate fees to Cumberland of $100,000 for services rendered in connection therewith. Pursuant to the $75,000 annual fee limit previously in effect under such agreement, Cumberland earned $129,000, $75,000 and $45,000 with respect to each of the fiscal years ended 1995, 1994 and 1993, respectively, for such oversight and monitoring services. The Company 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. Such agreement will be amended as of the consummation of the Offering so as to (i) provide for the payment of annual directors fees of $25,000 to Mr. Miller (which fees will reduce amounts payable by the Company to Cumberland thereunder) and (ii) provide that such agreement will terminate on January 31, 2000. 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 Associated Transaction in exchange for 31,480 shares of Associated common stock and 185 shares of Associated class A preferred stock. The Company assumed the obligations of Associated under such agreement by operation of law as a result of 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 the Company and USSC 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 Credit Agreement related to certain Company performance criteria and (ii) previously issued shares of Associated common stock converted pursuant to the Merger into 154,125 shares of Common Stock. Subject to certain exceptions, the issuance of such shares of Common Stock are subject to rescission if the agreement is terminated before January 31, 2002. Upon consummation of the Acquisition, the Company paid aggregate fees to Good Capital of $100,000 for services rendered in connection therewith. Pursuant to the $75,000 annual fee limit previously in effect under such agreement, Good Capital earned an aggregate of $129,000, $75,000 and $45,000 in each of the fiscal years ended 55 1995, 1994 and 1993, respectively, for such oversight and monitoring services. The Company 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. Such agreement will be amended as of the consummation of the Offering so as to provide for the payment of annual directors fees of $25,000 to Mr. Good (which fees will reduce amounts payable by the Company to Good Capital thereunder). CERTAIN INTERESTS OF CHASE BANK Chase Bank has certain interests in the Company in addition to its affiliate, Chase Securities, Inc. ("Chase Securities"), which served as the initial purchaser of the Notes and received a discount in the amount of $4.5 million. As a result of the sale of the Notes, CMIHI, an affiliate of Chase Bank, beneficially owns (as of February 12, 1996) approximately 9.7% of the shares of Common Stock outstanding as a result of its ownership of (i) the Lender Warrants received in connection with the Associated Transaction that entitle CMIHI to purchase 476,067 shares of Common Stock for $0.10 per share, (ii) 480,045 shares of Nonvoting Common Stock purchased or received in connection with the Acquisition and (iii) 278,949 shares of Nonvoting Common Stock issued by the Company to CMIHI in exchange for shares of Common Stock and securities exercisable or convertible into shares of Common Stock contributed by certain pre-Merger holders of Associated common stock upon consummation of the sale of the Notes. See "--Lender Warrants" and "Description of Indebtedness--Notes". Chase Bank has indicated that it intends to sell shares of Common Stock in the Offering. See "Principal and Selling Stockholders." Such shares will be obtained by exercising Lender Warrants and converting shares of Nonvoting Common Stock. Chase Securities served as financial advisor to Associated in connection with the Acquisition. Chase Bank is the agent and a lender under the Credit Facilities. In addition, in connection with the Tender Offer, Chase Securities served as dealer manager and Chase Bank served as depositary for tendered shares of Common Stock. A substantial portion of the net proceeds from the sale of the Notes was used to repay in full the Subordinated Bridge Facility, and a portion of the remainder was used to prepay loans under the Term Loan Facilities. In all such capacities, Chase Bank and its affiliates received 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. SERIES B REPURCHASE On July 28, 1995, the Company consummated the repurchase of all of the outstanding shares of the Series B Preferred Stock, together with accrued and unpaid dividends thereon, from the holder thereof for an aggregate purchase price of $7.0 million. In order to enable the Company to consummate the Series B Repurchase, USSC paid a dividend to the Company in the amount of $7.0 million, as permitted under the Credit Facilities and the Indenture. In addition, USSC also paid a dividend to the Company in an amount sufficient to enable the Company to pay a cash dividend on the Series C Preferred Stock of approximately $0.3 million in accordance with the terms of the Company's Charter as a result of the Series B Repurchase. In connection with the Series B Repurchase, Wingate and certain affiliates of Cumberland and Daniel J. Good purchased from the former holder of the Series B Preferred Stock an aggregate of 391,056 shares of Common Stock and Preferred B Warrants currently exercisable for an aggregate of 182,189 shares of Common Stock for aggregate purchase prices of approximately $1.8 million and $1.2 million, respectively. INTERESTS OF CERTAIN PERSONS IN THE OFFERING Wingate will receive an aggregate of $43.2 million ($56.1 million if the Underwriters' over-allotment option is exercised in full) of the $75.5 million ($98.3 million if the Underwriters' over-allotment option is exercised in full) in aggregate net proceeds to be received by the Selling Stockholders as a result of the Offering. Mr. Sturgess, the Company's Chairman, President and Chief Executive Officer, serves as a general partner of various Wingate entities, including the indirect general partner of each of Wingate Partners and Wingate II. Although Mr. Sturgess has not actively participated in the management of such entities since December 31, 1995, as a 56 result of such relationship, Mr. Sturgess will ultimately receive approximately $1.7 million ($2.1 million if the Underwriters' over-allotment option is exercised in full) of the proceeds from Wingate's sale of Common Stock in the Offering and the redemption of Series A Preferred Stock held by Wingate in connection therewith. In addition, several other Selling Stockholders presently serve as directors and/or executive officers of the Company or formerly served as directors or executive officers of Associated. See "Principal and Selling Stockholders." The Company will pay all expenses of the Offering, including those attributable to the Selling Stockholders (excluding underwriting discounts and commissions relating to shares of Common Stock to be sold by the Selling Stockholders). REDEMPTION OF SERIES A PREFERRED STOCK Wingate will receive an aggregate of approximately $4.9 million of the $7.8 million in aggregate proceeds to be received by the holders of shares of Series A Preferred Stock as a result of the redemption by the Company of all shares of Preferred Stock using a portion of the proceeds of the Offering. See "Use of Proceeds." Mr. Sturgess, the Company's Chairman, President and Chief Executive Officer, serves as a general partner of various Wingate entities, including the indirect general partner of each of Wingate Partners and Wingate II. Although Mr. Sturgess has not actively participated in the management of such entities since December 31, 1995, as a result of such relationship, Mr. Sturgess will ultimately receive approximately $1.7 million ($2.1 million if the Underwriters' over-allotment option is exercised in full) of the proceeds from Wingate's sale of Common Stock in the Offering and the redemption of Series A Preferred Stock held by Wingate in connection therewith. See "-- Interests of Certain Persons in the Offering." In addition, several other holders of shares of Series A Preferred Stock presently serve as directors or executive officers of the Company or formerly served as directors or executive officers of Associated. See "Principal and Selling Stockholders." OPTION AND RESTRICTED STOCK AWARDS Effective October 2, 1995, the Company granted, subject to stockholder approval, options exercisable (net of forfeitures) for an aggregate of 1,633,250 shares of Common Stock at an exercise price of $12.50 per share (subject to quarterly increases) and 198,750 shares of Common Stock at a fixed exercise price of $5.12 per share to certain members of the Company's management. Of such options, options exercisable for an aggregate of 542,500 shares of Common Stock at an exercise price of $12.50 per share (subject to quarterly increases) and options exercisable for an aggregate of 77,500 shares of Common Stock at a fixed exercise price of $5.12 per share were granted to Messrs. Bushell, Rowsey, Schwarz, Cornell, Halleen, Pribel, Rzeszuto, Shaw and Uskup. Such options do not vest to the employee until the occurrence of a Vesting Event that causes the present non-public equity investors to have received at least a full return of their investment (at cost) in cash, fully tradable marketable securities or the equivalent, as determined by the Board of Directors in good faith. All of such options will become exercisable upon consummation of the Offering. On November 29, 1995, the Company granted options exercisable for an aggregate of 14,648 shares of Common Stock at an exercise price of $5.12 per share to Jeffrey K. Hewson and a restricted stock award of 9,678 shares of Common Stock to Joel D. Spungin, both of whom are directors of the Company, in consideration for their service on the Board of Directors in lieu of directors compensation for a three year period. Effective January 1, 1996, the Company granted to Mr. Sturgess, in consideration for services rendered and to be rendered as Chairman, President and Chief Executive Officer of the Company and subject to stockholder approval, (i) options exercisable for an aggregate of 240,000 shares of Common Stock at an exercise price of $12.50 per share (subject to quarterly increases) (80,000 of which will be exercisable only upon the occurrence of a Vesting Event, 80,000 of which will be exercisable upon the later to occur of a Vesting Event or December 31, 1996, and 80,000 of which will be exercisable upon the later to occur of a Vesting Event or March 31, 1997) and (ii) options exercisable for an aggregate of 120,000 shares of Common Stock at a fixed exercise price of $5.12 per share (all of which will only be exercisable upon the occurrence of a Vesting Event). The $5.12 exercise price represents the price paid by certain investors for shares of Associated common stock immediately prior to the Merger. Effective January 31, 1996, the Company, subject to stockholder approval, granted to certain officers, including Messrs. Bushell and Rowsey, options exercisable for an aggregate of 202,772 shares of Common Stock at an exercise price of $1.45 per share (of which options exercisable for an aggregate of 51,343 shares and 50,000 57 shares were granted to Messrs. Bushell and Rowsey, respectively). All of such options (other than those granted to Mr. Bushell) were granted pursuant to executive stock purchase agreements entered into by Associated in connection with the Associated Transaction in January 1992. All of such options will become exercisable upon consummation of the Offering. In addition, options granted to management of Associated (including Messrs. Bushell and Rowsey) prior to the Merger and exercisable for an aggregate of 182,348 shares (net of forfeitures) of Common Stock at an exercise price of $1.45 per share (of which options exercisable for an aggregate of 37,856 shares and 44,506 shares were granted to Messrs. Bushell and Rowsey, respectively) will become exercisable (if not already exercisable) upon consummation of the Offering. EMPLOYMENT AGREEMENTS Effective January 1, 1996, the Company entered into an employment agreement with Mr. Sturgess having a three year term, subject to automatic one year renewals thereof. Pursuant to such agreement, Mr. Sturgess agreed to serve as the Company's Chairman of the Board, President and Chief Executive Officer during the term of such agreement in exchange for (i) an annual salary of no less than $495,000, (ii) eligibility to participate in the Company's bonus plans (subject to a maximum of 150% of annual salary) and (iii) eligibility to participate in various benefit programs provided to the Company's employees and senior management. Mr. Sturgess will be entitled to severance pay equal to two times base salary and bonus payable over a period of one year (if the agreement expires) or two years (if Mr. Sturgess terminates his employment for good reason (as defined)). The Company has also entered into employment agreements with certain of its other executive officers. Such agreements typically have a one or two year term. 58 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information as of February 12, 1996 and after giving effect to the Offering (assuming no exercise of the Underwriters' over- allotment option) with respect to the beneficial ownership of Common Stock by (i) each person who is known by the Company to own beneficially more than five percent of the Company's Common Stock, (ii) each of the Company's directors and executive officers and (iii) all current directors and executive officers as a group. The table also sets forth information as of the date immediately prior to the Offering with respect to the beneficial ownership of the Series A Preferred Stock by such persons. Unless otherwise indicated, each person has sole voting power and investment power with respect to the shares attributed to him.
SERIES A COMMON STOCK(1) PREFERRED STOCK(2) --------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP DIRECTORS, EXECUTIVE BEFORE OFFERING AFTER OFFERING BEFORE OFFERING OFFICERS AND 5% ------------------------------SHARES TO ----------------------------------------------- STOCKHOLDERS SHARES %(3) BE SOLD SHARES %(3) SHARES %(3) - -------------------- ------------ ------------------ ------------ -------------------- --------- Wingate Partners, L.P... 6,045,823(4) 50.3% 1,988,740 4,057,083 24.1% 4,908(5) 63.2% 750 N. St. Paul Street, Suite 1200 Dallas, Texas 75201 ASI Partners, L.P....... 1,799,588(6) 15.7 481,021 1,318,567 7.8 1,889 24.3 301 Commerce Street, Suite 3300 Ft. Worth, Texas 76102 Cumberland Capital Cor- poration............... 1,799,588(6) 15.7 481,021 1,318,567 7.8 1,889(7) 24.3 301 Commerce Street, Suite 3300 Ft. Worth, Texas 76102 Chase Manhattan......... 1,235,061(8) 9.7 673,111 561,950 3.3 -- -- Investment Holdings, Inc. 1 Chase Manhattan Plaza New York, NY 10081 Daniel H. Bushell....... 228,737(9) 2.0 5,072 223,665 1.3 -- -- James T. Callier, Jr. .. -- -- -- -- -- -- -- Robert H. Cornell....... 60,480(10) * -- 60,480 * -- -- Daniel J. Good.......... 257,943(11) 2.2 111,135 146,808 * --(12) -- Otis H. Halleen......... 30,240(13) * -- 30,240 * -- -- Frederick B. Hegi, Jr. ....................... -- -- -- -- -- -- -- Jeffrey K. Hewson....... 6,958(14) * -- 6,958 * -- -- James A. Johnson(15).... 19,171 * 4,977 14,194 * 23 * Gary G. Miller(16)...... -- -- -- -- -- -- -- James A. Pribel......... 20,240(17) * -- 20,240 * -- -- Michael D. Rowsey(15)... 299,063(18) 2.6 21,952 277,111 1.6 83(15) 1.1 Ted S. Rzeszuto(15)..... 31,350(19) * -- 31,350 * -- -- Steven R. Schwarz....... 120,628(20) 1.0 -- 120,628 * -- -- Joel D. Spungin......... 33,004 * -- 33,004 * -- -- Albert Shaw............. 60,078(21) * -- 60,078 * -- -- Thomas W. Sturgess...... 6,245,823(22) 53.6 1,988,740 4,257,083 25.3 4,908(23) 63.2 Ergin Uskup............. 60,126(24) * -- 60,126 * -- -- All current directors and executive officers as a group (17 per- sons).................. 7,473,841(16)(25) 57.1% 2,131,876 5,341,965 30.0% 5,014(12) 64.6%
- -------- *Represents less than 1.0%. (1) All references herein to Employee Stock Options assume that (i) the amendment to the Company's stock option plan will be approved by the requisite vote of the holders of Common Stock at the Company's annual meeting to be held in May 1996 and (ii) the consummation of the Offering will constitute a Vesting Event. (2) Information presented herein includes accrued but unpaid dividends on the Series A Preferred Stock. All shares of Preferred Stock will be redeemed with a portion of the proceeds of the Offering. See "Use of Proceeds." (3) For purposes of calculating the beneficial ownership of each stockholder, it was assumed (in accordance with the Securities and Exchange Commission's definition of "beneficial ownership") that such stockholder had exercised all options, conversion rights or warrants by which such stockholder had the right, within 60 days following , 1996, to acquire shares of such class of stock. (4) Includes (i) 4,268,577 shares owned by Wingate Partners, (ii) 1,117,374 shares owned by Wingate II, (iii) 74,094 shares owned by Wingate Affiliates and (iv) 19,634 shares owned by Wingate Affiliates II. Also 59 includes Lender Warrants exercisable for an aggregate of 419,482 shares (or shares of Nonvoting Common Stock, at the holder's option) purchased by such entities from one of Associated's former senior lenders and Preferred B Warrants exercisable for an aggregate of 146,662 shares purchased by such entities from the former holder of Series B Preferred Stock. (5) Includes (i) 4,824 shares of Series A Preferred Stock owned by Wingate Partners and (ii) 84 shares owned by Wingate Affiliates. (6) Includes (i) 1,430,401 shares owned by ASI Partners, L.P., (ii) 156,304 shares owned by ASI Partners II, L.P., (iii) 40,084 shares owned by ASI Partners III, L.P. and (iv) 154,125 shares owned by Cumberland. Cumberland serves as the general partner of ASI Partners, L.P., ASI Partners II, L.P. and ASI Partners III, L.P. Also includes Preferred B Warrants exercisable for an aggregate of 18,674 shares purchased by ASI Partners III, L.P. from the former holder of Series B Preferred Stock. (7) Includes 1,889 shares of Series A Preferred Stock owned by ASI Partners, L.P., as to which Cumberland serves as general partner. (8) Includes (i) 758,994 shares owned by such holder and (ii) 476,067 shares (or shares of Nonvoting Common Stock, at the holder's option) issuable upon exercise of Lender Warrants which are immediately exercisable at $0.10 per share. Subject to certain restrictions, the Nonvoting Common Stock is convertible at any time at the option of the holder into shares of Common Stock for no additional consideration. See "Certain Transactions--Lender Warrants" and "Description of Capital Stock--Lender Warrants." (9) Includes (i) 19,538 shares owned by or for the benefit of Mr. Bushell, (ii) 89,199 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $1.45 per share, (iii) 15,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iv) 105,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (10) Includes (i) 480 shares owned by Mr. Cornell, (ii) 7,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 52,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (11) Includes Lender Warrants exercisable for an aggregate of 42,804 shares (or shares of Nonvoting Common Stock, at the holder's option) purchased by Mr. Good from one of Associated's former senior lenders. Also includes Preferred B Warrants exercisable for an aggregate of 16,852 shares purchased by trusts for which Mr. Good serves as trustee from the former holder of Series B Preferred Stock and 36,173 shares of Common Stock held by such trusts. Does not include 363,899 shares owned by Good Capital. Mr. Good is Chairman and a controlling stockholder of Good Capital and, accordingly, may be deemed to beneficially own the shares owned of record by Good Capital. (12) Does not include 287 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 (i) 240 shares owned by Mr. Halleen, (ii) 3,750 shares issuable upon exercise of Employee Stock Options which are subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 26,250 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (14) Includes (i) 2,076 shares owned by Mr. Hewson and (ii) 4,882 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share. Does not include 9,766 shares issuable upon exercise of Employee Stock Options that are not exercisable within 60 days. (15) Includes shares owned directly and by an individual retirement account for the sole benefit of such individual. (16) Does not include shares owned by ASI Partners, L.P., ASI Partners II, L.P., ASI Partners III, L.P. or Cumberland. Mr. Miller is President and a stockholder of Cumberland and, accordingly, may be deemed 60 to beneficially own the shares owned of record by ASI Partners, L.P., ASI Partners II, L.P., ASI Partners III, L.P. and Cumberland. (17) Includes (i) 240 shares owned by Mr. Pribel, (ii) 2,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 17,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (18) Includes (i) 84,557 shares owned by or for the benefit of Mr. Rowsey, (ii) 94,506 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $1.45 per share, (iii) 15,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iv) 105,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (19) Includes (i) 1,350 shares owned by or for the benefit of Mr. Rzeszuto, (ii) 3,750 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 26,250 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (20) Includes (i) 628 shares owned by Mr. Schwarz, (ii) 15,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 105,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (21) Includes (i) 78 shares owned by Mr. Shaw, (ii) 7,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 52,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (22) Includes (i) 120,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (ii) 80,000 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. Does not include 160,000 shares issuable upon exercise of Employee Stock Options that are not exercisable within 60 days. Also includes all 6,045,823 shares beneficially owned by Wingate Partners. Mr. Sturgess serves as a general partner of various Wingate entities, including the indirect general partner of Wingate Partners. Although Mr. Sturgess has not actively participated in the management of such entities since December 31, 1995, as a result of such relationship, Mr. Sturgess may be deemed to beneficially own shares held by Wingate Partners. (23) Includes all 4,908 shares beneficially owned by Wingate Partners. Mr. Sturgess serves as a general partner of various Wingate entities, including the indirect general partner of Wingate Partners. Although Mr. Sturgess has not actively participated in the management of such entities since December 31, 1995, as a result of such relationship, Mr. Sturgess may be deemed to beneficially own shares held by Wingate Partners. (24) Includes (i) 126 shares owned by Mr. Uskup, (ii) 7,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $5.12 per share and (iii) 52,500 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at $12.50 per share. (25) Includes all securities beneficially owned by the current directors and executive officers of the Company, including an aggregate of (i) 5,839,453 shares of Common Stock, (ii) 1,008,587 shares issuable upon exercise of Employee Stock Options which are, subject to certain restrictions, immediately exercisable at exercise prices ranging between $1.45 and $12.50 per share and (iii) 625,801 shares issuable upon exercise of Warrants. SELLING STOCKHOLDERS The following table sets forth the number of shares of Common Stock (on a fully diluted basis) (i) owned by the Selling Stockholders as of the date of this Prospectus, (ii) to be sold by the Selling Stockholders in the Offering and (iii) to be owned by the Selling Stockholders immediately following the Offering. 61
PERCENT SHARES OWNED SHARES TO BE SHARES OWNED BENEFICIALLY SELLING STOCKHOLDER BEFORE OFFERING SOLD IN OFFERING AFTER OFFERING OWNED - ------------------- --------------- ---------------- -------------- ------------ Wingate Partners, L.P... 4,491,164 1,477,343 3,013,821 17.9% Wingate Partners II, L.P.................... 1,451,153 477,349 973,804 5.8% Wingate Affiliates, L.P.................... 77,957 25,644 52,313 * Wingate Affiliates II, L.P.................... 25,549 8,404 17,145 * PAT Investments......... 2,385 619 1,766 * James A. Johnson(2)..... 19,171 4,977 14,194 * ASI Partners, L.P....... 1,430,401 371,350 1,059,051 6.3% ASI Partners II, L.P.... 156,304 40,578 115,726 * ASI Partners III, L.P... 58,757 29,080 29,677 * Cumberland Capital Cor- poration............... 154,125 40,013 114,112 * Daniel J. Good.......... 204,918 84,891 120,027 * Good Capital Co., Inc... 363,899 94,473 269,426 1.6% Julie Good Mora Grantor Trust.................. 26,513 13,122 13,391 * Laura Good Stathos Grantor Trust.......... 26,513 13,122 13,391 * Chase Manhattan Invest- ment Holdings, Inc..... 1,235,061 673,111 561,950 3.3% Daniel H. Bushell(1).... 228,737 5,072 223,665 1.3% Robert W. Eberspacher(1)(2)...... 214,947 5,000 209,947 1.2% John D. Kennedy(1)...... 70,845 1,014 69,831 * Lawrence E. Mill- er(1)(2)............... 151,633 16,068 135,565 * Duane J. Ratay(2)....... 43,468 11,285 32,183 * Michael D. Rowsey(1)(2)........... 299,063 21,952 277,111 1.6% Daniel J. Schleppe(1)(2)......... 168,905 21,952 146,953 * Neal Bailey(1)(2)....... 16,426 4,264 12,162 * William R. Bazant....... 12,461 3,235 9,226 * Theresa K. Blake(1)(2).. 8,930 2,059 6,871 * Robert Deiters(2)....... 16,426 4,264 12,162 * William Figurelli....... 12,461 3,235 9,226 * Jeff Frantz............. 12,461 3,235 9,226 * David M. Grove(1)....... 4,266 588 3,678 * Thomas M. Hupp(2)....... 12,461 3,235 9,226 * Thomas Koppelman(1)(2).. 16,426 4,264 12,162 * Kenneth Larson(2)....... 16,426 4,265 12,161 * James Lyon.............. 1,133 294 839 * Rudy Mayo(1)(2)......... 36,426 4,264 32,162 * Paul Pisarski(1)(2)..... 36,426 4,264 32,162 * Roger Richey(2)......... 16,426 4,264 12,162 * Glenn E. Stephens....... 16,426 4,264 12,162 * Ralph P. Swiatek(2)..... 12,461 3,000 9,461 * Thomas Trost(2)......... 16,426 4,264 12,162 * Cheryl Zupke(1)(2)...... 7,930 2,059 5,871 * Craig Zupke(1).......... 36,426 4,264 32,162 *
- -------- *Represents less than 1.0%. (1) Such person was employed by the Company as of February 12, 1996. (2) Includes shares owned directly and/or by an individual retirement account for the sole benefit of such individual. See "Management--Directors and Executive Officers" and "Certain Transactions" for a description of material relationships between the Company and the Selling Stockholders during the past three years. The Company will pay all expenses of the Offering attributable to the Selling Stockholders (excluding underwriting discounts and commissions relating to shares of Common Stock to be sold by the Selling Stockholders). The Selling Stockholders have granted the Underwriters an option to purchase up to an additional 1,050,000 shares of Common Stock solely to cover over-allotments in the sale of the shares in the Offering. Such shares will be sold by the Selling Stockholders on a pro-rata basis in the same proportion to the number of shares reflected in the table. 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have outstanding approximately 16,825,839 shares of Common Stock. In addition, 289,088 shares of Common Stock will be issuable upon exercise of outstanding Warrants and 2,591,768 shares will be issuable upon exercise of Employee Stock Options. Of the shares that will be outstanding after this Offering, approximately 10,470,832 shares (not including 289,088 shares issuable upon exercise of Lender Warrants) will be freely tradable without restriction or further registration under the Securities Act. All of the remaining 6,355,007 shares of Common Stock held by existing stockholders and 2,591,768 shares issuable upon exercise of Employee Stock Options will be "restricted" securities within the meaning of the Securities Act as a result of the issuance thereof in private transactions not involving a public offering. The "restricted" securities may not be resold unless they are registered under the Securities Act or are sold pursuant to an available exemption from registration, including Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least two years (including the holding period of any prior owner except an "affiliate" (as that term is defined in Rule 144)) is entitled to sell, within any three-month period, a number of those shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Common Stock (approximately 168,258 shares immediately after this Offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and requirements as to the availability of current public information concerning the Company. Rule 144 provides that a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned shares for at least three years (including the holding period of any prior owner except an "affiliate") is entitled to sell those shares under Rule 144(k) without regard to the limitation described above. In June 1995, the Commission proposed reducing the two-year and three-year holding periods described above to one year and two years, respectively. After completion of the Offering and expiration of the 180-day lockup agreement described below, 6,355,007 shares (5,305,007 shares if the Underwriters' over-allotment options are exercised in full) of Common Stock held by stockholders prior to the consummation of the Offering will be eligible for sale on the open market under Rule 144 (as currently in effect), subject to the volume and manner of sales limitations referred to above, commencing March 31, 1997. Certain stockholders and holders of Warrants have been granted certain rights with respect to registration under the Securities Act of shares of Common Stock held by them. Pursuant to the Lender Registration Rights Agreement, the Company has effected a shelf registration with respect to all 289,088 shares of Common Stock issuable upon exercise of the Lender Warrants. See "Certain Transactions--Certain Agreements Regarding the Common Stock" and "--Lender Warrants." The Company also intends to register under the Securities Act the shares of Common Stock issuable upon exercise of certain Employee Stock Options after the plan under which such options were granted has received stockholder approval, which is expected to be obtained at the Company's annual meeting to be held in May 1996. The Company's directors and executive officers, the Selling Stockholders and certain other significant stockholders of the Company have agreed that, for the period of up to 180 days following the date of this Prospectus, each will not (i) directly or indirectly, offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to (collectively, a "Disposition"), of any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock (collectively, the "Securities"), now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, otherwise than (a) the shares offered hereby by such persons, (b) as a bona fide gift or gifts, provided the donee or donees thereof agree to be bound in writing by the terms of the "lock-up" agreement, (c) as a distribution to limited partners or stockholders of the undersigned, provided that the distributees thereof agree in writing to be bound by the terms of the "lock-up" agreement, or (d) with prior written consent of the Representatives or (ii) 63 make any demand for or exercise any right with respect to the registration of any Securities. In addition, the Company has agreed that, during the period of up to 180 days from the date of this Prospectus, it will not, without the prior written consent of the Representatives, either directly or indirectly, effect a Disposition with respect to any Securities, other than the shares offered hereby and the Company's issuance of Common Stock upon the exercise of the Employee Stock Options. The Company can make no prediction as to the effect, if any, that sales of shares or the availability of shares for sale will have on the market price for the Common Stock prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. See "Risk Factors--Impact of Shares Eligible for Future Sale." 64 DESCRIPTION OF CAPITAL STOCK CAPITAL STOCK OF THE COMPANY The authorized capital stock of the Company consists of 46,500,000 shares, consisting of (a) 1,500,000 shares of a class designated as Preferred Stock, $0.01 par value ("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, 11,446,306 shares of Common Stock, 758,994 shares of Nonvoting Common Stock and an aggregate of 15,862 shares of preferred stock, consisting of 5,000 shares of Series A Preferred Stock, no shares of Series B Preferred Stock and 10,862 shares of Series C Preferred Stock were outstanding as of February 12, 1996. In addition, as of such date, dividends on the Series A Preferred Stock consisting of an aggregate of 2,600 shares of Series A Preferred Stock had accrued and not been paid, and Employee Stock Options exercisable for an aggregate of 2,591,768 shares of Common Stock and Warrants exercisable for an aggregate of 1,409,627 shares of Common Stock were outstanding. Holders of shares of Common Stock and Nonvoting Common Stock are entitled to share ratably in such dividends as may be declared by the Board of Directors and paid by the Company out of funds legally available therefor, subject to prior rights of outstanding shares of any preferred stock and certain restrictions under agreements governing the Company's indebtedness. See "Common Stock Price Range and Dividend Policy" and "Description of Indebtedness." In the event of any dissolution, liquidation or winding up of the Company, holders of shares of Common Stock and Nonvoting Common Stock are entitled to share ratably in assets remaining after payment of all liabilities and liquidation preferences, if any. Except as otherwise required by law, the holders of Common Stock are entitled to one vote per share on all matters voted on by stockholders, including the election of directors. The holders of a majority of shares of Common Stock represented at a meeting of stockholders can elect all of the directors to be elected at such a meeting. Holders of shares of Common Stock have no preemptive, cumulative voting, subscription, redemption or conversion rights. The currently outstanding shares of Common Stock are fully paid and nonassessable, and the shares of Common Stock to be outstanding upon completion of the Offering will be fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to the rights of any series of preferred stock which the Company may issue in the future. Shares of Nonvoting Common Stock are entitled to all rights granted to, and subject to all restrictions imposed on, shares of Common Stock, other than the right to vote. Subject to certain restrictions, shares of Nonvoting Common Stock are convertible at any time at the option of the holder thereof into shares of Common Stock for no additional consideration. Preferred Stock The Company intends to redeem all outstanding shares of Preferred Stock with a portion of the proceeds from this Offering. See "Use of Proceeds." The Board of Directors may, without further action by the Company's stockholders, from time to time, authorize the issuance of shares of preferred stock in series and may, at the time of issuance, determine the powers, rights, preferences and limitations of any such series. Satisfaction of any dividend preferences on outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on Common Stock. Also, holders of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding up of the Company before any payment is made to the holders of Common Stock. Under certain circumstances, the issuance of such preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of the Company's securities or the removal of incumbent directors. LENDER WARRANTS The Company expects that Lender Warrants exercisable for an aggregate of 289,088 shares of Common Stock will remain outstanding after the Offering. The Lender Warrants contain customary antidilution provisions and are exercisable through January 31, 2002. In addition, the Company is entitled to repurchase the Lender 65 Warrants at any time after January 31, 1999 at the greater of the then fair market value of the shares of Common Stock (less the applicable exercise price for the Lender Warrants) or the Equity Value (which is defined generally as (i) five times the Company's and its consolidated subsidiaries' earnings before interest, taxes and depreciation and amortization minus (ii) non-convertible debt of the Company and its consolidated subsidiaries minus (iii) preferred stock of the Company plus (iv) cash and cash equivalents). In the event the Company repurchases Lender Warrants or shares of Common Stock pursuant to the call option granted under the Lender Warrants and, within twelve months after the date of such repurchase, the Company, any subsidiary of the Company, 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 the Company or sale of all or substantially all of the assets of the Company or any subsidiary of the Company (a "Look Back Event"), then the Company is required to make a payment to each holder whose Lender Warrants or shares of Common Stock were repurchased in an amount generally equal to (i) the excess of the fair market value of the consideration received by the Company, the subsidiaries and the stockholders of the Company (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 the Company of its call option plus (b) imputed interest on such amount through the date of repurchase at the base rate under the Company's existing senior credit agreement. The Lender Warrants also contain certain put rights which require the Company 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 the Company or USSC upon the exercise of the put rights is the greater of the then fair market value of the shares of Common Stock (less the applicable exercise price of the Lender Warrants) or the Equity Value. Because Associated refinanced all of its existing indebtedness and triggered the put rights in connection with the Acquisition, the Lender Warrant Agreement was amended to provide that no put rights may be exercised thereunder until February 10, 1996. The Lender Warrants may be put to the Company at any time prior to consummation of the Offering, at which time such put rights will terminate. 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 of Common Stock by Wingate Partners, Cumberland, Good Capital or any of their subsidiaries, affiliates (but excluding any limited partners of Wingate Partners 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 the Company in a private offering, (ii) all or substantially all of the assets of the Company are sold and the proceeds of such sale are distributed to the stockholders of the Company or (iii) the Company participates in a merger or consolidation. In the event Wingate Partners exercises its "go along rights" in connection with the occurrence of one of the events described above, each holder of Lender Warrants would become obligated to sell all Lender Warrants and shares of Common Stock held by such holders in the applicable transaction and to vote all shares of Common Stock in favor of such transaction. 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 the Company 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 Associated term loans in effect prior to the Merger of at least 25%. The Refunded Amount ranges from 10% 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 Associated term loans in effect prior to the Merger exceeds 25%. Pursuant to the terms of the Lender Warrants, if, at any time, the Company does not have securities registered under Section 12(b) or 12(g) of the Exchange Act and is not required to file reports under Section 66 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 of Common Stock by the Company and to board observation rights for meetings of the Boards of Directors of the Company and its subsidiaries. The 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 of Common Stock, (iii) the redemption of shares of Common Stock, (iv) changes of the fiscal year of the Company, (v) the taking of actions that would cause the Company or any subsidiary of the Company to own less than 80% of any subsidiary of the Company, except that the Company and each subsidiary of the Company may own a percentage of the stock of any such subsidiary not lower than the percentage owned at the effective time of the Merger, (vi) delivery of financial statements of the Company and (vii) indemnification. PREFERRED B WARRANTS The Company expects that all Preferred B Warrants will be exercised immediately prior to the Offering. The Preferred B Warrants contain customary antidilution provisions and are exercisable through January 31, 2002. The Preferred B Warrants provide the holders thereof with certain "tag along rights" which entitle such holders to participate, on a pro rata basis, in certain sales of shares of Common Stock by Wingate Partners, Cumberland, Good Capital or any other controlling stockholder of the Company. Pursuant to the Preferred B Warrants, Wingate Partners has been granted certain "go along rights" which are triggered (subject to certain exceptions) in the event (i) Wingate Partners sells 100% of its equity interest in the Company in a private offering, (ii) all or substantially all of the assets of the Company are sold and the proceeds of such sale are distributed to the stockholders of the Company or (iii) the Company participates in a merger or consolidation. In the event Wingate Partners exercises its "go along rights" in connection with the occurrence of one of the events described above, each holder of Preferred B Warrants would become obligated to sell all Preferred B Warrants and shares of Common Stock held by such holders in the applicable transaction and to vote all shares of Common Stock in favor of such transaction. Pursuant to the terms of the Preferred B Warrants, if, at any time, the Company does not have securities registered under Section 12(b) or 12(g) of the Exchange Act and is not required to file reports under Section 15(d) of the Exchange Act, the holders of the Preferred B Warrants will be entitled to preemptive rights with respect to certain issuances of shares of Common Stock by the Company and to board observation rights for meetings of the Boards of Directors of the Company and its subsidiaries. The Preferred B Warrants also contain certain covenants and agreements with respect to, among other things, (i) transactions with affiliates (other than certain specified transactions with Wingate Partners, Cumberland and Good Capital), (ii) certain mergers, reorganizations, recapitalizations and other events with respect to the shares of Common Stock, (iii) the repurchase or redemption of shares of Common Stock, (iv) changes of the fiscal year of the Company, (v) the taking of actions that would cause the Company or any subsidiary of the Company to own less than 80% of any subsidiary of the Company, except that the Company and each subsidiary of the Company may own a percentage of the stock of any such subsidiary not lower than the percentage owned at the effective time of the Merger, (vi) delivery of financial statements of the Company and (vii) indemnification. SPECIAL PROVISIONS OF THE CHARTER AND BYLAWS The Charter and Bylaws provide include certain provisions that could have anti-takeover effects. The provisions are intended to enhance the likelihood of continuity and stability in the composition of, and in the policies formulated by, the Board of Directors. These provisions are also intended to help ensure that the Board of Directors, if confronted by an unsolicited proposal from a third party that has acquired a block of stock of the Company, will have sufficient time to review the proposal, to develop appropriate alternatives to the proposal, and to act in what the Board of Directors believes to be the best interests of the Company and its stockholders. The provisions of the Charter described under "Classified Board of Directors" and "Vote Required for Certain Business Combinations" below may not be amended or repealed unless approved by holders of at least 80% of the voting power of the then outstanding Common Stock. 67 The following is a summary of the provisions of the Charter and Bylaws and is qualified in its entirety by reference to such documents in their respective forms filed as exhibits to the Registration Statement of which this Prospectus forms a part. Classified Board of Directors. The Charter provides for three classes of directors, which serve staggered three-year terms and which shall be elected by the holders of the Common Stock. Under certain circumstances, the classification of directors has the effect of making it more difficult for stockholders to change the composition of the Board of Directors in a relatively short period of time. Given the current structure of the Company's Board of Directors, at least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the Board of Directors at any time when the Company has seven or more directors. Vote Required for Certain Business Combinations. The Company is subject to Section 203 of the Delaware General Corporation Law, as amended (the "DGCL"), which prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless one of the following events occurs: (i) prior to the date of the business combination, the transaction is approved by the board of directors of the corporation, (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock or (iii) on or after such date the business combination is approved by the board and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" for purposes of the DGCL is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. In addition, the Charter provides that certain transactions involving an "interested stockholder" require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Common Stock. Such transactions include certain (i) mergers or consolidations of the Company, (ii) sales, leases, pledges and similar transactions involving the Company's assets, (iii) issuances or transfers of the Company's securities, (iv) adoptions of a plan of liquidation or dissolution of the Company and (v) reclassifications and recapitalizations of the Company. Such vote requirement is in addition to that required by the DGCL as described in the preceding paragraph. An "interested stockholder" for purposes of the Charter is a person who beneficially owns 20% or more of the Company's voting stock or an affiliate of the Company who at any time within the previous two years beneficially owned 20% or more of the Company's voting stock. Wingate constitutes an "interested stockholder for purposes of both the DGCL and the Charter. Limitations on Directors' Liability. The Charter provides that, to the fullest extent permitted by Delaware law, no director shall be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. By virtue of these provisions, a director of the Company is not personally liable for monetary damages for a breach of such director's fiduciary duty except for liability for (i) breach of the duty of loyalty to the Company or to its stockholder, (ii) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) dividends or stock repurchases or redemptions that are unlawful under the DGCL and (iv) any transaction from which such director receives an improper personal benefit. In addition, the Charter provides that if the DGCL is amended to authorize the further elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the DGCL. 68 DESCRIPTION OF INDEBTEDNESS CREDIT FACILITIES Immediately prior to acceptance for payment of shares of Common Stock in the Tender Offer, Associated and ASI entered into the Credit Agreement with Chase Bank, as agent, and a group of banks and financial institutions (including Chase Bank, the "Senior Lenders"), providing for (i) the Term Loan Facilities consisting of the Tranche A Facility in an aggregate principal amount of $125.0 million and the Tranche B Facility in an aggregate principal amount of $75.0 million and (ii) the Revolving Credit Facility in an aggregate principal amount of up to $300.0 million, including a $90.0 million sublimit available for issuance of letters of credit. Upon consummation of the Merger, the obligations of Associated and ASI in respect of the Credit Agreement were assumed by the Company and USSC, respectively. The Revolving Credit Facility was amended as of December 21, 1995 to increase the amount available thereunder to an aggregate of $325.0 million. A portion of the Term Loan Facilities was repaid with a portion of the proceeds from the Notes. See "-- Notes." The following is a summary of the principal terms of the 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 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 USSC'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, 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 $3.63 million) are 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 $6.05 million for each of the eight consecutive calendar quarters commencing with the quarter ending June 30, 1996 and $7.26 million 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 $0.24 million each) will be due on the last day of each of the first twenty calendar quarters which commenced with the quarter ended June 30, 1995. The remaining eight installments in the aggregate principal amount of $8.47 million 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. As of December 31, 1995, $87.4 million remained available for borrowing under the Revolving Credit Facility. The Revolving Credit Facility is subject to (i) a borrowing base equal to 80% of Eligible Receivables (as defined) plus 50% of Eligible Inventory (as defined in the Credit Agreement) (provided that no more than 60% or, during certain periods 65%, of the Borrowing Base may be attributable to Eligible Inventory) plus the aggregate amount of cover for Letter of Credit Liabilities (as defined) and (ii) the requirement that, for each fiscal year commencing January 1, 1996, USSC must repay revolving loans so that for a consecutive period of 30 days in each fiscal year the aggregate revolving loans do not exceed $200.0 million. 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 $15.0 million received from the issuance of equity by USSC or any of its subsidiaries after the consummation of the Merger, (ii) net proceeds from certain asset sales in excess of $10.0 million and (iii) 50% of USSC's Excess Cash Flow (as defined) if the 69 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 USSC's Excess Cash Flow. A waiver under the Credit Agreement has been obtained with respect to the application of the Company's net proceeds from the Offering as described herein. Optional prepayments under the Term Loan Facilities will be applied, pro rata to loans outstanding under the 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 the Company, and will be guaranteed by all of the direct and indirect domestic subsidiaries of USSC (if any). The Term Loan Facilities and the Revolving Credit Facility are secured by perfected first priority pledges of the stock of USSC, all of the stock of the domestic direct and indirect subsidiaries of USSC and certain of the stock of all of the foreign direct and indirect subsidiaries of USSC and security interests in and liens upon all accounts receivable, inventory, contract rights and other personal and certain real property of USSC and its domestic subsidiaries. The Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for financings of the type. The Company and USSC are obligated under the Credit Agreement to indemnify the Senior Lenders (and their respective officers, directors, employees and affiliates) against certain liabilities in connection with the Acquisition and the Credit Facilities. At the closing of the Acquisition, shares of Associated nonvoting common stock representing 278,949 shares of Nonvoting Common Stock were issued to CMIHI, an affiliate of Chase Bank. See "Certain Transactions--Certain Interests of Chase Bank." NOTES The Notes were issued on May 3, 1995 pursuant to the Indenture. As of February 12, 1996, the aggregate outstanding principal amount of Notes was $150.0 million. The Notes are unsecured senior subordinated obligations of USSC, and payment of the Notes is fully and unconditionally guaranteed by the Company on a senior subordinated basis. The Notes mature on May 1, 2005, and bear interest at the rate of 12 3/4% per annum, payable semiannually on May 1 and November 1 of each year. The net proceeds to the Company from the sale of the Notes were $145.5 million (after an underwriter discount of $4.5 million). Such net proceeds were used to (i) repay the Subordinated Bridge Facility, scheduled to mature on March 29, 1996, in the principal amount of $130.0 million, plus accrued interest thereon (at an annual rate of 13%) of approximately $1.6 million, (ii) repay approximately $4.1 million of the outstanding amounts under the Tranche A Facility, scheduled to mature serially through March 31, 2000, plus accrued interest thereon (at an annual rate of 8.9%) of approximately $0.02 million, (iii) repay approximately $2.4 million of the outstanding amounts under the Tranche B Facility, scheduled to mature serially through March 31, 2002, plus accrued interest thereon (at an annual rate of 9.4%) of approximately $0.01 million, (iv) pay a dividend to the Company in the aggregate amount of $7.0 million to effect the Series B Repurchase and (v) pay certain expenses. The Indenture provides that, on or prior to May 1, 1998, USSC may redeem, at its option (the "Equity Clawback Option"), up to $50.0 million aggregate principal amount of Notes with the proceeds of one or more Public Equity Offerings (as 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 70 $100.0 million remain outstanding immediately after any such redemption. The Company intends to contribute a portion of the proceeds from this Offering to USSC, so that USSC may redeem $50.0 million aggregate principal amount of Notes and pay the redemption premium thereon of approximately $6.4 million in accordance with this provision. Such redemption shall be made on a pro rata basis. In addition, the Notes are redeemable at the option of USSC at any time on or after May 1, 2000, in whole or in part, at the following redemption prices (expressed as percentages of principal amount):
REDEMPTION YEAR PRICE ---- ---------- 2000.............................................................. 106.375% 2001.............................................................. 104.781% 2002.............................................................. 103.188% 2003.............................................................. 101.594%
and thereafter at 100.0% of the principal amount, in each case together with accrued and unpaid interest, if any, to the redemption date. Upon the occurrence of a change of control (which term includes the acquisition by any person or group of more than 50% of the voting power of the outstanding Common Stock or certain significant changes in the composition of the Board of Directors), each holder of a Note may require USSC to redeem 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 such redemption. Such obligation, if it arose, could have a material adverse effect on the Company. Furthermore, such provision could delay, deter or prevent a takeover attempt. The Indenture governing the Notes contains certain covenants, including limitations on the incurrence of indebtedness, the making of restricted payments, transactions with affiliates, the existence of liens, disposition of proceeds of asset sales, the making of guarantees by restricted subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of certain payment restrictions on restricted subsidiaries and certain mergers and sales of assets. Such covenants may interfere with USSC's ability to pay dividends to the Company. See "Risk Factors--Restrictions on Payment of Dividends." Upon consummation of the sale of the Notes, certain pre-Merger holders of Associated common stock and securities exercisable for such shares contributed to the Company shares of Common Stock and securities exercisable or convertible into Common Stock representing an aggregate of 278,949 shares of Common Stock, in exchange for which the Company issued 278,949 shares of Nonvoting Common Stock to CMIHI, an affiliate of Chase Bank, for services rendered by CMIHI in connection with the Acquisition. See "Certain Transactions--Certain Interests of Chase Bank." 71 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom Bear, Stearns & Co. Inc., Dean Witter Reynolds Inc. and Goldman, Sachs & Co. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock set forth below opposite their respective names. The Underwriters are obligated to purchase and pay for all of such shares of Common Stock if any are purchased.
NUMBER OF SHARES OF UNDERWRITER COMMON STOCK ----------- ------------ Bear, Stearns & Co. Inc. .......................................... Dean Witter Reynolds Inc. ......................................... Goldman, Sachs & Co. .............................................. --------- Total........................................................ 7,000,000 =========
The Underwriters have advised the Company that they propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the Underwriters) at such public offering price less a concession not to exceed $ per share. The selected dealers may reallow a concession to certain other dealers not to exceed $ per share. After the Offering, the public offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the Representatives. The Selling Stockholders have granted to the Underwriters an option exercisable for 30 days from the date of this Prospectus to purchase up to 1,050,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus less the underwriting discount. The Underwriters may exercise such option solely for the purpose of covering over- allotments incurred in the sale of the shares of Common Stock offered hereby. If the Underwriters exercise such option in part, each Selling Stockholder will sell shares in the proportion that the number of shares of such Selling Stockholder subject to option bears to the total number of shares subject to the option granted by the Selling Stockholders. To the extent the Underwriters exercise their option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of additional shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Underwriting Agreement provides that the Company and the Selling Stockholders will indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. 72 Pursuant to the Underwriting Agreement, the Company's directors and executive officers, the Selling Stockholders and certain other significant stockholders of the Company have agreed that, for the period of 180 days following the date of this Prospectus, each will not (i) directly or indirectly, make a Disposition of any Securities now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, otherwise than (a) the shares offered hereby by such persons, (b) as a bona fide gift or gifts, provided the donee or donees thereof agree to be bound in writing by the terms of the "lock-up" agreement, (c) as a distribution to limited partners or stockholders of the undersigned, provided that the distributees thereof agree in writing to be bound by the terms of the "lock-up" agreement, or (d) with prior written consent of the Representatives or (ii) make any demand for or exercise any right with respect to the registration of any Securities. In addition, the Company has agreed that, during the period of 180 days from the date of this Prospectus, it will not, without the prior written consent of the Representatives, either directly or indirectly, offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any Securities, other than the shares offered hereby and the Company's issuance of Common Stock upon the exercise of the Employee Stock Options. In general, the rules of the Commission prohibit the Underwriters from making a market in the Common Stock immediately preceding the commencement of sales in the Offering. The Commission has, however, adopted exemptions from these rules that permit passive market making under certain conditions. These rules permit an Underwriter to continue to make a market subject to the conditions, among others, that its bid not exceed the highest bid by a market maker not connected with the Offering and that its net purchases on any one trading day not exceed prescribed limits. Pursuant to these exemptions, certain Underwriters may engage in passive market making in the Common Stock during the cooling off period. LEGAL MATTERS Certain legal matters with respect to the Common Stock have been passed upon for the Company by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York, and for the Underwriters by Kirkland & Ellis, Chicago, Illinois (a partnership which includes professional corporations). EXPERTS The consolidated financial statements of the Company as of and for the year ended December 31, 1995, and the consolidated financial statements of United as of and for the seven months ended March 30, 1995, included in this Prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Associated as of December 31, 1994 and for the years ended December 31, 1993 and 1994 included in this Prospectus and 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 have been audited by Arthur Andersen LLP, as indicated in its reports with respect thereto, and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-2 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, 73 reference is made to the Registration Statement, including the exhibits thereto, which may be inspected without charge at the public reference facility maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which may be obtained from the Commission at prescribed rates. Statements made in this Prospectus concerning the contents of any document referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company with the Commission can be inspected without charge and copied, at prescribed rates, at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 2549, and the Regional Offices of the Commission at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York 10048. The Common Stock is listed on the Nasdaq National Market, and such reports, proxy statements and other information can also be inspected and copied at the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE This Prospectus incorporates by reference documents that are not presented herein or delivered herewith. The Company undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, upon the written or oral request of any such person, a copy of any or all of the documents incorporated by reference herein, other than the exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates. Written or oral requests for such copies should be directed to: United Stationers Inc., 2200 East Golf Road, Des Plaines, Illinois 60016-1267, Attention: Investor Relations, telephone number (847) 699-5000. The following documents, which have been filed by the Company with the Commission, are hereby incorporated by reference in this Prospectus: Transition Report on Form 10-K for the seven-month period ended March 30, 1995; and All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the period covered by the Transition Report referred to above. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of the filing of such documents. Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference in this Prospectus shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in this Prospectus or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. 74 INDEX TO FINANCIAL STATEMENTS UNITED STATIONERS INC. (THE COMPANY, PREVIOUSLY ASSOCIATED HOLDINGS, INC.) AND SUBSIDIARY Report of Independent Auditors............................................ F-2 Report of Independent Public Accountants.................................. F-3 Consolidated Balance Sheets as of December 31, 1994 and 1995.............. F-4 Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995............................................................ F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995................................................................. F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995...................................................... F-7 Notes to Consolidated Financial Statements................................ F-8 UNITED STATIONERS INC. AND SUBSIDIARIES Report of Independent Auditors............................................ F-22 Report of Independent Public Accountants.................................. F-23 Consolidated Balance Sheets as of August 31, 1993, August 31, 1994 and March 30, 1995............................................................ F-24 Consolidated Statements of Operations for the years ended August 31, 1992, August 31, 1993, August 31, 1994 and for the seven months ended March 31, 1994 (unaudited) and March 30, 1995...................................... F-26 Consolidated Statements of Changes in Stockholders' Investment for the years ended August 31, 1992, August 31, 1993, August 31, 1994 and for the seven months ended March 30, 1995........................................ F-27 Consolidated Statements of Cash Flows for the years ended August 31, 1992, August 31, 1993, August 31, 1994 and for the seven months ended March 31, 1994 (unaudited) and March 30, 1995...................................... F-28 Notes to Consolidated Financial Statements................................ F-29
F-1 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of United Stationers Inc.: We have audited the accompanying consolidated balance sheet of United Stationers Inc. and Subsidiary as of December 31, 1995 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Stationers Inc. and Subsidiary at December 31, 1995 and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, in 1995 the Company changed its method of valuing inventory from the first-in, first-out (FIFO) method to the last-in, first-out (LIFO) method. Chicago, Illinois January 29, 1996 F-2 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, 1994, and the related consolidated statements of income, stockholders' equity and cash flows 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, 1994, and the results of their operations and their cash flows 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 1 as to which the date is February 13, 1995) F-3 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, ------------------- 1994 1995 -------- ---------- ASSETS Current Assets Cash and cash equivalents................................. $ 1,849 $ 11,660 Accounts receivable, less allowance for doubtful accounts of $3,496 in 1994 and $7,315 in 1995..................... 45,139 265,827 Inventories............................................... 88,197 381,618 Other..................................................... 3,795 30,903 -------- ---------- Total Current Assets.................................... 138,980 690,008 -------- ---------- Property, Plant and Equipment, at cost Land...................................................... 7,315 24,856 Buildings................................................. 27,976 105,136 Fixtures and equipment.................................... 18,470 96,467 Leasehold improvements.................................... 1,514 1,634 Assets under capital lease................................ 3,002 3,002 -------- ---------- Total property, plant and equipment....................... 58,277 231,095 Less--accumulated depreciation and amortization........... 12,830 31,114 -------- ---------- Net Property, Plant and Equipment......................... 45,447 199,981 -------- ---------- Goodwill, net.............................................. 4,948 77,786 -------- ---------- Other...................................................... 3,104 33,608 -------- ---------- Total Assets............................................ $192,479 $1,001,383 ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt and capital leases... $ 5,901 $ 23,886 Accounts payable.......................................... 54,351 194,567 Accrued expenses.......................................... 20,473 107,622 Accrued income taxes...................................... 1,801 8,468 -------- ---------- Total Current Liabilities............................... 82,526 334,543 -------- ---------- Deferred Income Taxes...................................... -- 34,380 -------- ---------- Long-Term Obligations Long-term debt............................................ 55,467 526,198 Deferred obligations and other liabilities................ 4,872 18,505 -------- ---------- Total Long-Term Obligations............................. 60,339 544,703 -------- ---------- Redeemable Preferred Stock Preferred Stock Series A, $0.01 par value; 15,000 authorized; 5,000 issued and outstanding; 1,788 and 2,437, respectively, accrued............................. 6,788 7,437 Preferred Stock Series B, $0.01 par value; 15,000 authorized; 6,560 issued and outstanding in 1994......... 6,560 -- Preferred Stock Series C, $0.01 par value; 15,000 authorized; 9,841 and 10,604, respectively, issued and outstanding.............................................. 9,841 10,604 -------- ---------- Total Redeemable Preferred Stock........................ 23,189 18,041 -------- ---------- Redeemable Warrants........................................ 1,650 39,692 -------- ---------- Stockholders' Equity Additional preferred stock, $0.01 par value; 200,000 and 1,455,000, respectively, authorized; 0 issued and outstanding.............................................. -- -- Common Stock (voting), $0.10 par value; 40,000,000 authorized; 954,911 issued and outstanding; 5,435 accrued in 1994; 11,446,306 issued and outstanding in 1995 $0.01 par value .................................... 10 1,145 Common Stock (nonvoting), $0.01 par value; 5,000,000 authorized; 758,994 issued and outstanding in 1995....... -- 8 Capital in excess of par value............................ 18,139 28,871 Retained earnings......................................... 6,626 -- -------- ---------- Total Stockholders' Equity.............................. 24,775 30,024 -------- ---------- Total Liabilities and Stockholders' Equity.............. $192,479 $1,001,383 ======== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------ 1993 1994 1995 --------- --------- ---------- Net Sales..................................... $ 455,731 $ 470,185 $1,751,462 Cost of Goods Sold............................ 350,251 357,276 1,370,522 --------- --------- ---------- Gross profit................................ 105,480 112,909 380,940 Operating Expenses: Warehousing, marketing and administrative expenses................................... 94,502 94,788 313,624 Restructuring charge........................ -- -- 9,759 --------- --------- ---------- Total operating expenses.................... 94,502 94,788 323,383 --------- --------- ---------- Income from operations...................... 10,978 18,121 57,557 Interest Expense, net......................... 7,235 7,725 46,186 --------- --------- ---------- Income before income taxes and extraordinary item....................................... 3,743 10,396 11,371 Income Taxes.................................. 781 3,993 5,128 --------- --------- ---------- Income before extraordinary item............ 2,962 6,403 6,243 Extraordinary Item--loss on early retirement of debt, net of tax benefit of $967.......... -- -- (1,449) --------- --------- ---------- Net Income.................................... 2,962 6,403 4,794 Preferred Stock Dividends Issued and Accrued.. 2,047 2,193 1,998 --------- --------- ---------- Net Income Attributable to Common Stockholders................................. $ 915 $ 4,210 $ 2,796 ========= ========= ========== Net Income Per Common and Common Equivalent Share (Primary and Fully Diluted): Income before extraordinary item............ $ 0.11 $ 0.51 $ 0.33 Extraordinary item.......................... -- -- (0.11) --------- --------- ---------- Net income per common and common equivalent share...................................... $ 0.11 $ 0.51 $ 0.22 ========= ========= ========== Average Number of Common Shares Used in Primary Calculation.......................... 8,071,202 8,250,586 12,809,212 ========= ========= ========== Average Number of Common Shares Used in Fully Diluted Calculation.......................... 8,071,202 8,308,780 12,913,229 ========= ========= ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 UNITED STATIONERS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NUMBER OF NUMBER OF CAPITAL REDEEMABLE PREFERRED STOCK REDEEMABLE COMMON COMMON COMMON COMMON IN ------------------------------ WARRANTS SHARES STOCK SHARES STOCK EXCESS RETAINED A B C TOTAL OUTSTANDING (VOTING) (VOTING) (NONVOTING) (NONVOTING) OF PAR EARNINGS ------ ------ ------- ------- ----------- ---------- -------- ----------- ----------- ------- -------- DECEMBER 31, 1992.. $5,488 $5,384 $ 8,077 $18,949 $ 1,435 896,258 $ 9 -- $-- $ 8,956 $1,501 Net income........ -- -- -- -- -- -- -- -- -- -- 2,962 Stock dividends issued or accrued on preferred stock............. 650 559 838 2,047 -- -- -- -- -- -- (2,047) Other............. -- -- -- -- -- -- -- -- -- 41 -- ------ ------ ------- ------- ------- ---------- ------ ------- ---- ------- ------ DECEMBER 31, 1993.. 6,138 5,943 8,915 20,996 1,435 896,258 9 -- -- 8,997 2,416 Net income........ -- -- -- -- -- -- -- -- -- -- 6,403 Stock dividends issued or accrued on preferred stock............. 650 617 926 2,193 -- -- -- -- -- -- (2,193) Other............. -- -- -- -- -- -- -- -- -- 51 -- Issuance of common shares..... -- -- -- -- -- 58,653 1 -- -- 8,999 -- Common shares accrued........... -- -- -- -- -- 5,435 -- -- -- 63 -- Warrants accrued........... -- -- -- -- 215 -- -- -- -- 29 -- ------ ------ ------- ------- ------- ---------- ------ ------- ---- ------- ------ DECEMBER 31, 1994.. 6,788 6,560 9,841 23,189 1,650 960,346 10 -- -- 18,139 6,626 Net income........ -- -- -- -- -- -- -- -- -- -- 4,794 Stock dividends issued or accrued on Preferred Stock............. 649 332 763 1,744 -- -- -- -- -- -- (1,744) Repurchase of Series B Preferred Stock... -- (6,892) -- (6,892) -- -- -- -- -- -- -- Cash dividends.... -- -- -- -- -- -- -- -- -- -- (360) Accretion of warrants to fair market value...... -- -- -- -- 37,275 -- -- -- -- (28,538) (8,737) Issuance of warrants resulting from option grant...... -- -- -- -- 2,900 -- -- -- -- (2,900) -- Nonvoting common stock issued for services related to financing the Acquisition issued in exchange for common stock, warrants and options........... -- -- -- -- (460) (109,159) (11) 139,474 1 2,749 -- Increase in value of stock option grants............ -- -- -- -- -- -- -- -- -- 2,449 -- Common stock issued: Acquisition..... -- -- -- -- -- 4,831,873 563 215,614 3 35,223 -- Issuance of common stock from exercise of warrants........ -- -- -- -- (1,673) 58,977 6 -- -- 1,673 -- 100% stock dividend........ -- -- -- -- -- 5,683,463 575 403,906 4 -- (579) Stock option exercises....... -- -- -- -- -- 20,806 2 -- -- 28 -- Other........... -- -- -- -- -- -- -- -- -- 48 -- ------ ------ ------- ------- ------- ---------- ------ ------- ---- ------- ------ DECEMBER 31, 1995.. $7,437 $ -- $10,604 $18,041 $39,692 11,446,306 $1,145 758,994 $ 8 $28,871 $ -- ====== ====== ======= ======= ======= ========== ====== ======= ==== ======= ====== TOTAL STOCK- HOLDERS' EQUITY --------- DECEMBER 31, 1992.. $10,466 Net income........ 2,962 Stock dividends issued or accrued on preferred stock............. (2,047) Other............. 41 --------- DECEMBER 31, 1993.. 11,422 Net income........ 6,403 Stock dividends issued or accrued on preferred stock............. (2,193) Other............. 51 Issuance of common shares..... 9,000 Common shares accrued........... 63 Warrants accrued........... 29 --------- DECEMBER 31, 1994.. 24,775 Net income........ 4,794 Stock dividends issued or accrued on Preferred Stock............. (1,744) Repurchase of Series B Preferred Stock... -- Cash dividends.... (360) Accretion of warrants to fair market value...... (37,275) Issuance of warrants resulting from option grant...... (2,900) Nonvoting common stock issued for services related to financing the Acquisition issued in exchange for common stock, warrants and options........... 2,739 Increase in value of stock option grants............ 2,449 Common stock issued: Acquisition..... 35,789 Issuance of common stock from exercise of warrants........ 1,679 100% stock dividend........ -- Stock option exercises....... 30 Other........... 48 --------- DECEMBER 31, 1995.. $30,024 =========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-6 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------- 1993 1994 1995 ------- ------- -------- Cash Flows from Operating Activities: Net income....................................... $ 2,962 $ 6,403 $ 4,794 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.................. 6,475 6,356 30,272 Deferred income taxes.......................... -- -- 2,709 Compensation expense on stock option grants.... -- -- 2,407 Changes in operating assets and liabilities, net of Acquisition: Increase in accounts receivable................ (3,247) (128) (32,330) (Increase) decrease in inventory............... (14,998) (5,579) 31,656 Increase in other assets....................... (3,990) (598) (107) Increase (decrease) in accounts payable........ 615 3,806 (5,104) Increase (decrease) in accrued liabilities..... 1,381 2,260 (3,474) Increase (decrease) in other liabilities....... (1,282) 1,261 (4,795) Other.......................................... -- 307 301 ------- ------- -------- Net cash provided by (used in) operating activities.................................. (12,084) 14,088 26,329 ------- ------- -------- Cash Flows from Investing Activities: Acquisition of United--net of cash acquired of approximately $14,500........................... -- -- (258,274) Capital expenditures, net........................ (3,273) (554) (8,017) Other............................................ (3) -- -- ------- ------- -------- Net cash used in investing activities........ (3,276) (554) (266,291) ------- ------- -------- Cash Flows from Financing Activities: Net borrowings (repayment) under revolver........ 9,500 (7,900) (3,608) Retirements and principal payments of debt....... (3,446) (4,827) (412,342) Borrowings under financing agreements............ 2,000 -- 686,854 Financing costs.................................. -- -- (25,290) Issuance of common stock......................... -- -- 12,006 Repurchase of Series B Preferred Stock........... -- -- (6,892) Cash dividend.................................... -- -- (360) Other............................................ 41 51 (595) ------- ------- -------- Net cash provided by (used in) financing activities.................................... 8,095 (12,676) 249,773 ------- ------- -------- Net Change in Cash and Cash Equivalents............ (7,265) 858 9,811 Cash and Cash Equivalents, Beginning of Year....... 8,256 991 1,849 ------- ------- -------- Cash and Cash Equivalents, End of Year............. $ 991 $ 1,849 $ 11,660 ======= ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-7 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5% of the then outstanding shares of the common stock, $0.10 par value ("Common Stock") of United Stationers Inc. ("United") for approximately $266.6 million in the aggregate pursuant to a tender offer (the "Tender Offer"). Immediately thereafter, Associated merged with and into United (the "Merger" and, collectively with the Tender Offer, the "Acquisition"), and Associated Stationers, Inc., a wholly-owned subsidiary of Associated ("ASI") merged with and into United Stationers Supply Co., a wholly-owned subsidiary of United ("USSC"), with United and USSC continuing as the respective surviving corporations. United, as the surviving corporation following the Merger, is referred to herein as the "Company." As a result of share conversions in the Merger, immediately after the Merger, (i) the former holders of common stock and common stock equivalents of Associated owned shares of Common Stock and warrants or options to purchase shares of Common Stock constituting in the aggregate approximately 80% of the shares of Common Stock on a fully diluted basis, and (ii) holders of pre-Merger United common stock owned in the aggregate approximately 20% of the shares of Common Stock on a fully diluted basis. Although United was the surviving corporation in the Merger, the transaction was treated as a reverse acquisition for accounting purposes with Associated as the acquiring corporation. The Acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The purchase price has been 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 are as follows (dollars in thousands): Purchase price: Price of United shares purchased by Associated............... $ 266,629 Fair value of United shares not acquired in Offer............ 21,618 Transaction costs............................................ 6,309 --------- Total purchase price....................................... $ 294,556 ========= Allocation of purchase price: Current assets............................................... $ 542,993 Property, plant and equipment................................ 151,012 Goodwill..................................................... 74,503 Other assets................................................. 7,699 Liabilities assumed.......................................... (481,651) --------- Total purchase price....................................... $ 294,556 =========
Immediately following the Merger, the number of outstanding shares of Common Stock was 11,996,154 (or 13,947,440 on a fully diluted basis), of which (i) the former holders of Class A Common Stock, $0.01 par value, and Class B Common Stock, $0.01 par value, of Associated (collectively "Associated Common Stock") and warrants or options to purchase Associated Common Stock in the aggregate owned 9,206,666 shares constituting approximately 76.7% of the outstanding shares of Common Stock and outstanding warrants or options for 1,951,286 shares (collectively 80.0% on a fully diluted basis) and (ii) pre- Merger holders of shares of Common F-8 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock (other than Associated-owned and treasury shares) in the aggregate owned 2,789,488 shares of Common Stock constituting approximately 23.3% of the outstanding shares (or 20.0% on a fully diluted basis). As used in this paragraph, the term "Common Stock" includes shares of Nonvoting Common Stock, $0.01 par value, of the Company, which are immediately convertible into Common Stock for no additional consideration. The financial information for the year ended December 31, 1995 includes Associated only for the three months ended March 30, 1995 and the results of the Company for the nine months ended December 31, 1995. Financial information prior to 1995 reflects that of Associated only. All common and common equivalent shares have been adjusted to reflect the 100% stock dividend effective November 9, 1995. 2. ORGANIZATION The Company is a national general line business products wholesaler. The Company stocks and distributes more than 25,000 items, including traditional office supplies, office furniture and desk accessories; computer supplies, peripherals and hardware, and facilities management supplies. The Company markets its products primarily through catalogs with a total annual circulation of more than 7.5 million copies. The Company markets and distributes products to a broad range of approximately 12,000 resellers, consisting primarily of office products dealers (including commercial, contract and retail), computer resellers, office furniture dealers, office products superstores, mail order companies and mass merchandisers. The Company's distribution capability is supported by a nationwide network of 43 strategically located and fully integrated distribution centers. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of 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. REVENUE RECOGNITION Sales and provisions for estimated sales returns and allowances are recorded at the time of shipment. CASH AND CASH EQUIVALENTS Investments in low-risk instruments that have original maturities of three months or less are considered to be cash equivalents. Cash equivalents are stated at cost which approximates market value. INVENTORIES Inventories constituting approximately 94% of total inventories at December 31, 1995 have been valued under the last-in, first-out (LIFO) method. Prior to 1995, all inventories were valued under the first-in, first-out (FIFO) method. Effective January 1, 1995, Associated changed its method of accounting for the cost of inventory from the FIFO method to the LIFO method. Associated made this change in contemplation of its acquisition of United (accounted for as a reverse acquisition) so that its method would conform to that of United. Associated believes that in an inflationary environment the LIFO method provides a better matching of current costs and F-9 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) current revenues and that earnings reported under the LIFO method are more easily compared to that of other companies in the wholesale industry where the LIFO method is common. This change resulted in a charge to pre-tax income of the Company of approximately $8.8 million ($5.3 million net of tax benefit of $3.5 million) or $0.37 per common and common equivalent share for the year ended December 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. 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 $8.8 million higher than reported at December 31, 1995. PROPERTY, PLANT AND EQUIPMENT Depreciation and amortization are determined by using the straight-line method over the estimated useful lives of the assets. The estimated useful life assigned to fixtures and equipment is from two to ten years; the estimated useful life assigned to buildings does not exceed 40 years; leasehold improvements and assets under capital leases are amortized over the lesser of their useful lives or the term of the applicable lease. GOODWILL Goodwill represents the excess cost over the value of net assets of businesses acquired and is amortized on a straight-line basis over 40 years. The Company continually evaluates whether events or circumstances have occurred indicating that the remaining estimated useful life of goodwill may not be appropriate. When factors indicate that goodwill should be evaluated for possible impairment, the Company will use an estimate of undiscounted future operating income compared to the carrying value of goodwill to determine if a write-off is necessary. The cumulative amount of goodwill amortized at December 31, 1994 and 1995 is $295,000 and $1,953,000, respectively. SOFTWARE CAPITALIZATION The Company capitalizes major internal and external systems development costs determined to have benefits for future periods. Amortization is recognized over the periods in which the benefits are realized, generally not to exceed three years. Systems development costs capitalized were $767,000, $780,000 and $516,000 in 1993, 1994 and 1995, respectively. Amortization expense was $128,000, $157,000 and $2,298,000 in 1993, 1994 and 1995, respectively. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and common equivalent share is based on net income after preferred stock dividend requirements. Net income per common and common equivalent share 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates. F-10 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) STOCK OPTIONS The Company accounts for stock options in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. 4. BUSINESS COMBINATION AND RESTRUCTURING CHARGE The following summarized unaudited pro forma operating data for the years ended December 31, 1994 and 1995 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 United and Associated on a consolidated basis. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the combination been in effect on the dates indicated, or which may result in the future. The pro forma results exclude one-time nonrecurring charges or credits directly attributable to the transaction (dollars in thousands, except share data):
PRO FORMA TWELVE MONTHS --------------------- ENDED DECEMBER 31, --------------------- 1994 1995 ---------- ---------- Net sales......................................... $1,990,363 $2,201,860 Income before income taxes........................ 4,237 22,737 Net income........................................ 2,581 13,063 Net income per primary and fully diluted common and common equivalent share...................... 0.07 0.80
The pro forma income statement adjustments consist of (i) increased depreciation expense resulting from the write-up of certain fixed assets to fair value, (ii) additional incremental goodwill amortization, (iii) additional incremental interest expense due to debt issued, net of debt retired, and (iv) reduction in preferred stock dividends due to the repurchase of the Series B Preferred Stock. In the first quarter of 1995, the Company recorded a restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9 million). The restructuring charge includes severance costs totaling $1.8 million. The consolidation plan specifies that 330 distribution, sales and corporate positions, 180 of which relate to pre-Merger Associated, will be eliminated substantially within a one-year period following the Merger. As of December 31, 1995, approximately 90 former Associated employees had been terminated, with related costs of approximately $1.0 million charged against the reserve. The restructuring charge also includes distribution center closing costs totaling $6.7 million and stockkeeping unit reduction costs totaling $1.3 million. The consolidation plan calls for the closing of eight redundant distribution centers, six of which relate to pre-Merger Associated facilities, and the elimination of overlapping inventory items from the Company's catalogs substantially within a one-year period following the Merger. Distribution center closing costs include (i) the net occupancy costs of leased facilities after they are vacated until the expiration of the leases and (ii) the losses on the sale of owned facilities and the facilities' furniture, fixtures and equipment. Stockkeeping unit reduction costs include losses on the sale of inventory items which have been discontinued solely as a result of the Acquisition and Merger. As of December 31, 1995, $0.4 million relating to distribution center closing costs have been charged against the reserve. The consolidation plan is scheduled to be substantially completed by March 31, 1996. The historical results for 1995 include an extraordinary charge of approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) of financing costs and original issue discount relating to the debt retired. In addition, the historical results for 1995 include compensation expense relating to an increase in the value of employee stock options of approximately $1.5 million ($0.9 million net of tax benefit of $0.6 million) as a result of the Acquisition and Merger. The pro forma twelve months ended December 31, 1995 do not include the extraordinary writeoff. F-11 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. LONG-TERM DEBT Long-term debt consists of the following amounts (dollars in thousands):
1994 1995 ------- -------- Revolver................................................... $39,910 $185,000 Term Loans Tranche A, due in installments until March 31, 2000...... -- 110,053 Tranche B, due in installments until March 31, 2002...... -- 71,837 Tranche A, due in installments until December 1996....... 11,000 -- Tranche B, due in installments from January 1997 until December 1998........................................... 10,000 -- Original Issue Discount Tranche B due in 1997............ (443) -- Senior Subordinated Notes.................................. -- 150,000 Mortgage at 9.4%, due in installments until 1999........... -- 2,174 Industrial development bonds, at market interest rates, maturing at various dates through 2011.................... -- 14,300 Industrial development bonds, at 66% to 79% of prime, maturing at various dates through 2004.................... -- 15,500 Other long-term debt....................................... -- 313 ------- -------- 60,467 549,177 Less--current maturities................................. (5,000) (22,979) ------- -------- $55,467 $526,198 ======= ========
The prevailing prime interest rate at the end of 1995 and 1994 was 8.5%. In connection with the Acquisition, Associated received an equity investment of $12.0 million and borrowed an aggregate of $416.5 million under the Credit Facilities and $130.0 million under the Subordinated Bridge Facility. The proceeds of these investments and borrowings were used to (i) finance the purchase of shares of United common stock pursuant to the Offer, (ii) refinance certain existing indebtedness of Associated (including all amounts outstanding under the existing old Associated credit facilities) and indebtedness of the Company (including certain amounts outstanding under United and USSC credit facilities), (iii) repurchase United employee stock options, and (iv) pay fees and expenses relating to the Acquisition. The Credit Facilities as of December 31, 1995, consist of $200.0 million of term loan borrowings ("Term Loan Facilities") and up to $325.0 million of revolving loan borrowings ("Revolving Credit Facility"). The loans outstanding under the Term Loan Facilities and the Revolving Credit Facility bear interest, at the Company's option, equal to the prime rate plus 2.25% (if the Tranche B Facility) or 1.75% (if either the Tranche A Facility or the Revolving Credit Facility) or LIBOR, based on one, two, three or six month periods. On May 3, 1995, USSC completed the issuance of $150.0 million of 12 3/4% Senior Subordinated Notes due 2005 (the "Notes"). The net proceeds of the Notes (after discount and fees of approximately $7.9 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 and accrued interest (totaling approximately $6.5 million), to repurchase all outstanding shares of the Company's Series B Preferred Stock and to provide working capital. The Revolving Credit Facility is limited to the lesser of $325.0 million or a borrowing base equal to 80% of Eligible Receivables (as defined in the Credit Agreement); plus 50% of Eligible Inventory (as defined in the Credit Agreement) (provided that no more than 60% or, during certain periods 65%, of the Borrowing Base may F-12 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) be attributable to Eligible Inventory); plus the aggregate amount of cover for Letter of Credit Liabilities (as defined). The Revolving Credit Facility provides that, for each fiscal year commencing January 1, 1996, the Company must repay revolving loans so that for a consecutive period of 30 consecutive days in each fiscal year the aggregate revolving loans do not exceed $200.0 million. The Revolving Credit Facility matures on March 31, 2000. The Company is exposed to market risk for changes in interest rates. The Company may enter into interest rate collar agreements to reduce the impact of fluctuations in interest rates on a portion of its variable rate debt. Such agreements generally require the Company to pay to or entitle the Company to receive from the other party the amount, if any, by which the Company's interest payments fluctuate beyond the rates specified in the agreements. The Company is subject to the credit risk that the other party may fail to perform under such agreements. The Company's allocated cost of such agreements is amortized to interest expense over the term of the agreements, and the unamortized cost is included in other assets. Payments received or made as a result of the agreements, if any, are recorded as an addition or a reduction of interest expense. At December 31, 1995, the Company had agreements which collar $200.0 million of the Company's borrowings under the Credit Facilities and expire in April 1998. The agreement governing the Credit Facilities (the "Credit Agreement") contains representations and warranties, affirmative and negative covenants and events of default customary for financings of this type. Substantially all assets of the Company are pledged as collateral under the Credit Agreement and other long-term debt. Debt maturities for the years subsequent to December 31, 1995, are as follows (dollars in thousands):
YEAR AMOUNT ---- -------- 1996............................ $ 22,979 1997............................ 27,630 1998............................ 31,273 1999............................ 34,172 2000............................ 221,695 Later years..................... 211,428 -------- $549,177 ========
Outstanding letters of credit totaled $56.0 million at December 31, 1995. The letters of credit were issued to support various activities of the Company. F-13 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. LEASES The Company has entered into several non-cancelable long-term leases for property and equipment. Future minimum lease payments for non-cancelable leases in effect at December 31, 1995 having initial remaining terms of more than one year are as follows (dollars in thousands):
OPERATING LEASES -------------------------- NET CAPITAL LEASE SUBLEASE LEASE YEAR LEASE PAYMENTS INCOME PAYMENTS - ---- ------- -------- -------- -------- 1996....................................... $1,181 $13,950 $372 $13,578 1997....................................... 1,479 11,085 199 10,886 1998....................................... 487 9,245 146 9,099 1999....................................... -- 7,502 61 7,441 2000....................................... -- 5,462 -- 5,462 Later years................................ -- 18,801 -- 18,801 ------ ------- ---- ------- Total minimum lease payments............... 3,147 $66,045 $778 $65,267 ======= ==== ======= Less amount representing interest.......... 334 ------ Present value of net minimum lease payments (including current portion of $907)....... $2,813 ======
Rental expense for all operating leases was approximately $2.7 million, $3.0 million and $14.2 million in 1993, 1994 and 1995, respectively. 7. PENSION PLANS AND PROFIT SHARING PLANS PENSION PLANS In connection with the Merger and Acquisition, the Company assumed the pension plans of United. Associated did not have a pension plan. Former Associated employees will enter the pension plan on July 1, 1996. At that time, the Company will have pension plans covering substantially all of its employees. Non-contributory plans covering non-union employees provide pension benefits that are based on years of credited service and a percentage of annual compensation. Non-contributory plans covering union members generally provide benefits of stated amounts based on years of service. The Company funds the plans in accordance with current tax laws. The following table sets forth the plans' funded status at December 31, 1995 (dollars in thousands). This exhibit does not include the projected benefit obligation of $680,000 for the former Associated employees as of December 31, 1995.
1995 ------- Actuarial Present Value of Benefits Obligation Vested benefits.................................................... $18,776 Non-vested benefits................................................ 1,996 ------- Accumulated benefits obligation...................................... 20,772 Effect of projected future compensation levels....................... 2,861 ------- Projected benefits obligation........................................ 23,633 Plan assets at fair value............................................ 26,713 ------- Plan assets in excess of projected benefits obligation............... 3,080 Unrecognized net gain due to past experience different from assumptions......................................................... (507) ------- Prepaid pension asset recognized in Consolidated Balance Sheets...... $ 2,573 =======
F-14 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The plans' assets consist of debt securities, equity securities and government securities. Net periodic pension cost for 1995 for pension and supplemental benefits plans includes the following components (dollars in thousands):
1995 ------- Service cost-benefits earned during the period................... $ 1,142 Interest cost on projected benefits obligation................... 1,157 Actual return on assets.......................................... (2,711) Net amortization and deferral.................................... 1,382 ------- Net periodic pension cost........................................ $ 970 =======
The projected benefit obligation for 1995 was determined using an assumed discount rate of 7.25%. In 1995, the assumed rate of compensation increase ranged from 0.0% to 5.5%. The expected long-term rate of return on assets used in determining net periodic pension cost was 7.5%. PROFIT SHARING PLANS In connection with the Merger and Acquisition, the Company assumed the profit sharing plan of United; thus, the Company currently has two profit sharing plans which cover all salaried employees and certain hourly employees. The plans provide for annual contributions by the Company in an amount determined by the Board of Directors. The plans also permit employees to have contributions made as 401(k) salary deferrals on their behalf and to make after-tax voluntary contributions. The plans provide that the Company may match employee contributions as 401(k) salary deferrals. Company contributions for matching of employee contributions were approximately $0.4 million, $0.3 million and $0.6 million in 1993, 1994 and 1995, respectively. 8. POSTRETIREMENT BENEFITS In connection with the Merger, the Company assumed the postretirement plan of United on March 30, 1995. Associated did not have a postretirement plan. The plan is unfunded and provides health care benefits to substantially all retired non-union employees and their dependents. Eligibility requirements are based on the individual's age (minimum age of 55), years of service and hire date. The benefits are subject to retiree contributions, deductibles, co-payment provisions and other limitations. The assumed health care average cost trend rate used in measuring the accumulated postretirement benefit obligation ("APBO") at December 31, 1995 was 11.0% and 3.0% in 1996 and beyond, respectively. Beginning in 1996, retirees will pay the difference between actual plan costs and the portion of costs 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 health care cost trend rate would increase the APBO as of December 31, 1995 by approximately $396,000 and annual service cost and interest cost by approximately $46,000. The cost of postretirement health care benefits for the year ended December 31, 1995 was as follows (dollars in thousands):
1995 ---- Service cost........................................................ $161 Interest on accumulated benefits obligation......................... 109 ---- Net postretirement benefit cost..................................... $270 ====
F-15 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the amounts recognized in the Company's Consolidated Balance Sheet as of December 31, 1995 (dollars in thousands):
1995 ------- Retirees........................................................ $ (762) Other active plan participants.................................. (2,059) ------- Total APBO...................................................... (2,821) Unrecognized net loss........................................... 76 ------- Accrued postretirement benefit obligation....................... $(2,745) =======
9. STOCK PLAN INCENTIVES The Management Stock Option Plan (the "Plan"), as amended, is administered by the Board of Directors, although the Plan provides that the Board of Directors of the Company may designate an option committee to administer the Plan. Options outstanding under the 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 March 30, 1995 (the "Effective Time"). In September 1995, the Company's Board of Directors approved an amendment to the Plan, subject to stockholder approval, which provided for the issuance of options to key management employees of the Company exercisable for up to 2.2 million additional shares of its Common Stock. Subsequently, approximately 2.2 million options were granted to management employees subject to stockholder approval. The options were granted at an option price below market value and the option price of certain of such options is subject to increases on a quarterly basis beginning in 1996. The stock options granted under the Plan do not vest to the employee until the occurrence of an event (a "Vesting Event") that causes the present non- public equity investors to have received at least a full return of their investment (at cost) in cash, fully tradable, marketable securities or the equivalent. A Vesting Event will cause the Company to recognize compensation expense based upon the difference between the fair market value of the Common Stock and the exercise price of the stock options. The Company is contemplating a public offering of its Common Stock (see Note 16 to the Consolidated Financial Statements). Therefore, the Company may recognize a nonrecurring charge and related tax effect during the first quarter of 1996 of $31.7 million in compensation expense ($19.0 million net of tax benefit of $12.7 million) based on a stock price of $22.75. Each $1.00 change in the Common Stock price will result in an adjustment to such compensation expense of approximately $2.6 million ($1.6 million net of tax benefit of $1.0 million). An optionee under the Plan must pay the full option price upon exercise of an option (i) in cash, (ii) with the consent of the Board of Directors of the Company, by delivering shares of Common Stock already owned by such optionee (including shares to be received upon exercise of the option) and having a fair market value at least equal to the exercise price or (iii) in any combination of the foregoing. The Company may require the optionee to satisfy federal tax withholding obligations with respect to the exercise of options by (i) additional withholding from the employee's salary, (ii) requiring the optionee to pay in cash or (iii) reducing the number of shares of Common Stock to be issued (except in the case of incentive options). F-16 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the transactions of the Plan for the last three years (dollars in thousands):
STOCK INCENTIVE AWARD OPTION PRICE OPTION PRICE OPTION PRICE PLAN ------------- --------------- ----------------------- (EXCLUDING RESTRICTED STOCK) 1993 RANGE 1994 RANGE 1995 RANGE - --------------------- ------- ----- -------- ----- --------- ------------ Options outstanding at beginning of the period................. 367,160 $1.45 367,160 $1.45 217,309 $1.45 Granted................. -- 28,694 $1.45 1,840,000 $5.12-$12.50 Exercised............... -- -- -- (20,804) $1.45 Canceled................ -- (178,545) $1.45 (20,158) $1.45 ------- -------- --------- Options outstanding at end of the period...... 367,160 $1.45 217,309 $1.45 2,016,347 $1.45-$12.50 ======= ======== =========
All share and per share data has been restated to reflect the 100% stock dividend effective November 9, 1995 and reflects the conversion of Associated stock as a result of the Merger. On January 1, 1996, the Company granted, subject to stockholder approval, options exercisable for an aggregate of 240,000 shares of Common Stock at an exercise price of $12.50 per share (subject to quarterly increases) and 120,000 shares of Common Stock at a fixed exercise price of $5.12 per share. Further, the Company intends to grant options for an aggregate of 202,772 shares of Common Stock at an exercise price of $1.45 per share. 10. REDEEMABLE PREFERRED STOCK At December 31, 1994, the Company had 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. At December 31, 1995, the Company had 1,500,000 authorized shares of $0.01 par value preferred stock, of which 15,000 were designated as Series A Preferred Stock, 15,000 shares were designated as Series B Preferred Stock, 15,000 shares were designated as Series C Preferred Stock and the remaining 1,455,000 shares remained undesignated. All preferred stock issued at the date of inception was valued at the amount of cash paid or assets received for the stock at $1,000 per share. On July 28, 1995 the Company repurchased all 6,892 shares of Series B preferred stock issued and outstanding for $7.0 million, including accrued and unpaid dividends thereon. All outstanding shares of preferred stock are senior in preference to the Common Stock of the Company. Series 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% per annum and is payable in stock. Series B and C preferred stock are junior in relation to the Series A preferred stock. During each of the years ended December 31, 1993, 1994 and 1995, 649 shares of Series A preferred stock were accrued but not issued. As of December 31, 1994 and 1995, 1,788 and 2,437 shares of Series A preferred stock have been accrued as dividends but not issued. Series 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 Series 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 year ended December 31, 1993, noncash dividends were declared and issued for both Series 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 Series B and C preferred stock in the amount of 617 and F-17 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 926 shares, respectively. During the year ended December 31, 1995, noncash dividends were declared and issued for both Series B and C preferred stock in the amounts of 332 and 763 shares, respectively. In addition, during 1995 a cash dividend of approximately $254,000 was paid to Series C preferred stockholders in connection with the repurchase of Series B Preferred Stock. All series of preferred stock may be redeemed at the option of the issuer at any time. All series 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. Required redemption of preferred stock for the five years following the year ended December 31, 1995 is $7.4 million in 1999 for the Series A preferred stock. 11. REDEEMABLE WARRANTS The Company had 1,430,468 and 1,311,091 warrants ("Lender Warrants") outstanding as of December 31, 1994 and 1995, respectively, which allow holders thereof to buy shares of Common Stock at an exercise price of $0.10 per share. Outstanding Lender Warrants as of December 31, 1995 were valued at $27.75 per warrant, the fair value of the Common Stock at December 31, 1995. During 1995, 117,954 warrants were exercised and 47,153 were contributed back to the Company and terminated in connection with fees paid by the Company relating to the issuance of the Notes. Of the Lender Warrants outstanding as of December 31, 1994, 1,036,229 were valued at the date of inception at the negotiated amount of $0.97 per warrant while the remaining 274,862 warrants were valued at $1.58 per warrant. In addition, 129,725 additional Lender Warrants were accrued but not issued, as of December 31, 1994. The exercise period expires January 31, 2002. These warrants were valued at $1.66 per warrant. The Lender Warrants contain certain put rights which allow the holders thereof to put the warrants to the Company commencing on February 10, 1996. 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. 12. TRANSACTIONS WITH RELATED PARTIES The Company has management advisory services agreements with three investor groups. These investor groups provide certain advisory services to the Company in connection with the Acquisition as defined below. Pursuant to an agreement, Wingate Partners, L.P. ("Wingate Partners") has agreed to provide certain oversight and monitoring services to the Company in exchange for an annual fee of up to $725,000, payment (but not accrual) of which is subject to restrictions under the New Credit Agreement related to certain Company performance criteria. At the Effective Time, the Company paid aggregate fees to Wingate Partners of $2.3 million for services rendered in connection with the Acquisition. Wingate Partners earned an aggregate of $210,000, $350,000 and $603,000 with respect to each of the fiscal years ended 1993, 1994 and 1995, respectively, for such oversight and monitoring services. Under the agreement, the Company 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 agreement, Cumberland Capital Corporation ("Cumberland") has agreed to provide certain oversight and monitoring services to the Company in exchange for (i) an annual fee of up to $137,500 payment (but not accrual) of which is subject to restrictions under the Credit Agreement related to certain Company performance criteria and (ii) previously issued shares of Associated Common Stock that converted in the Merger F-18 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) into 154,126 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, the Company paid aggregate fees to Cumberland of $100,000 for services rendered in connection with the Acquisition. Pursuant to the agreement, Cumberland earned $45,000, $75,000 and $129,000 with respect to the fiscal years ended 1993, 1994 and 1995, respectively, for such oversight and monitoring services. The Company 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 for any subsequent yearly term. Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") has agreed to provide certain oversight and monitoring services to the Company in exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of which is subject to restrictions under the Credit Agreement related to certain Company performance criteria and (ii) previously issued shares of Associated Common Stock that converted in the Merger into 154,126 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, the Company paid aggregate fees to Good Capital of $100,000 for services rendered in connection with the Acquisition. Pursuant to the agreement, Good Capital earned an aggregate $45,000, $75,000 and $129,000 in each of the fiscal years ended 1993, 1994 and 1995, respectively, for such oversight and monitoring services. The Company 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. 13. INCOME TAXES The provision for (benefit from) income taxes consists of the following (dollars in thousands):
YEARS ENDED DECEMBER 31, ---------------------- 1993 1994 1995 ------ ------ ------ Currently payable-- Federal......................................... $ 227 $3,090 $4,172 State........................................... 554 903 1,119 ------ ------ ------ Total currently payable....................... 781 3,993 5,291 Deferred, net-- Federal......................................... 1,012 166 (142) State........................................... 148 24 (21) Valuation allowance reduction................... (1,160) (190) -- ------ ------ ------ Total deferred, net........................... -- -- (163) ------ ------ ------ Provision for income taxes........................ $ 781 $3,993 $5,128 ====== ====== ======
F-19 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's effective income tax rates for the period ended December 31, 1993, 1994 and 1995 varied from the statutory Federal income tax rate as set forth in the following table (dollars in thousands):
YEAR ENDED DECEMBER 31, -------------------------------------------- 1993 1994 1995 -------------- -------------- ------------- % OF % OF % OF PRE- PRE- PRE- TAX TAX TAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ------ ------ ------ ------ ------ ------ Tax provision based on the federal statutory rate.......... $1,273 34.0% $3,535 34.0% $3,980 35.0% State and local income taxes--net of federal income tax benefit... 492 13.2 607 5.8 705 6.2 Non-deductible and other......... 176 4.7 41 0.4 443 3.9 Valuation allowance reduction.... (1,160) (31.0) (190) (1.8) -- -- ------ ----- ------ ---- ------ ---- Provision for income taxes....... $ 781 20.9% $3,993 38.4% $5,128 45.1% ====== ===== ====== ==== ====== ====
The deferred tax assets and liabilities result from timing differences in the recognition of certain income and expense items for financial and tax accounting purposes. The sources of these differences and the related tax effects were as follows (dollars in thousands):
DECEMBER 31, --------------------------------------- 1994 1995 ------------------- ------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------- ----------- Accrued expenses...................... $4,566 $-- $20,351 $ -- Allowance for doubtful accounts....... 1,664 -- 10,645 -- Inventory reserves and adjustments.... 1,264 -- -- 14,756 Depreciation and amortization......... -- 390 -- 42,300 Reserve for restructuring charges and other................................ 1,869 -- 13,970 331 ------ ---- ------- ------- 9,363 390 44,966 57,387 Valuation allowance................... (8,973) -- -- -- ------ ---- ------- ------- Total............................... $ 390 $390 $44,966 $57,387 ====== ==== ======= =======
As a result of the Acquisition and Merger, the Company determined that the valuation allowance for deferred tax assets was no longer necessary and it has been eliminated. 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. 14. SUPPLEMENTAL CASH FLOW INFORMATION In addition to the information provided in the Consolidated Statement of Cash Flows, the following are supplemental disclosures of cash flow information for the twelve months ended December 31, 1993, 1994 and 1995 (dollars in thousands):
1993 1994 1995 ------ ------ ------- Cash paid during the year for-- Interest......................................... $6,119 $6,588 $36,120 Income taxes..................................... 630 2,118 8,171
F-20 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) The following are supplemental disclosures of noncash investing and financing activities for the twelve months ended December 31, 1993, 1994 and 1995 (dollars in thousands): . In 1994, Associated accrued $244 for warrants which had an exercise price less than the fair market value of the common stock. . In 1994, Associated accrued $63 for common stock shares to be issued at less than fair market value. . In 1994, Associated issued $9,000 of common stock to retire a $9,000 deferred obligation related to a transition services agreement. . On March 30, 1995, Associated issued stock valued at $2,162 in exchange for services related to financing the Acquisition of the Company. . On May 3, 1995, the Company issued stock valued at $2,406 in exchange for services related to the issuance of the Notes. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments are as follows (dollars in thousands):
DECEMBER 31, 1994 DECEMBER 31, 1995 ---------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- -------- Cash and cash equivalents............ $ 1,849 $ 1,849 $ 11,660 $ 11,660 Current maturities of long-term obligations......................... 5,901 5,901 23,886 23,886 Long-term debt: Notes.............................. -- -- 150,000 163,875 All other.......................... 55,467 55,467 376,198 376,198
The fair value of Notes is based on quoted market prices. The fair value of the interest rate collar, estimated as a $3.9 million payable, is based on quotes from counterparties. 16. ANTICIPATED COMMON STOCK OFFERING The Company is anticipating a public offering of shares of Common Stock. The contemplated offering includes both a primary component of 3.5 million shares and a secondary component of 3.5 million shares. The Company intends to use the net proceeds from the primary component of the offering to redeem all of the outstanding shares of the Company's preferred stock and to redeem a portion of the Notes. There is no certainty that the Company will proceed with the contemplated offering. F-21 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of United Stationers Inc.: We have audited the accompanying consolidated balance sheet of UNITED STATIONERS INC. and SUBSIDIARY as of March 30, 1995 and the related consolidated statements of operations, changes in stockholders' investment and cash flows for the seven months then ended. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Stationers Inc. and Subsidiary at March 30, 1995 and the consolidated results of their operations and their cash flows for the seven months then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois June 27, 1995 F-22 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. /s/ Arthur Andersen LLP Chicago, Illinois, October 6, 1994. F-23 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
AUGUST 31, ----------------- MARCH 30, ASSETS 1993 1994 1995 ------ -------- -------- --------- CURRENT ASSETS: Cash and cash equivalents........................ $ 7,889 $ 6,920 $ 14,515 Accounts receivable, less reserves for doubtful accounts of $3,964 in 1993, $4,010 in 1994 and $4,775 in 1995.................................. 188,396 187,565 188,672 Inventories...................................... 229,760 225,794 306,741 Deferred income taxes and prepaid expenses....... 16,426 15,512 22,987 -------- -------- -------- Total current assets........................... 442,471 435,791 532,915 -------- -------- -------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Land and buildings............................... 90,147 92,099 92,907 Fixtures and equipment........................... 144,625 151,793 152,059 Leasehold improvements........................... 46 36 85 -------- -------- -------- Total property, plant and equipment............ 234,818 243,928 245,051 Less -- Accumulated depreciation and amortization ................................................ 97,182 114,364 118,219 -------- -------- -------- Net property, plant and equipment.............. 137,636 129,564 126,832 -------- -------- -------- GOODWILL, NET...................................... 43,484 42,369 41,719 -------- -------- -------- OTHER ASSETS....................................... 11,195 10,826 10,373 -------- -------- -------- Total assets................................... $634,786 $618,550 $711,839 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-24 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
AUGUST 31, ------------------ MARCH 30, LIABILITIES AND STOCKHOLDERS' INVESTMENT 1993 1994 1995 ---------------------------------------- -------- -------- --------- CURRENT LIABILITIES: Short-term debt and current maturities of long- term obligations.............................. $ 3,448 $ 6,338 $ 43,501 Accounts payable............................... 150,374 121,793 146,222 Accrued expenses............................... 69,175 65,055 77,219 Accrued income taxes........................... 3,400 2,778 8,373 -------- -------- -------- Total current liabilities.................... 226,397 195,964 275,315 -------- -------- -------- DEFERRED INCOME TAXES............................ 14,484 17,427 13,494 -------- -------- -------- LONG-TERM OBLIGATIONS: Long-term debt................................. 146,735 149,465 173,933 Other liabilities.............................. 9,473 9,684 15,972 -------- -------- -------- Total long-term obligations.................. 156,208 159,149 189,905 -------- -------- -------- 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, 18,592,054 shares in 1994 and 18,610,929 shares in 1995................................ 1,859 1,859 1,861 Capital in excess of par value................. 91,687 91,729 91,912 Retained earnings.............................. 144,292 152,448 139,495 Less -- 9,993 shares, 1,828 shares and 14,347 shares of common stock in treasury at cost in 1993, 1994 and 1995, respectively............. (141) (26) (143) -------- -------- -------- Total stockholders' investment............... 237,697 246,010 233,125 -------- -------- -------- Total liabilities and stockholders' investment.................................. $634,786 $618,550 $711,839 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-25 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEAR ENDED AUGUST 31, SEVEN MONTHS ENDED ---------------------------------- ----------------------- MARCH 31, MARCH 30, 1992 1993 1994 1994 1995 ---------- ---------- ---------- ----------- ---------- (UNAUDITED) NET SALES............... $1,094,275 $1,470,115 $1,473,024 $ 871,585 $ 980,575 COST OF SALES........... 848,588 1,125,596 1,150,123 675,720 773,857 ---------- ---------- ---------- ---------- ---------- Gross profit on sales............... 245,687 344,519 322,901 195,865 206,718 ---------- ---------- ---------- ---------- ---------- OPERATING EXPENSE: Warehousing, marketing and administrative expenses............. 213,372 298,405 286,607 170,420 174,021 Merger-related costs.. -- -- -- -- 27,780 Restructuring charge.. 5,913 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total operating expenses........... 219,285 298,405 286,607 170,420 201,801 ---------- ---------- ---------- ---------- ---------- Income from operations......... 26,402 46,114 36,294 25,445 4,917 ---------- ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense...... (6,980) (9,849) (10,722) (6,095) (7,640) Interest income....... 477 299 261 258 140 Other, net............ 364 355 225 117 41 ---------- ---------- ---------- ---------- ---------- Total other income (expense).......... (6,139) (9,195) (10,236) (5,720) (7,459) ---------- ---------- ---------- ---------- ---------- Income before income taxes.............. 20,263 36,919 26,058 19,725 (2,542) INCOME TAXES............ 8,899 15,559 10,309 8,185 4,692 ---------- ---------- ---------- ---------- ---------- Net Income.......... $ 11,364 $ 21,360 $ 15,749 $ 11,540 $ (7,234) ========== ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............ 16,088,450 18,559,600 18,587,282 18,585,451 18,593,614 ========== ========== ========== ========== ========== NET INCOME PER COMMON SHARE.................. $ 0.71 $ 1.15 $ 0.85 $ 0.62 $ (0.39) ========== ========== ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-26 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CAPITAL IN NUMBER OF EXCESS TOTAL COMMON COMMON OF PAR RETAINED TREASURY STOCKHOLDERS' SHARES STOCK VALUE EARNINGS STOCK INVESTMENT ---------- ------ ------- -------- -------- ------------- 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 Net Loss.............. -- -- -- (7,234) -- (7,234) Issuance of common shares............... 18,875 2 183 -- -- 185 Cash dividends--$0.30 per share on common stock................ -- -- -- (5,719) -- (5,719) Acquisition of treasury stock....... -- -- -- -- (117) (117) ---------- ------ ------- -------- ----- -------- BALANCE, MARCH 30, 1995................... 18,610,929 $1,861 $91,912 $139,495 $(143) $233,125 ========== ====== ======= ======== ===== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-27 UNITED STATIONERS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
FOR THE YEAR ENDED AUG. 31, SEVEN MONTHS ENDED ------------------------- -------------------------- MARCH 31, MARCH 30, 1992 1993 1994 1994 1995 ------- ------- ------- ----------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............. $11,364 $21,360 $15,749 $11,540 $ (7,234) Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of SDC purchase in 1992-- Loss on sale of fixed assets............... 55 476 579 494 200 Depreciation and amortization......... 19,879 21,243 21,236 12,103 12,595 (Decrease)/increase in deferred taxes....... (8,240) 2,261 2,943 1,298 (3,933) Increase/(decrease) in accounts payable..... 7,195 15,259 (28,581) (64,918) 24,429 (Decrease)/increase in accrued liabilities.. (2,896) 3,655 (7,522) (14,407) 17,260 (Increase)/decrease in accounts receivable.. (12,681) (20,016) 831 8,062 (1,107) (Increase)/decrease in inventories.......... (15,776) (7,353) 3,966 (7,818) (80,947) Decrease in prepaid expenses............. 3,940 1,392 914 (752) (7,475) Increase in other assets............... (5,378) (2,275) (2,007) (1,359) (1,341) ------- ------- ------- ------- -------- Total adjustments... (13,902) 14,642 (7,641) (67,297) (40,319) ------- ------- ------- ------- -------- Net cash provided by (used in) operating activities......... (2,538) 36,002 8,108 (55,757) (47,553) ------- ------- ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment.... (8,342) (30,008) (10,719) (4,487) (7,799) Proceeds from disposition of property, plant and equipment.............. 51 50 220 200 35 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) (4,287) (7,764) ------- ------- ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase/(decrease) in short-term debt........ 1,636 (481) (2,855) 33 5,660 Payments on long-term obligations............ (4,213) (4,537) (1,533) (1,269) (4,541) Additions to long-term obligations............ 57,460 1,971 13,246 69,348 67,444 Issuance of common shares................. 164 491 42 25 185 Payment of dividends.... (6,535) (7,601) (7,593) (5,738) (5,719) Disposition of treasury stock.................. 30 60 115 115 (117) ------- ------- ------- ------- -------- Net cash provided by (used in) financing activities......... 48,542 (10,097) 1,422 62,514 62,912 ------- ------- ------- ------- -------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS.............. 375 (4,053) (969) 2,470 7,595 CASH AND CASH EQUIVALENTS at the beginning of the year..................... 11,567 11,942 7,889 7,889 6,920 ------- ------- ------- ------- -------- CASH AND CASH EQUIVALENTS at the end of the year... $11,942 $ 7,889 $ 6,920 $10,359 $ 14,515 ======= ======= ======= ======= ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest (net of amount capitalized).. $ 6,722 $ 8,972 $10,199 $ 5,943 $ 6,851 Income taxes.......... 14,489 18,395 6,229 6,054 9,257 ------- ------- ------- ------- -------- 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 -- -- --
The accompanying notes to consolidated financial statements are an integral part of these statements. F-28 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUBSEQUENT EVENT 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." 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. Immediately following the Merger, the number of outstanding Shares was 5,998,117 (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 4,603,373 Shares constituting approximately 76.8% of the outstanding Shares and outstanding warrants or options for 975,603 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). 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 expects to repurchase the Series B Preferred Stock, together with accrued and unpaid dividends thereon (approximately $7.0 million). The New Credit Facilities contain certain financial covenants covering the Company and its subsidiaries on a consolidated basis, including, without limitation, covenants relating to tangible net worth, capitalization, fixed charge coverage, capital expenditures and payment of dividends by the Company. F-29 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Effective for 1995, the Company changed its fiscal year from a year end of August 31 to December 31. The financial statements included herein represent the final financial statements of the Company through the date of the consummation of the Merger. Future financial statements of the Company will reflect Associated and its acquisition of the Company, and will be on the basis of a December 31 fiscal year end. As part of the Merger, the Company incurred approximately $27.8 million of merger-related costs. The amount consisted of severance payments under employment contracts ($9.6 million); insurance benefits under employment contracts ($7.4 million); legal, accounting and other professional services fees ($5.2 million); retirement of stock options ($3.0 million); and fees for letters of credit related to employment contracts and other costs ($2.6 million). 2. 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. Revenue Recognition Sales and provisions for estimated sales returns and allowances are recorded at the time of shipment. Cash and Cash Equivalents Investments in low-risk 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. The Company's cash equivalent policy conforms to the requirements of Financial Accounting Standard No. 95. Inventories Inventories constituting approximately 82% of total inventories at August 31, 1993, August 31, 1994 and March 30, 1995 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, $18,854,000 and $21,797,000 higher than reported at August 31, 1993, 1994 and March 30, 1995, respectively. In 1994, liquidations of certain LIFO inventories had the effect of increasing net earnings by $830,000 or $0.04 per share. Depreciation and Amortization Depreciation and amortization are determined by using the straight-line method over the estimated useful lives of the assets. F-30 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 1994 and March 30, 1995 is $1,200,000, $2,315,000 and $2,965,000, respectively. 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, $2,166,000 and $1,896,000 in 1992, 1993, 1994 and 1995, respectively. Amortization expense was $3,384,000, $2,946,000, $2,376,000 and $1,795,000 in 1992, 1993, 1994 and 1995, 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, $62.7 million and $62.4 million of long-term debt (excluding borrowings under the Company's Reducing Revolving Credit and Term Loan Agreement) outstanding as of August 31, 1993, 1994 and March 30, 1995, respectively. The approximate fair value was $68.0 million, $59.8 million and $61.3 million as of August 31, 1993, 1994 and March 30, 1995, 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. F-31 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. 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.
1991 1992 ---------- ---------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA) (UNAUDITED) Net Sales........................................... $1,378,734 $1,445,900 Net Income.......................................... 14,070 20,444 Net Income per Share................................ 0.76 1.10
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. 4. LONG-TERM DEBT Long-term debt consists of the following amounts (in thousands of dollars):
1993 1994 1995 -------- -------- -------- 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 $ 12,908 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 8,000 Industrial development bonds, at market interest rates, maturing at various dates through 2011...... 14,300 14,300 14,300 Industrial development bonds, at 66% to 79% of prime, maturing at various dates through 2005...... 15,500 15,500 15,500 Unsecured loan, at 9.65%, maturing at various dates through 1998....................................... 14,300 11,450 11,450 Other long-term debt................................ 356 303 276 Term Loan........................................... 30,000 30,000 30,000 Revolver............................................ 54,000 63,000 125,000 -------- -------- -------- 150,071 155,735 217,434 -------- -------- -------- Less--current maturities............................ 3,336 6,270 43,501 -------- -------- -------- $146,735 $149,465 $173,933 ======== ======== ========
The prevailing prime interest rate at August 31, 1993, August 31, 1994 and March 30, 1995 was 6.0%, 7.8% and 9.0%, respectively. F-32 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. On February 28, 1995, the Company entered into a $30.0 million line of credit with a major bank. This credit facility was entered into to meet seasonal requirements after the Revolver and Term Loan was fully utilized, and bore interest at agreed upon market rates. The Company had $6.0 million outstanding under this agreement immediately prior to the Merger. This agreement was terminated in connection with the Merger. The Credit Agreement contains certain financial covenants covering the Company and its subsidiary 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. The net book value of assets subject to secured mortgages and industrial development bonds as of August 31, 1993 and 1994 and March 30, 1995 was $28,962,000, $28,610,000 and $28,128,000, respectively. Maturities of long-term debt (excluding amounts borrowed under the Credit Agreement), for the following periods as indicated, are as follows (in thousands of dollars):
YEAR (EXCEPT 1995) AMOUNT ------------------ ------- Nine Months Ending December 31, 1995............................. $ 6,125 1996............................................................. 8,167 1997............................................................. 8,218 1998............................................................. 8,824 1999............................................................. 6,129 Later years...................................................... 24,971 ------- $62,434 =======
As part of the Merger, approximately $180 million of debt at March 30, 1995 was refinanced. The refinanced debt consisted of various mortgages, the Edison, New Jersey industrial development bonds, the private placement loan, and the Term Loan and Revolver. 5. 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. F-33 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 1994 and 1995 was approximately $866,000, $1,269,000, $1,755,000, $1,707,000, respectively. The following table sets forth the plans' funded status at August 31, 1993, August 31, 1994 and March 30, 1995 (in thousands of dollars):
SUPPLEMENTAL PENSION PLANS BENEFIT PLANS ------------------------- --------------------- 1993 1994 1995 1993 1994 1995(1) ------- ------- ------- ----- ----- ------- Actuarial Present Value of Benefits Obligation Vested benefits............. $15,063 $15,215 $16,446 $ 442 $ 549 $ 0 Non-vested benefits......... 1,702 1,887 1,682 4 16 0 ------- ------- ------- ----- ----- --- Accumulated benefits obligation................... 16,765 17,102 18,128 446 565 0 Effect of projected future compensation levels.......... 2,356 2,982 2,511 119 328 0 ------- ------- ------- ----- ----- --- Projected benefits obligation................... 19,121 20,084 20,639 565 893 0 Plan assets at fair value..... 20,875 21,000 22,683 -- -- 0 ------- ------- ------- ----- ----- --- Projected benefits obligation less than (in excess of) plan assets....................... 1,754 916 2,044 (565) (893) 0 Unrecognized net gain due to past experience different from assumptions............. (279) 266 (914) (9) 189 0 Unrecognized prior service cost......................... 1,270 1,347 1,101 160 131 0 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) (412) 120 90 0 ------- ------- ------- ----- ----- --- Prepaid (accrued) pension liability recognized in Consolidated Balance Sheets..................... $ 2,184 $ 2,062 $ 1,819 $(294) $(483) $ 0 ======= ======= ======= ===== ===== ===
- -------- (1) The Supplemental Benefit Plan was funded and paid out as a result of the merger. The plans' assets consist of debt securities, equity securities and government securities. Net periodic pension cost for 1992, 1993, 1994 and 1995 for pension and supplemental benefits plans includes the following components (in thousands of dollars):
1992 1993 1994 1995 ------ ------ ------ ------ Service cost--benefits earned during the period....................................... $1,055 $1,293 $1,863 $1,084 Interest cost on projected benefits obligation................................... 952 1,209 1,436 909 Actual return on assets....................... (983) (3,235) 263 (780) Net amortization and deferral................. (158) 2,002 (1,807) 494 ------ ------ ------ ------ Net periodic pension cost................... $ 866 $1,269 $1,755 $1,707 ====== ====== ====== ======
The projected benefit obligations for 1992, 1993, 1994 and 1995 were determined using an assumed discount rate of 7.5%, 7.25%, 7.5% and 7.5%, respectively. In 1992, 1993, 1994 and 1995, the assumed rate of compensation increase ranged from 0% to 5.5%. The expected long-term rate of return on assets used in determining net periodic pension cost was 7.5%. F-34 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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 elected to amortize the unfunded Accumulated Postretirement Benefit Obligation (APBO) over 20 years. The assumed health care average cost trend rate used in measuring the APBO at March 30, 1995 was 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 7.75%. A 1% increase in the care cost trend rate would increase the APBO as of March 30, 1995 by approximately $339,000 and the sum of the 1995 annual service cost and interest cost by approximately $35,000. The cost of postretirement health care benefits for the year ended August 31, 1994 and seven months ended March 30, 1995 are as follows (in thousands of dollars):
1994 1995 ---- ---- Service cost.................................................... $246 $109 Interest on accumulated benefits obligation..................... 146 106 Amortization of transition obligation........................... 100 58 ---- ---- Net postretirement benefit cost............................... $492 $273 ==== ====
The following table sets forth the amounts recognized in the Company's Balance Sheet at August 31, 1994 and March 30, 1995 (in thousands of dollars):
AUG. 31, MARCH 30, 1994 1995 -------- --------- Retirees................................................ $ (601) $ (781) Other active plan participants.......................... (1,634) (1,758) ------ ------ Total APBO.............................................. (2,235) (2,539) Unrecognized transition obligation...................... 1,897 1,838 Unrecognized net (gain)................................. (76) 63 ------ ------ Accrued postretirement benefit obligation............... $ (414) $ (638) ====== ======
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 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 F-35 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, $0.5 million in 1994 and $0.8 million in 1995. 6. STOCK INCENTIVE PLANS As a result of the change in control of the Company, the Company paid out approximately $3.0 million to option holders representing the difference between the tender offer price of the stock ($15.50 per share) and the option exercise price. The amount was included in merger-related costs in 1995. Under the Directors' Stock Option Plan, the Company granted options for 7,500 shares at a price of $19.25 per share in 1993, 7,500 shares at a price of $15.25 per share in 1994 and 7,500 shares at a price of $13.75 per share in 1995. The Directors' Option Plan provides for the granting of options covering up to 100,000 shares of the Company's 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 the period ended 1993, 1994, and 1995, 45,500, 41,000 and 0 options, respectively, were outstanding at a price range of $8.75 to $22.13 per share. During fiscal 1995, options for a total of 100,000 shares at $10.50 were granted to certain officers. The grant was approved at the 1995 Annual Meeting held in January. Under the Company's 1981 Stock Incentive Award Plan, options outstanding had 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, $39,000 and $16,000 was recognized in 1992, 1993, 1994 and 1995, respectively. The unrecognized portion of deferred compensation was $55,000, $16,000 and $0 as of August 31, 1993, August 31, 1994 and March 30, 1995, 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. The 1981 Stock Incentive Award Plan was terminated by the Company's Board of Directors on March 30, 1995. 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 could have been exercised more than ten years after its grant. F-36 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the transactions of the 1981 and 1985 Option Plans for 1993, 1994 and 1995.
1981 STOCK INCENTIVE AWARD PLAN (EXCLUDING RESTRICTED OPTION PRICE OPTION PRICE OPTION PRICE STOCK) 1993 RANGE 1994 RANGE 1995 RANGE --------------------- ------- ------------- --------- ------------- ---------- ------------- Options outstanding at beginning of the period................. 995,520 $ 8.64-$19.39 891,350 $ 8.64-$19.39 1,135,060 $ 8.64-$19.39 Granted................. 18,000 $13.75-$14.00 401,050 $10.00-$16.25 100,000 $10.50 Exercised............... (37,040) $ 8.64-$17.48 (3,520) $ 8.64-$13.75 (22,860) $ 8.64-$ 9.29 Cancelled............... (85,130) $ 8.64-$19.39 (153,820) $ 8.64-$19.39 (1,212,200) $ 8.64-$19.39 ------- --------- ---------- Options outstanding at end of the period...... 891,350 1,135,060 -- ======= ========= ========== 1985 NON-QUALIFIED OPTION PRICE OPTION PRICE OPTION PRICE STOCK OPTION PLAN 1993 RANGE 1994 RANGE 1995 RANGE - ------------------------ ------- ------------- --------- ------------- ---------- ------------- Options outstanding at beginning of the period................. 143,000 $14.78-$18.09 109,500 $14.78-$18.09 109,500 $14.78-$18.09 Granted................. -- -- -- -- -- -- Exercised............... (5,000) $18.09 -- -- -- -- Cancelled(1)............ (28,500) $14.78-$18.09 -- -- (109,500) $14.78-$18.09 ------- --------- ---------- Options outstanding at end of the period...... 109,500 109,500 -- ======= ========= ==========
- -------- (1) As a result in change in control of the Company, the Company paid out to option holders the difference between the tender offer price of the stock ($15.50 per share) and the option exercise price. The total amount was included in merger-related costs in 1995. 7. 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 March 30, 1995 having initial remaining terms of more than one year are as follows (in thousands of dollars):
OPERATING LEASES --------------------------- LEASE SUBLEASE NET LEASE YEAR (EXCEPT 1995) PAYMENTS INCOME PAYMENTS - ------------------ -------- -------- --------- Nine months ending December 31, 1995................ $ 9,165 $ 617 $ 8,548 1996................................................ 9,894 269 9,625 1997................................................ 7,712 199 7,513 1998................................................ 5,811 146 5,665 1999................................................ 4,275 61 4,214 Later years......................................... 14,263 -- 14,263 ------- ------ ------- Total minimum lease payments........................ $51,120 $1,292 $49,828 ======= ====== =======
Rental expense for all operating leases was approximately $11,546,000, $14,917,000, $13,549,000 and $7,731,000 in 1992, 1993, 1994 and 1995, respectively. 8. 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 March 30, 1995, neither foreign subsidiary had undistributed earnings. F-37 UNITED STATIONERS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) 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):
1992 1993 1994 1995 ------- ------- ------- -------- Taxes currently payable Federal.................................. $ 8,565 $ 7,972 $ 7,059 $ 14,122 Other tax credits........................ (37) (10) (5) -- State.................................... 2,501 2,274 1,591 2,584 Prepaid and deferred taxes................. (2,130) 5,323 1,664 (12,014) ------- ------- ------- -------- $ 8,899 $15,559 $10,309 $ 4,692 ======= ======= ======= ========
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):
AUGUST 31, 1993 AUGUST 31, 1994 MARCH 30, 1995 ------------------- ------------------- ------------------- ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ------- ----------- ------- ----------- Reserves for returns, rebates and allowances............. $14,250 $ -- $14,593 $ -- $18,869 $ -- Reserves for direct acquisition costs...... 3,887 -- 1,700 -- 1,477 -- Reserves for restructuring charges.. 1,720 -- 332 -- 10 -- Merger-related costs.... -- -- -- -- 6,737 -- Reserves for worker's compensation insurance.............. 3,818 -- 3,905 -- 3,814 -- Accelerated depreciation........... -- 15,252 -- 17,360 -- 17,716 Software capitalization......... -- 1,913 -- 1,595 -- 1,465 Inventory reserves and related purchase accounting differences............ -- 7,738 -- 7,143 -- 6,142 All other............... 3,613 1,836 4,843 2,472 4,554 2,629 ------- ------- ------- ------- ------- ------- Total................... $27,288 $26,739 $25,373 $28,570 $35,461 $27,952 ======= ======= ======= ======= ======= =======
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 in 1994 or 1995. The table below records the differences between the statutory income tax rate and the Company's effective income tax rate:
1992 1993 1994 1995 ---- ---- ---- ------ Statutory Federal income tax....................... 34.0% 34.7% 35.0% 35.0% State income taxes, net of the Federal income tax benefit........................................... 6.6 6.1 4.8 (4.9) Losses from foreign subsidiaries................... 3.3 1.3 1.9 -- Liquidation of a foreign subsidiary................ -- -- (3.9) -- Non-deductible goodwill amortization............... -- .9 1.5 (9.0) Non-deductible merger-related expenses............. -- -- -- (208.3) Other, net......................................... -- (.9) .3 2.6 ---- ---- ---- ------ Effective income tax rate.......................... 43.9% 42.1% 39.6% (184.6)% ==== ==== ==== ======
F-38 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PRO- SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 10 The Company.............................................................. 15 Use of Proceeds.......................................................... 16 Common Stock Price Range and Dividend Policy............................. 17 Capitalization........................................................... 18 Unaudited Pro Forma Financial Statements................................. 19 Selected Consolidated Financial Data..................................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 29 Business................................................................. 39 Management............................................................... 50 Certain Transactions..................................................... 53 Principal and Selling Stockholders....................................... 59 Shares Eligible for Future Sale.......................................... 63 Description of Capital Stock............................................. 65 Description of Indebtedness.............................................. 69 Underwriting............................................................. 72 Legal Matters............................................................ 73 Experts.................................................................. 73 Available Information.................................................... 73 Incorporation of Certain Documents by Reference.......................... 74 Index to Financial Statements............................................ F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7,000,000 SHARES LOGO UNITED STATIONERS INC. COMMON STOCK ---------------- PROSPECTUS ---------------- BEAR, STEARNS & CO. INC. DEAN WITTER REYNOLDS INC. GOLDMAN, SACHS & CO. , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses payable by the registrant in connection with this registration statement. All such expenses are estimates, other than the filing fees payable to the Commission and the National Association of Securities Dealers, Inc. Filing Fee--Securities and Exchange Commission................. $ 63,150 Filing and Listing Fee--National Association of Securities Dealers, Inc.................................................. 36,500 Fees and Expenses of Accountants............................... 200,000 Fees and Expenses of Legal Counsel............................. 75,000 Printing and Engraving Expenses................................ 70,000 Blue Sky Fees and Expenses..................................... 15,000 Fees of Transfer Agent and Registrar........................... 3,000 Miscellaneous Expenses......................................... 12,350 -------- Total...................................................... $475,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Charter and Restated Bylaws of the Company provide for the indemnification of directors and officers to the fullest extent permitted by the General Corporation Law of the State of Delaware ("DGCL"). Pursuant to the provisions of Section 145 of the DGCL, the Company has the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee, or agent of the Company against any and all expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with such action, suit, or proceeding. The power to indemnify applies only if such person acted in good faith and in a manner he reasonably believed to be in the best interest, or not opposed to the best interest, of the Company and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Indemnification is not available if such person has been adjudged to have been liable to the Company, unless and only to the extent the court in which such action was brought determines that, despite the adjudication of liability, but in view of all the circumstances, the person is reasonably and fairly entitled to indemnification for such expenses as the court shall deem proper. The Company has the power to purchase and maintain insurance for such persons. The statutes also expressly provide that the power to indemnify authorized thereby is not exclusive of any rights granted under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The above discussion of the Charter and Restated Bylaws of the Company and of Section 145 of the DGCL is not intended to be exhaustive and is qualified in its entirety by such Charter and Restated Bylaws of the Company and the DGCL. The Company also carries director and officer liability insurance policies. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, II-1 officer, or controlling person thereof in the successful defense of any action, suit or proceeding) is asserted by a director, officer, or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS. 1.1 --Form of Underwriting Agreement.** 4.1 --Charter (Exhibit 3(a) to the Company's Annual Report on Form 10-K dated November 19, 1987)(3). 4.2 --Certificate of Ownership and Merger merging Associated into United(2). 4.3 --Restated Bylaws(1). 5.1 --Opinion of Weil, Gotshal & Manges LLP as to the validity of the securities registered hereby.** 9.1 --Voting Trust Agreement, dated as of January 31, 1992, among the Company, the stockholders party thereto and Messrs. Sturgess, Hegi, Miller, Good and Johnson, as voting trustees(1). 9.2 --First Amendment to Voting Trust Agreement, dated as of March 30, 1995, among the Company, the stockholders party thereto and Messrs. Sturgess, Hegi, Miller, Good and Johnson, as voting trustees(1). 10.1 --Credit Agreement, dated as of March 30, 1995, among USSC, the Company, certain Lenders named therein and Chase Bank, as Agent and Lender (Exhibit 4.A.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995)(3). 10.2 --Waiver and Amendment No. 1, dated as of April 13, 1995, among USSC, the Company, each of the lenders party thereto and Chase Bank(1). 10.3 --Waiver and Amendment No. 2, dated as of December 21, 1995, among the Company, United, each of the lenders party thereto and Chase Bank**. 10.4 --Assumption Agreement, dated as of March 30, 1995, among USSC, the Company and Chase Bank, as agent (included in Exhibit 10.1, Exhibit F). 10.5 --Form of Revolving Credit Note, issuable under the Credit Agreement (included in Exhibit 10.1, Exhibit A-I). 10.6 --Form of Tranche A Term Loan Note, issuable under the Credit Agreement (included in Exhibit 10.1, Exhibit A-2). 10.7 --Form of Tranche B Term Loan Note, issuable under the Credit Agreement (included in Exhibit 10.1, Exhibit A-3). 10.8 --Security Agreement, dated as of March 30, 1995, between USSC and Chase Bank, as agent (included in Exhibit 10.1, Exhibit C). 10.9 --Form of Indenture of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated as of March 30, 1995, by USSC in favor of Chase Bank (included in Exhibit 10.1, Exhibit E). 10.10 --Registration Rights Agreement, dated as of April 26, 1995, among the Company, USSC and the Initial Purchaser(1). 10.11 --Purchase Agreement, dated April 26, 1995, among the Company, USSC, and the Initial Purchaser(1).
II-2 10.12 --Registration Rights Agreement, dated as of January 31, 1992, between the Company and CMIHI (included in Exhibit 10.15, Annex 2). 10.13 --Amendment No. 1 to Registration Rights Agreement, dated as of March 30, 1995, among the Company, CMIHI and certain other holders of Lender Warrants(1). 10.14 --Amended and Restated Registration Rights Agreement, dated as of March 30, 1995, among the Company, Wingate Partners, Cumberland, Good Capital Co., Inc. and certain other Company stockholders(1). 10.15 --Warrant Agreement, dated as of January 31, 1992, among the Company, USSC and CMIHI(1). 10.16 --Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992, among the Company, USSC, CMIHI and the other parties thereto(1). 10.17 --Letter Agreement dated as of February 10, 1995, amending certain provisions of the Warrant Agreement, among the Company, USSC, CMIHI and the other parties thereto.** 10.18 --Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995, among the Company, USSC, CMIHI and the other parties thereto(1). 10.19 --Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995, among the Company, USSC, CMIHI and the other parties thereto.** 10.20 --Amendment No. 4 to Warrant Agreement, dated as of February , 1996, among the Company, USSC, CMIHI and the other parties thereto.** 10.21 --Warrant Agreement, dated as of January 31, 1992, between the Company and Boise Cascade Corporation(1). 10.22 --Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995, between the Company and Boise Cascade Corporation(1). 10.23 --Indenture, dated as of May 3, 1995, among USSC, the Company and The Bank of New York(1). 10.24 --First Supplemental Indenture, dated as of July 28, 1995, among USSC, the Company, and the Bank of New York(1). 10.25 --Investment Banking Fee and Management Agreements, dated as of January 31, 1992, among the Company, USSC and each of Wingate Partners, Cumberland and Good Capital Co., Inc.(1). 10.26 --Amendment No. 1 to Investment Banking Fee and Management Agreements, dated as of March 30, 1995, among USSC, the Company and each of Wingate Partners, Cumberland and Good Capital Co., Inc.(1). 10.27 --1992 Management Stock Option Plan, dated as of January 31, 1992(1). 10.28 --Amendment No. 1 to 1992 Management Stock Option Plan, dated as of March 30, 1995(1). 10.29 --Amendment No. 2 to 1992 Management Stock Option Plan, dated as of September 27, 1995.* 10.30 --Letter agreements, dated January 31, 1992, between the Company (as successor-in-interest to Associated) and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay and Daniel H. Bushell regarding grants of stock options(1). 10.31 --Amendment to Stock Option Grants, dated as of March 30, 1995, between the Company and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay and Daniel H. Bushell(1). 10.32 --Forms of Stock Option Agreements dated October 2, 1995 granting options to certain management employees, subject to stockholder approval of Amendment No. 2 to Stock Option Plan.* 10.33 --Forms of Amendments to Stock Option Grants, dated September 29, 1995 between the Company and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe and Daniel H. Bushell.** 10.34 --Stock Option Agreements dated as of January 1, 1996 between the Company and Thomas W. Sturgess, granting options subject to stockholder approval of Amendment No. 2 to Stock Option Plan.*
II-3 10.35 --Executive Stock Purchase Agreements, dated as of January 31, 1992, among the Company, Wingate Partners, ASI Partners, L.P. and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and Daniel J. Schleppe(1). 10.36 --First Amendments to Executive Stock Purchase Agreements, dated as of March 30, 1995, among the Company, Wingate Partners, ASI Partners, L.P. and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and Daniel J. Schleppe(1). 10.37 --Executive Bonus Plan (Exhibit 10(a)(i)(F) to the Company's Report on Form 10-K dated November 17, 1988)(3). 10.38 --Amendment to Executive Bonus Plan adopted February 13, 1995(2). 10.39 --Supplemental Benefits Plan as amended and restated as of July 13, 1988 (Exhibit 10(a)(H)(1) to the Company's Report on Form 10-K dated November 17, 1988)(3). 10.40 --Management Incentive Plan (Exhibit 10(a)(i)(L) to the Company's Report on Form 10-K dated November 17, 1988)(3). 10.41 --Amendment to Management Incentive Plan (Exhibit 10(a)(i)(C)(1) to the Company's Report on Form 10-K dated November 23, 1994)(3). 10.42 --Amendment to Management Incentive Plan adopted February 13, 1995(2). 10.43 --Management Incentive Plan for period 4/1/95 through 12/31/95.** 10.44 --Management Incentive Plan for 1996.** 10.45 --Profit Sharing PluSavings Plan (Exhibit 10(a)(i)(F)(2)(f) to the Company's Report on Form 10-K dated November 20, 1989)(3). 10.46 --United Stationers Supply Co. Pension Plan as amended (See the Company's Reports on Form 10-K for the fiscal years ended August 31, 1985, 1986, 1987 and 1989)(3). 10.47 --Amendment to Pension Plan adopted February 10, 1995(2). 10.48 --One Time Merger Integration Bonus Plan.* 10.49 --Employment Agreements, dated as of January 31, 1992, among the Company, USSC and each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay and Daniel H. Bushell(1). 10.50 --Amended and Restated Employment and Consulting Agreement dated April 15, 1993 among the Company, USSC and Joel D. Spungin (Exhibit 10(b) to the Company's Report on Form 10-K dated November 22, 1993)(3). 10.51 --Amendment dated February 13, 1995 to the Amended and Restated Employment and Consulting Agreement among the Company, USSC and Joel D. Spungin(2). 10.52 --Form of Employment and Consulting Agreement among the Company, USSC and certain officers (Exhibit 10(j) to the Company's Report on Form 10- K dated November 19, 1987)(3). 10.53 --Amendment dated February 13, 1995 to Employment and Consulting Agreement among the Company, USSC and Jerold A. Hecktman(2). 10.54 --Amendment dated February 13, 1995 to Employment and Consulting Agreement among the Company, USSC and Ted S. Rzeszuto(2). 10.55 --Amendment dated February 13, 1995 to Employment and Consulting Agreement among the Company, USSC and Otis H. Halleen(2). 10.56 --Amendment dated February 13, 1995 to Employment and Consulting Agreement among the Company, USSC and Robert H. Cornell(2). 10.57 --Amendment dated February 13, 1995 to Employment and Consulting Agreement among the Company, USSC and Steven R. Schwarz(2).
II-4 10.58 --Employment and Consulting Agreement dated March 1, 1990 between the Company, USSC and Jeffrey K. Hewson (Exhibit 10(1) to the Company's Report on Form 10-K dated November 20, 1990)(3). 10.59 --Amendment dated April 10, 1991 of Employment and Consulting Agreement between the Company, USSC and Jeffrey K. Hewson (Exhibit 10(1)(i) to the Company's Report on Form 10-K dated November 25, 1991)(3). 10.60 --Amendment dated September 1, 1994 of Hewson Employment and Consulting Agreement (Exhibit 10(e)(ii) to the Company's Report on Form 10-K dated November 23, 1994)(3). 10.61 --Amendment to Employment and Consulting Agreement dated February 13, 1995 between the Company, USSC and Jeffrey K. Hewson(2). 10.62 --Amendment dated May 25, 1995 to Employment and Consulting Agreement between the Company, USSC and Jeffrey K. Hewson.* 10.63 --Severance Agreement between the Company, USSC and James A. Pribel dated February 13, 1995(2). 10.64 --Letter Agreement dated February 13, 1995 between the Company and Ergin Uskup(2). 10.65 --Amendment dated August 30, 1995 to Employment and Consulting Agreement between the Company, USSC and Steven R. Schwarz.* 10.66 --Amendment dated August 30, 1995 to Employment and Consulting Agreement between the Company, USSC and Ted S. Rzeszuto.* 10.67 --Employment Agreements dated October 1, 1995 between USSC and each of Daniel H. Bushell, Michael D. Rowsey, Steven R. Schwarz, Robert H. Cornell, Ted S. Rzeszuto, and Al Shaw.* 10.68 --Employment Agreement dated November 1, 1995 between USSC and Otis H. Halleen.* 10.69 --Employment Agreement dated as of January 1, 1996 between the Company, USSC and Thomas W. Sturgess.* 10.70 --Deferred Compensation Plan. (Exhibit 10(f) to the Company's Annual Report on Form 10-K dated October 6, 1994)(3). 10.71 --Consulting Agreement dated October 1, 1995 between the Company and Jeffrey K. Hewson.* 10.72 --Letter Agreement dated November 29, 1995 granting shares of restricted stock to Joel D. Spungin.* 10.73 --Option Agreement dated November 29, 1995 between the Company and Jeffrey K. Hewson.** 10.74 --Lease Agreement, dated as of March 4, 1988, between Crow-Alameda Limited Partnership and Stationers Distributing Company, Inc., as amended(1). 10.75 --Industrial Real Estate Lease, dated as of May 17, 1993, among Majestic Realty Co. and Patrician Associates, Inc., as landlord, and United Stationers Supply Co., as tenant(1). 10.76 --Standard Industrial Lease, dated as of March 15, 1991, between Shelley B. & Barbara Detrik and Lynn Edwards Corp.(1) 10.77 --Lease Agreement, dated as of January 12, 1993, as amended, among Stationers Antelope Joint Venture, AVP Trust, Adon V. Panattoni and Yolanda M. Panattoni, as landlord, and United Stationers Supply Co., as tenant(1). 10.78 --Lease, dated as of February 1, 1993, between CMD Florida Four Limited Partnership and United Stationers Supply Co., as amended(1). 10.79 --Standard Industrial Lease, dated March 2, 1992, between Carol Point Builders I and Associated Stationers, Inc.(1).
II-5 10.80 --Lease, dated March 22, 1973, between National Boulevard Bank of Chicago, as trustee under Trust Agreement dated March 15, 1973 and known as Trust No. 4722, and United Supply Company, as amended(1). 10.81 --Lease Agreement, dated July 20, 1993, between OTR, acting as the duly authorized nominee of the Board of the State Teachers Retirement System of Ohio, and United Stationers Supply Co., as amended(1). 10.82 --Lease Agreement, dated as of December 20, 1988, between Corporate Property Associates 8, L.P., and Stationers Distributing Company, Inc., as amended(1). 10.83 --Industrial Lease, dated as of February 22, 1988, between Northtown Devco and Stationers Distributing Company, as amended(1). 10.84 --Lease, dated as of April 17, 1989, between Isaac Heller and United Stationers Supply Co ., as amended(1). 10.85 --Lease Agreement, dated as of May 10, 1984, between Westbelt Business Park Joint Venture and Boise Cascade Corporation, as amended(1). 10.86 --Lease, dated as of January 19, 1981, between Propco, Inc. and Crown Zellerbach Corporation, as amended(1). 10.87 --Lease Agreement, dated as of August 17, 1981, between Gulf United Corporation and Crown Zellerbach Corporation, as amended(1). 10.88 --Lease Agreement, dated as of March 31, 1978, among Gillich O. Traughber and J.T. Cruin, Joint Venturers, and Boise Cascade Corporation, as amended(1). 10.89 --Lease Agreement, dated November 7, 1988, between Dalware II Associates and Stationers Distributing Company, Inc., as amended(1). 10.90 --Lease Agreement, dated November 7, 1988, between Central East Dallas Development Limited Partnership and Stationers Distributing Company, Inc., as amended(1). 10.91 --Lease Agreement, dated as of March 17, 1989, between Special Asset Management Company of Texas, Inc., and Stationers Distributing Company, Inc., as amended(1). 10.92 --Sublease, dated January 9, 1992, between Shadrall Associates and Stationers Distributing Company, Inc.(1). 10.93 --Industrial Lease, dated as of June 12, 1989, between Stationers Distributing Company, Inc. and Dual Asset Fund V, as amended(1). 10.94 --Lease Agreement, dated as of July , 1994, between Bettilyon Mortgage Loan Company and United Stationers Supply Co.(1). 10.95 --Agreement of Lease, dated as of January 5, 1994, between the Estate of James Campbell, deceased, and United Stationers Supply Co.(1). 10.96 --Lease Agreement dated January 5, 1996 between Robinson Properties, L.P. and USSC.* 10.97 --Real Estate Agreement dated January 9, 1996 between USSC as seller and Seid Street, Ltd. as purchaser.* 10.98 --Real Estate Agreement dated October 19, 1995 between USSC as seller and Boise Cascade Office Products Corporation as purchaser.* 10.99 --Agreement for Data Processing Services, dated January 31, 1992, between USSC (as successor-in-interest to ASI) and Affiliated Computer Services, Inc.(1). 10.100 --Amended and Restated First Amendment to Agreement for Data Processing Services, dated as of August 29, 1995, between USSC and Affiliated Computer Services, Inc.(1). 10.101 --Form of Director's Agreement to Cash Out and Cancel Stock Options dated February 13, 1995 (Exhibit 10.53 to the Company's Report on Form 10-K dated June 27, 1995)(3).
II-6 10.102 --Form of Employee's Agreement to Cash Out and Cancel Stock Options dated February 13, 1995 (Exhibit 10.54 to the Company's Report on Form 10-K dated June 27, 1995)(3). 10.103 --US Employee Benefits Trust Agreement dated March 21, 1995 between the Company and American National Bank and Trust Company of Chicago as Trustee(2). 10.104 --USI Bonus Benefits Trust Agreement dated March 21, 1995 between the Company and American National Bank and Trust Company of Chicago as Trustee(2). 10.105 --Certificate of Insurance covering directors' and officers' liability insurance effective November 1, 1994 through November 1, 1995 (Exhibit 10.57 to the Company's Report on Form 10-K dated June 27, 1995)(3). 10.106 --Certificate of Insurance covering directors' and officers' liability insurance effective March 30, 1995 through March 30, 1996 (Exhibit 10.81 to the Company's Form S-3 (No. 33-62739, as amended)(3). 10.107 --Amendment to Medical Plan Document for the Company(2). 10.108 --The Company Severance Plan, adopted February 10, 1995(2). 10.109 --Securities Purchase Agreement, dated as of July 28, 1995, among the Company, Boise Cascade, Wingate Partners, Wingate II, Wingate Affiliates, Wingate Affiliates II, ASI Partners III, L.P., the Julie Good Mora Grantor Trust and the Laura Good Stathos Grantor Trust(2). 21 --Subsidiaries of the Company*. 23.1 --Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5 to the Registration Statement).** 23.2 --Consent of Ernst & Young LLP, independent auditors.* 23.3 --Consent of Arthur Andersen LLP, independent certified public accountants.* 23.4 --Consent of Arthur Andersen LLP, independent certified public accountants.* 24.1 --Powers of Attorney of directors and executive officers of the Registrant. (Included on Page II-8 of this Registration Statement.)* 27 --Financial Data Schedule (EDGAR filing only).*
- -------- * Filed herewith. ** To be filed by amendment. (1) Incorporated by reference to the Company's Form S-1 (No. 33-59811), as amended, initially filed with the Commission on June 12, 1995. (2) Incorporated by reference to the Company's Schedule 14D-9 dated February 21, 1995. (3) Incorporated by reference to other prior filings of the Company as indicated. II-7 ITEM 17. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liability (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 SIGNATURES AND POWER OF ATTORNEY PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DES PLAINES, STATE OF ILLINOIS, ON FEBRUARY 15, 1996. United Stationers Inc. By: _________________________________ DANIEL H. BUSHELL EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND ASSISTANT SECRETARY EACH PERSON WHOSE SIGNATURE TO THIS REGISTRATION STATEMENT APPEARS BELOW HEREBY APPOINTS THOMAS W. STURGESS, DANIEL H. BUSHELL AND JAMES A. JOHNSON, AND EACH OF THEM, ANY ONE OF WHOM MAY ACT WITHOUT THE JOINDER OF ANY OF THE OTHERS, AS HIS ATTORNEY-IN-FACT TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN THE CAPACITY STATED BELOW AND TO FILE ALL PRE- AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT (AND, IN ADDITION, ANY REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR THE OFFERING TO WHICH THIS REGISTRATION STATEMENT RELATES), WHICH MAY MAKE SUCH CHANGES IN AND ADDITIONS TO THIS REGISTRATION STATEMENT AS SUCH ATTORNEY- IN-FACT MAY DEEM NECESSARY OR APPROPRIATE. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE TITLE DATE Chairman of the February 15, - ------------------------------------- Board, President 1996 THOMAS W. STURGESS and Chief Executive Officer of the Company (principal executive officer of the Company) Executive Vice February 15, - ------------------------------------- President, Chief 1996 DANIEL H. BUSHELL Financial Officer and Assistant Secretary; (principal financial officer) Vice President, February 15, - ------------------------------------- Controller and 1996 TED S. RZESZUTO Assistant Secretary (principal accounting officer) Director February 15, - ------------------------------------- 1996 JAMES T. CALLIER, JR. II-9 SIGNATURE TITLE DATE Director February 15, - ------------------------------------- 1996 DANIEL J. GOOD Director February 15, - ------------------------------------- 1996 FREDERICK B. HEGI, JR. Director February 15, - ------------------------------------- 1996 JEFFREY K. HEWSON Director February 15, - ------------------------------------- 1996 JAMES A. JOHNSON Director February 15, - ------------------------------------- 1996 GARY G. MILLER Director February 15, - ------------------------------------- 1996 MICHAEL D. ROWSEY Director February 15, - ------------------------------------- 1996 JOEL D. SPUNGIN II-10 EX-10.29 2 AMDMT #2 TO MGMNT. STOCK OPTION PLAN 9/27/95 EXHIBIT 10.29 AMENDMENT NO. 2 TO UNITED STATIONERS INC. Management Stock Option Plan This Amendment No. 2 to United Stationers Inc. Management Stock Option Plan (the "Plan") is dated as of September 27, 1995. Unless otherwise defined herein, capitalized terms used herein shall have the meanings given them in the Plan. WHEREAS, Associated Holdings, Inc. created and adopted the Plan as of January 31, 1992; WHEREAS, upon the merger of Associated Holdings, Inc. with United Stationers Inc. on March 30, 1995, the Plan was amended, by Amendment No. 1, changing the name of the Plan, and increasing the maximum number of shares of common stock for which options could be granted under the Plan; WHEREAS, the Company desires to amend the Plan in certain further respects; THEREFORE, the Plan is amended as follows: 1. Amendment of Name of Plan. The name of the Plan shall be "United Stationers Inc. Management Equity Plan". 2. Amendment of Section 1. The first sentence of Section 1 is amended by deleting the words "Management Stock Option Plan" and substituting therefor the words "Management Equity Plan". 3. Amendment of Section 3. The first sentence of Section 3 is amended by deleting the number "202,962.14" and substituting therefor "1,302,962.14". 4. Amendment of Section 5. Section 5(b) is amended by inserting the words "at least" before the words "six (6) months". 5. Amendments of Section 6. (a) Section 6(e) is (i) amended by inserting, before the words "within six (6) months", the following: "within the period designated by the Committee at the time of grant, which shall in no event be less than", and (ii) by inserting at the end of said section the following: ", or will become entitled to purchase during the period of exercise." (b) Section 6(f) is amended in its entirety to read as follows: "f. Disability or Retirement. If the employment of any optionee is terminated because of Disability (as defined in Section 9), or because of retirement, such optionee shall have the right, within the period designated by the Committee at the time of grant, which shall in no event be less that within six (6) months after the date of termination (or within one (1) year after the date of such termination in the case of an Incentive Option) (but in no case after the expiration of the Option), to exercise the Option with respect to all or any part of the shares of stock which such optionee was entitled to purchase immediately prior to the time of such termination, or will become entitled to purchase during the period of exercise." 6. Effect on the Plan. Except as amended hereby, the Plan shall remain in full force and effect. All references to the "Plan" shall refer to the Plan as amended by this Amendment. 7. Stockholder Approval. The amendments made hereby shall be subject to approval by the stockholders of the Company no later than the next annual meeting of stockholders. EX-10.32 3 FORMS OF STOCK OPTION AGREEMENTS 10/2/95 EXHIBIT 10.32 UNITED STATIONERS INC. MANAGEMENT EQUITY PLAN STOCK OPTION AGREEMENT October 2, 1995 NAME ADDRESS CITY STATE ZIP Dear : This will confirm the following agreement made effective as of today between you and United Stationers Inc., a Delaware corporation (the "Company"), pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which is attached as Exhibit A and is part of this agreement. (1) GRANT. The Company grants to you an option to purchase from the company XXXXXX shares of Common Stock of the Company at $10.24 per share, in accordance with the terms of this agreement. The number of shares and the price per share are subject to adjustment as provided in the Plan. (2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by the stockholders of the Company, of amendments to the Plan which will be submitted for approval by written consent of the stockholders or, if written consent cannot be obtained, at the next special or annual meeting of stockholders. (3) VESTING. This option may be exercised upon the terms and conditions of the Plan, as supplemented by this agreement, and not otherwise. This option may be exercised as to some or all of the shares (but not for fractional shares) at any time or times after the occurrence of a transaction or group of transactions (an "Event") that cause the Sponsor Holders (as defined below) to realize a return of Liquid Proceeds (as defined below) at least equal to their Common Stock Investment (as defined below). (a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P., Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate Affiliates II, L.P., and their affiliates. (b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii) negotiable instruments drawn on a bank with at least $10 billion in assets and payable in U.S. currency; (iii) obligations issued or assumed by the United States of America or any agency or instrumentality thereof; or (iv) shares of stock or other securities that are registered under the Securities Exchange Act of 1933, are traded on the New York Stock Exchange, the American Stock Exchange or one approved for quotation on the NASDAQ National Market System, and can be sold on such market by the holder without significant discount from the average of the bid and asked prices for such shares or other securities at such time. (c) "Common Stock Investment" shall mean the purchase price for the shares of Common Stock, par value $0.10 per share, of the Company purchased by the Sponsor Holders at the closing of the acquisition of the Company by the Sponsor Holders and others on March 30, 1995. For purposes of determining whether an Event has occurred, the good faith determination of the Board of Directors shall be conclusive. The Company shall notify you when the Event occurs. (4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will automatically and without notice terminate either (a) three years after an Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever occurs first (or earlier, in the event of termination of employment as provided in paragraph 5 below). (5) TERMINATION OF EMPLOYMENT. Upon termination of employment: (a) If termination is for good cause, as defined in the Plan, the options will immediately terminate; (b) If termination is voluntary by the optionee, all unexercised options shall immediately terminate; (c) If termination is the result of death, permanent disability, or retirement, the options will terminate as provided in paragraph (4) above; (d) If termination is at the election of the Company (but not for good cause) the options will immediately terminate as to 1/2 of the number of shares covered by the option grant, and the other half of the number of shares covered by the grant will terminate either (1) one year after the termination or (2) upon expiration of the option as provided in paragraph (4)(b) above, whichever occurs first. (6) METHOD OF EXERCISE. Any exercise of an option shall be in writing addressed to the Treasurer of the Company at its principal place of business, specifying the number of shares for which the option is exercised. The date of exercise shall be the date of actual receipt by the Treasurer. (7) PAYMENT. Payment for the stock upon exercise of this option will be made by the Company withholding from the total number of shares to be acquired pursuant to the exercise of the option a portion of such shares valued at the Fair Market Value of the shares (as defined in the Plan) on the day preceding the date of the exercise of the option. (8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding requirements by having the Company withhold from the shares to be acquired upon exercise. (9) TRANSFERABILITY. The option is not transferable by you otherwise than by will or the laws of descent and distribution, and is exercisable, during your lifetime, only by you. By your acceptance of this agreement you agree that the shares to be issued upon exercise of this option may not be sold, assigned, pledged or otherwise transferred for a period of six months after the Event without the prior written consent of the Option Committee of the Board of Directors of the Company. (10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be legended in such fashion as the Company may require and shall be subject to such restrictions on disposition as may be required to comply with Federal and State securities laws. (11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the Company or any subsidiary of the Company to continue your employment for any particular period or on any particular basis of compensation. (12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise of the options, reserves the right, in its good faith discretion, either to cause the issuance of the shares for which the option is exercised, or to pay to you the difference between the exercise price and the Fair Market Value of the shares for which the option is exercised (in either case net of the number of shares needed for payment and for withholding taxes). 2 (13) MISCELLANEOUS. (a) If requested to do so by the Company at the time of exercise of an option, in whole or in part, you agree to execute a certificate indicating that you are purchasing the stock under such option for investment and not with any present intention to sell the stock and that none of such shares shall be disposed of unless a registration statement under the Securities Act of 1933 and the regulations of the Securities and Exchange Commission shall be effect as to such shares, or unless an exemption from registration is available for such disposition. (b) This agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. It may not be assigned or transferred in whole or in part except as provided in the Plan. You shall not have any of the rights of a shareholder with respect to any of the shares optioned under this agreement until such shares are actually paid for and issued to you. (c) The option and these rights shall expire if the stockholders fail for any reason to approve the amendments to the Plan by May 8, 1996. (d) You assume all risks incident to any change hereafter in applicable laws or regulations or incident to any changes in the market value of the stock after the exercise of this option in whole or in part. (e) The terms of this option are subject to modification by action of the Board of Directors to the extent and in the manner permitted by the Plan. To indicate your acceptance of the foregoing, please sign and return one copy of this letter immediately. Very truly yours, UNITED STATIONERS INC. By: ----------------------------- Thomas W. Sturgess Chairman of the Board and Chief Executive Officer Accepted as of the date written above: - -------------------------------------- 3 UNITED STATIONERS INC. MANAGEMENT EQUITY PLAN STOCK OPTION AGREEMENT October 2, 1995 NAME ADDRESS CITY STATE ZIP Dear : This will confirm the following agreement made effective as of today between you and United Stationers Inc., a Delaware corporation (the "Company"), pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which is attached as Exhibit A and is part of this agreement. (1) GRANT. The Company grants to you an option to purchase from the company XXXXX shares of Common Stock of the Company at $25.00 per share, subject to change as provided in this agreement. The number of shares and the price per share are subject to adjustment as provided in the Plan. The option exercise price will increase by $1.25 per share on April 1, 1996, and on the first day of each calendar quarter thereafter until the occurrence of the Event described below. After the occurrence of the Event, the option price will not be subject to any further quarterly increase. (2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by the stockholders of the Company, of amendments to the Plan which will be submitted for approval by written consent of the stockholders or, if written consent cannot be obtained, at the next special or annual meeting of stockholders. (3) VESTING. This option may be exercised upon the terms and conditions of the Plan, as supplemented by this agreement, and not otherwise. This option may be exercised as to some or all of the shares (but not for fractional shares) at any time or times after the occurrence of a transaction or group of transactions (an "Event") that cause the Sponsor Holders (as defined below) to realize a return of Liquid Proceeds (as defined below) at least equal to their Common Stock Investment (as defined below). (a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P., Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate Affiliates II, L.P., and their affiliates. (b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii) negotiable instruments drawn on a bank with at least $10 billion in assets and payable in U.S. currency; (iii) obligations issued or assumed by the United States of America or any agency or instrumentality thereof; or (iv) shares of stock or other securities that are registered under the Securities Exchange Act of 1933, are traded on the New York Stock Exchange, the American Stock Exchange or one approved for quotation on the NASDAQ National Market System, and can be sold on such market by the holder without significant discount from the average of the bid and asked prices for such shares or other securities at such time. (c) "Common Stock Investment" shall mean the purchase price for the shares of Common Stock, par value $0.10 per share, of the Company purchased by the Sponsor Holders at the closing of the acquisition of the Company by the Sponsor Holders and others on March 30, 1995. For purposes of determining whether an Event has occurred, the good faith determination of the Board of Directors shall be conclusive. The Company shall notify you when the Event occurs. (4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will automatically and without notice terminate either (a) three years after an Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever occurs first (or earlier, in the event of termination of employment as provided in paragraph 5 below). (5) TERMINATION OF EMPLOYMENT. Upon termination of employment: (a) If termination is for good cause, as defined in the Plan, the options will immediately terminate; (b) If termination is voluntary by the optionee, all unexercised options shall immediately terminate; (c) If termination is the result of death, permanent disability, or retirement, the options will terminate as provided in paragraph (4) above; (d) If termination is at the election of the Company (but not for good cause) the options will immediately terminate as to 1/2 of the number of shares covered by the option grant, and the other half of the number of shares covered by the grant will terminate either (1) one year after the termination or (2) upon expiration of the option as provided in paragraph (4)(b) above, whichever occurs first. (6) METHOD OF EXERCISE. Any exercise of an option shall be in writing addressed to the Treasurer of the Company at its principal place of business, specifying the number of shares for which the option is exercised. The date of exercise shall be the date of actual receipt by the Treasurer. (7) PAYMENT. Payment for the stock upon exercise of this option will be made by the Company withholding from the total number of shares to be acquired pursuant to the exercise of the option a portion of such shares valued at the Fair Market Value of the shares (as defined in the Plan) on the day preceding the date of the exercise of the option. (8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding requirements by having the Company withhold from the shares to be acquired upon exercise. (9) TRANSFERABILITY. The option is not transferable by you otherwise than by will or the laws of descent and distribution, and is exercisable, during your lifetime, only by you. By your acceptance of this agreement you agree that the shares to be issued upon exercise of this option may not be sold, assigned, pledged or otherwise transferred for a period of six months after the Event without the prior written consent of the Option Committee of the Board of Directors of the Company. (10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be legended in such fashion as the Company may require and shall be subject to such restrictions on disposition as may be required to comply with Federal and State securities laws. (11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the Company or any subsidiary of the Company to continue your employment for any particular period or on any particular basis of compensation. (12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise of the options, reserves the right, in its good faith discretion, either to cause the issuance of the shares for which the option is exercised, or to pay to you the difference between the exercise price and the Fair Market Value of 2 the shares for which the option is exercised (in either case net of the number of shares needed for payment and for withholding taxes). (13) MISCELLANEOUS. (a) If requested to do so by the Company at the time of exercise of an option, in whole or in part, you agree to execute a certificate indicating that you are purchasing the stock under such option for investment and not with any present intention to sell the stock and that none of such shares shall be disposed of unless a registration statement under the Securities Act of 1933 and the regulations of the Securities and Exchange Commission shall be effect as to such shares, or unless an exemption from registration is available for such disposition. (b) This agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. It may not be assigned or transferred in whole or in part except as provided in the Plan. You shall not have any of the rights of a shareholder with respect to any of the shares optioned under this agreement until such shares are actually paid for and issued to you. (c) The option and these rights shall expire if the stockholders fail for any reason to approve the amendments to the Plan by May 8, 1996. (d) You assume all risks incident to any change hereafter in applicable laws or regulations or incident to any changes in the market value of the stock after the exercise of this option in whole or in part. (e) The terms of this option are subject to modification by action of the Board of Directors to the extent and in the manner permitted by the Plan. To indicate your acceptance of the foregoing, please sign and return one copy of this letter immediately. Very truly yours, UNITED STATIONERS INC. By: ---------------------------- Thomas W. Sturgess Chairman of the Board and Chief Executive Officer Accepted as of the date written above: - -------------------------------------- 3 EX-10.34 4 STOCK OPTION AGREEMENTS DATED 1/1/96 EXHIBIT 10.34 UNITED STATIONERS INC. MANAGEMENT EQUITY PLAN STOCK OPTION AGREEMENT January 1, 1996 Mr. Thomas W. Sturgess c/o Wingate Partners 750 North St. Paul/ Suite #1200 Dallas, Texas 75201 Dear Tom: This will confirm the following agreement made effective as of today between you and United Stationers Inc., a Delaware corporation (the "Company"), pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which is attached as Exhibit A and is part of this agreement. (1) GRANT. The Company grants to you an option to purchase from the company 240,000 shares of Common Stock of the Company at $12.50 per share, subject to change as provided in this agreement. The number of shares and the price per share are subject to adjustment as provided in the Plan. The option exercise price will increase by $0.625 per share on April 1, 1996, and on the first day of each calendar quarter thereafter until the occurrence of the Event described below. After the occurrence of the Event, the option price will not be subject to any further quarterly increase. (2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by the stockholders of the Company, of amendments to the Plan which will be submitted for approval by written consent of the stockholders or, if written consent cannot be obtained, at the next special or annual meeting of stockholders. (3) VESTING. This option may be exercised upon the terms and conditions of the Plan, as supplemented by this agreement, and not otherwise. This option may be exercised as to some or all of the shares (but not for fractional shares) at any time or times after the occurrence of a transaction or group of transactions (an "Event") that cause the Sponsor Holders (as defined below) to realize a return of Liquid Proceeds (as defined below) at least equal to their Common Stock Investment (as defined below) as follows: (i) Options for 80,000 shares after the occurrence of an Event; (ii) Options for 80,000 shares on the later of (a) December 31, 1996, provided you are still employed as Chief Executive Officer of the Company on such date or (b) the occurrence of an Event; and (iii) Options for 80,000 shares on the later of (a) March 31, 1997, provided you are still employed as Chief Executive Officer of the Company on such date, or (b) the occurrence of an Event. (a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P., Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate Affiliates II, L.P., and their affiliates. (b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii) negotiable instruments drawn on a bank with at least $10 billion in assets and payable in U.S. currency; (iii) obligations issued or assumed by the United States of America or any agency or instrumentality thereof; or (iv) shares of stock or other securities that are registered under the Securities Exchange Act of 1933, are traded on the New York Stock Exchange, the American Stock Exchange or one approved for quotation on the NASDAQ National Market System, and can be sold on such market by the holder without significant discount from the average of the bid and asked prices for such shares or other securities at such time. (c) "Common Stock Investment" shall mean the purchase price for the shares of Common Stock, par value $0.10 per share, of the Company purchased by the Sponsor Holders at the closing of the acquisition of the Company by the Sponsor Holders and others on March 30, 1995. For purposes of determining whether an Event has occurred, the good faith determination of the Board of Directors shall be conclusive. The Company shall notify you when the Event occurs. (4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will automatically and without notice terminate either (a) three years after an Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever occurs first (or earlier, in the event of termination of employment as provided in paragraph 5 below). (5) TERMINATION OF EMPLOYMENT. Upon termination of employment: (a) If termination is for good cause, as defined in the Plan, the options will immediately terminate; (b) If termination is voluntary by the optionee, all unexercised options shall immediately terminate; (c) If termination is the result of death, permanent disability, or retirement, the options will terminate if not yet vested pursuant to paragraph 3(ii) or (iii) above; otherwise as provided in paragraph (4) above; (d) If termination is at the election of the Company (but not for good cause) the options will immediately terminate as to those options not yet vested pursuant to paragraph 3(ii) or (iii) above and 1/2 of the number of remaining shares covered by the option grant, and the other half of the number of remaining shares covered by the grant will terminate either (1) one year after the termination or (2) upon expiration of the option as provided in paragraph (4)(b) above, whichever occurs first. (6) METHOD OF EXERCISE. Any exercise of an option shall be in writing addressed to the Treasurer of the Company at its principal place of business, specifying the number of shares for which the option is exercised. The date of exercise shall be the date of actual receipt by the Treasurer. (7) PAYMENT. Payment for the stock upon exercise of this option will be made by the Company withholding from the total number of shares to be acquired pursuant to the exercise of the option a portion of such shares valued at the Fair Market Value of the shares (as defined in the Plan) on the day preceding the date of the exercise of the option. (8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding requirements by having the Company withhold from the shares to be acquired upon exercise. (9) TRANSFERABILITY. The option is not transferable by you otherwise than by will or the laws of descent and distribution, and is exercisable, during your lifetime, only by you. By your acceptance of this agreement you agree that the shares to be issued upon exercise of this option may not be sold, assigned, pledged or otherwise transferred for a period of six months after the Event without the prior written consent of the Option Committee of the Board of Directors of the Company. 2 (10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be legended in such fashion as the Company may require and shall be subject to such restrictions on disposition as may be required to comply with Federal and State securities laws. (11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the Company or any subsidiary of the Company to continue your employment for any particular period or on any particular basis of compensation. (12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise of the options, reserves the right, in its good faith discretion, either to cause the issuance of the shares for which the option is exercised, or to pay to you the difference between the exercise price and the Fair Market Value of the shares for which the option is exercised (in either case net of the number of shares needed for payment and for withholding taxes). (13) MISCELLANEOUS. (a) If requested to do so by the Company at the time of exercise of an option, in whole or in part, you agree to execute a certificate indicating that you are purchasing the stock under such option for investment and not with any present intention to sell the stock and that none of such shares shall be disposed of unless a registration statement under the Securities Act of 1933 and the regulations of the Securities and Exchange Commission shall be effect as to such shares, or unless an exemption from registration is available for such disposition. (b) This agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. It may not be assigned or transferred in whole or in part except as provided in the Plan. You shall not have any of the rights of a shareholder with respect to any of the shares optioned under this agreement until such shares are actually paid for and issued to you. (c) The option and these rights shall expire if the stockholders fail for any reason to approve the amendments to the Plan by May 8, 1996. (d) You assume all risks incident to any change hereafter in applicable laws or regulations or incident to any changes in the market value of the stock after the exercise of this option in whole or in part. (e) The terms of this option are subject to modification by action of the Board of Directors to the extent and in the manner permitted by the Plan. To indicate your acceptance of the foregoing, please sign and return one copy of this letter immediately. Very truly yours, UNITED STATIONERS INC. By: --------------------------------------- Gary G. Miller, Director and Member of Compensation Committee Accepted as of the date written above: - -------------------------------------- Thomas W. Sturgess 3 UNITED STATIONERS INC. MANAGEMENT EQUITY PLAN STOCK OPTION AGREEMENT January 1, 1996 Mr. Thomas W. Sturgess c/o Wingate Partners 750 North St. Paul/ Suite #1200 Dallas, Texas 75201 Dear Tom: This will confirm the following agreement made effective as of today between you and United Stationers Inc., a Delaware corporation (the "Company"), pursuant to the Company's Management Equity Plan (the "Plan"), a copy of which is attached as Exhibit A and is part of this agreement. (1) GRANT. The Company grants to you an option to purchase from the company 120,000 shares of Common Stock of the Company at $5.12 per share, in accordance with the terms of this agreement. The number of shares and the price per share are subject to adjustment as provided in the Plan. (2) STOCKHOLDER APPROVAL REQUIRED. This grant is subject to the approval, by the stockholders of the Company, of amendments to the Plan which will be submitted for approval by written consent of the stockholders or, if written consent cannot be obtained, at the next special or annual meeting of stockholders. (3) VESTING. This option may be exercised upon the terms and conditions of the Plan, as supplemented by this agreement, and not otherwise. This option may be exercised as to some or all of the shares (but not for fractional shares) at any time or times after the occurrence of a transaction or group of transactions (an "Event") that cause the Sponsor Holders (as defined below) to realize a return of Liquid Proceeds (as defined below) at least equal to their Common Stock Investment (as defined below). (a) "Sponsor Holders" shall mean, collectively, Wingate Partners, L.P., Wingate Partners II, L.P., Wingate Affiliates, L.P., Wingate Affiliates II, L.P., and their affiliates. (b) "Liquid Proceeds" shall mean (i) currency of the United States; (ii) negotiable instruments drawn on a bank with at least $10 billion in assets and payable in U.S. currency; (iii) obligations issued or assumed by the United States of America or any agency or instrumentality thereof; or (iv) shares of stock or other securities that are registered under the Securities Exchange Act of 1933, are traded on the New York Stock Exchange, the American Stock Exchange or one approved for quotation on the NASDAQ National Market System, and can be sold on such market by the holder without significant discount from the average of the bid and asked prices for such shares or other securities at such time. (c) "Common Stock Investment" shall mean the purchase price for the shares of Common Stock, par value $0.10 per share, of the Company purchased by the Sponsor Holders at the closing of the acquisition of the Company by the Sponsor Holders and others on March 30, 1995. For purposes of determining whether an Event has occurred, the good faith determination of the Board of Directors shall be conclusive. The Company shall notify you when the Event occurs. This option may also be exercised as to some or all of the options immediately in the event of the termination of your employment (i) for Good Reason (as defined in your employment agreement), (ii) by expiration of your term of employment, (iii) by the Company other than for Cause, (iv) due to a Change in Control, or (v) due to your death or permanent disability. (4) EXPIRATION OF OPTION. The unexercised portion of the option, if any, will automatically and without notice terminate either (a) three years after an Event, or (b) at 5:00 p.m. Central Time on September 26, 2002, whichever occurs first (or earlier, in the event of termination of employment as provided in paragraph 5 below). (5) TERMINATION OF EMPLOYMENT. Upon termination of employment: (a) If termination is for good cause, as defined in the Plan, the options will immediately terminate; (b) If termination is voluntary by you prior to the expiration of your term of employment, all unexercised options shall immediately terminate; (c) If termination is the result of death, permanent disability, or retirement, the options will terminate as provided in paragraph (4) above; (d) If termination is at the election of the Company (but not for Cause) the options will terminate either (1) one year after the termination or (2) upon expiration of the option as provided in paragraph (4)(b) above, whichever occurs first. (6) METHOD OF EXERCISE. Any exercise of an option shall be in writing addressed to the Treasurer of the Company at its principal place of business, specifying the number of shares for which the option is exercised. The date of exercise shall be the date of actual receipt by the Treasurer. (7) PAYMENT. Payment for the stock upon exercise of this option will be made by the Company withholding from the total number of shares to be acquired pursuant to the exercise of the option a portion of such shares valued at the Fair Market Value of the shares (as defined in the Plan) on the day preceding the date of the exercise of the option. (8) WITHHOLDING TAXES. You agree that you will satisfy any tax withholding requirements by having the Company withhold from the shares to be acquired upon exercise. (9) TRANSFERABILITY. The option is not transferable by you otherwise than by will or the laws of descent and distribution, and is exercisable, during your lifetime, only by you. By your acceptance of this agreement you agree that the shares to be issued upon exercise of this option may not be sold, assigned, pledged or otherwise transferred for a period of six months after the Event without the prior written consent of the Option Committee of the Board of Directors of the Company. (10) LEGENDS ON CERTIFICATES. Certificates representing such shares may be legended in such fashion as the Company may require and shall be subject to such restrictions on disposition as may be required to comply with Federal and State securities laws. (11) NOT AN EMPLOYMENT CONTRACT. Nothing in this agreement shall obligate the Company or any subsidiary of the Company to continue your employment for any particular period or on any particular basis of compensation. 2 (12) COMPANY'S RIGHT TO "CASH OUT". You agree that the Company, upon exercise of the options, reserves the right, in its good faith discretion, either to cause the issuance of the shares for which the option is exercised, or to pay to you the difference between the exercise price and the Fair Market Value of the shares for which the option is exercised (in either case net of the number of shares needed for payment and for withholding taxes). (13) MISCELLANEOUS. (a) If requested to do so by the Company at the time of exercise of an option, in whole or in part, you agree to execute a certificate indicating that you are purchasing the stock under such option for investment and not with any present intention to sell the stock and that none of such shares shall be disposed of unless a registration statement under the Securities Act of 1933 and the regulations of the Securities and Exchange Commission shall be effect as to such shares, or unless an exemption from registration is available for such disposition. (b) This agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. It may not be assigned or transferred in whole or in part except as provided in the Plan. You shall not have any of the rights of a shareholder with respect to any of the shares optioned under this agreement until such shares are actually paid for and issued to you. (c) The option and these rights shall expire if the stockholders fail for any reason to approve the amendments to the Plan by May 8, 1996. (d) You assume all risks incident to any change hereafter in applicable laws or regulations or incident to any changes in the market value of the stock after the exercise of this option in whole or in part. (e) The terms of this option are subject to modification by action of the Board of Directors to the extent and in the manner permitted by the Plan. To indicate your acceptance of the foregoing, please sign and return one copy of this letter immediately. Very truly yours, UNITED STATIONERS INC. By: -------------------------------------- Gary G. Miller, Director and Member of Compensation Committee Accepted as of the date written above: - -------------------------------------- Thomas W. Sturgess 3 EX-10.48 5 ONE TIME MERGER INTEGRATION BONUS PLAN [LOGO OF UNITED STATIONERS] EXHIBIT 10.48 July, 1995 ONE-TIME MERGER INTEGRATION BONUS --------------------------------- This is a one-time incentive plan aimed at rewarding participants for accomplishing specific integration objectives of the merger: 1) Achieving an EBITDA annualized run rate of $150 million on 9/30/96, as measured over the preceding six month period. 2) Achieving the debt reduction goals contained in the Company's business plans. Eighty percent (80%) of the participant's bonus will be determined by the degree of achievement of Goal #1; the remaining twenty percent (20%) of the participant's bonus will be determined by the degree of achievement of Goal #2. Goal achievement will be measured as of 9/30/96. Participants will be eligible for a bonus when 90% achievement is reached. When the goals are met (i.e., 100% accomplishment) or exceeded, participants will share in a $5.0 million bonus pool. This Plan is effective immediately. Participants - ------------ Generally limited to a select group of Corporate Staff individuals, Region Vice Presidents and Area Managers, as approved by the Chairman of the Board. Award Value - ----------- Approximate amount of award, based on current number of participants, is approximately $100,000. Other - ----- 1. The Chairman of the Board shall review performance against goals at the conclusion of the plan and shall approve awards for individuals eligible to participate in this plan. page 1 of 2 ONE-TIME MERGER INTEGRATION BONUS (cont.) July, 1995 - ----------------------------------------- 2. The judgment of the Chairman of the Board in construing this plan or any provision thereof, or in making any decision hereunder, shall be final and binding upon all participants and their beneficiaries, heirs, executors, personal representatives and assigns. 3. Except as expressly provided in point 6 below, nothing herein contained shall limit or affect in any manner or degree the normal and usual powers of management, exercised by the Officers and the Board of Directors to change the duties or the character of employment of any employee of the Company or to remove the individual from the employment of the Company at any time, all of which rights and powers are expressly reserved. 4. Except as expressly provided in point 6 below, no award will be paid an individual who is not a regular full time employee in good standing when the plan concludes, except an award may be considered in the event of retirement or death of a participant during the plan year, at the discretion of the Chairman of the Board. 5. Except as expressly provided in point 6 below, the awards to participants shall become a liability of the Company when the plan concludes, and all payments to be made hereunder will be made as soon as practicable thereafter. 6. In the event the involuntary termination of a participant occurs prior to the conclusion of this plan, he or she may be entitled to payment of a reduced award for the year at the Chairman's discretion. Such award shall be paid to such employee as soon as practicable after awards have been approved. For purposes of understanding, "involuntary termination" shall mean actual or express termination of employment by the Company for its convenience, or any of its subsidiaries, provided, however, that in no event shall it include a termination based upon (a) any willful and continued failure to substantially perform assigned duties (other than as a result of incapacity) after demand giving specifics has been made for such performance, or (b) any willful misconduct which is materially injurious to the Company or any of its subsidiaries. As used here, the word "willful" means any act done or omitted to be done not in good faith and without reasonable belief that such action or omission was in the best interest of the Company. page 2 of 2 EX-10.62 6 AMDMT TO EMPLOYMENT AGREEMENT--J. HEWSON EXHIBIT 10.62 AMENDMENT TO ------------ EMPLOYMENT AND CONSULTING AGREEMENT ----------------------------------- This amendment is made as of the 25th day of May, 1995 between UNITED STATIONERS INC, ("USI"), UNITED STATIONERS SUPPLY CO. ("Supply Co. ") (USI and Supply Co. are collectively referred to as the "Company") and JEFFREY K. HEWSON ("Employee"). WHEREAS, the Company and the Employee are parties to an Employment and Consulting Agreement dated March 1, 1990 and Amendments dated April 10, 1991, September 1, 1994, February 13, 1995 and April 26, 1995 (collectively, "the Agreement"). WHEREAS, the parties desire to amend the Agreement. NOW THEREFORE, for valuable consideration which the parties acknowledge, the parties agree as follows: Section 2(a) line 6 of the Amendment dated February 13, 1995 stating: "..... Company within 30 days following the date on which the ....." shall be amended to read "..... Company within 76 days (corresponding to June 15, 1995) following the date on which the ...." Except as so amended, the Agreement is in all other respects unchanged. UNITED STATIONERS INC. UNITED STATIONERS SUPPLY CO. By: /s/ Daniel H. Bushell By: /s/ Daniel H. Bushell ------------------------ ------------------------ Its: Chief Financial Officer Its: Chief Financial Officer ------------------------ ----------------------- EMPLOYEE /S/ Jeffrey K. Hewson -------------------------- Jeffrey K. Hewson November 29, 1995 Mr. Jeffrey K. Hewson 925 Walden Lane Lake Forest, Illinois 60045 Dear Jeff: This will confirm the agreement of United Stationers Inc., effective as of this date, to grant to you, as a director of the Company, an option to purchase from the Company 14,648 shares of Common Stock of the Company at $5.12 per share, subject to adjustment as hereinafter described. In consideration of this grant, you agree to serve as a director for a three year term. This option may be exercised as follows:(a) up to one-third thereof may be exercised at any time after the date hereof, (b) up to two-thirds may be exercised on or after the first anniversary of this grant, and all of the options may be exercised on or after the second anniversary of this grant. This grant and all exercises shall be subject to the restrictions and provisions of Section 16b - and the filing requirements of Section 16a - of the Securities Exchange Act of 1934, as amended. The unexercised portion of the option, if any, will automatically and without notice terminate on the third anniversary of this grant. If you cease for any reason to be a director of the Company, all options shall be deemed vested, and the options shall expire on the earlier of (a) the third anniversary of this grant or (b) one year after you cease to be a director. Any exercise of an option shall be in writing addressed to the Treasurer of the Company, accompanied by payment in full of the exercise price. The date of exercise shall be the date of actual receipt by the Treasurer. Certificates representing such shares may be legended in such manner as the Company may require and shall be subject to such restrictions on disposition as may be required to comply with Federal and State securities laws. The option is exercisable, during your lifetime, only by you. No option may be transferred, assigned, pledged or hypothecated, except as provided by will or the applicable laws of descent or distribution. If requested to do so by the Company at the time of exercise of an option, in whole or in part, you agree to execute a certificate indicating that you are purchasing the stock under such option for investment and not with any present intention to sell the stock and that none of the shares shall be disposed of unless a registration statement under the Securities Act of 1933 shall be effective as to such shares, or unless an exemption from registration is available for such disposition. In the event there is any change in the common stock of the Company by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or any like change in the capital structure of the Company, the number or kind of shares and the per share price or value shall be appropriately adjusted by the Board of Directors. To indicate your acceptance of this agreement, please sign and return one copy of this letter immediately. Sincerely, Thomas W. Sturgess Chairman of the Board and Chief Executive Officer ACCEPTED: - ---------------------------- Jeffrey K. Hewson EX-10.65 7 AMDMT TO EMPLOYMENT AGREEMENT--STEVEN R. SCHWARZ EXHIBIT 10.65 AMENDMENT TO ------------ EMPLOYMENT AND CONSULTING AGREEMENT ----------------------------------- This Amendment made as of this 30th day of August, 1995, between UNITED STATIONERS INC. ("USI"), UNITED STATIONERS SUPPLY CO. ("Supply Co.") (USI and Supply Co. are collectively referred to as the "Company"), and STEVEN R. SCHWARZ ("Employee"). WHEREAS, the Company and Employee are parties to an Employment and Consulting Agreement dated September 1, 1989, and Amendment dated February 13, 1995 (collectively, the "Agreement"); and WHEREAS, the parties desire to revise a portion of the Agreement; THEREFORE, for valuable consideration which the parties acknowledge, Employee and the Company agree that the Agreement shall be amended as follows: 1. Section 3(e) of the Agreement is amended to read as follows: "(e) Stay Bonus. If the Term of Employment expires, is terminated by the Company other than for cause pursuant to Section 10(c) or is terminated voluntarily by the Employee with good reason pursuant to Section 10(a), then, upon the execution and delivery of the Release and Agreement attached hereto as Exhibit C, the Employee shall be entitled to and the Company shall pay to Employee, an amount equal to Six Hundred Twenty-four Thousand, Seven Hundred Thirty-four Dollars ($ 624,734) ("Stay Bonus") payable in an initial installment of $302,802, in 19 equal monthly installments thereafter in the amount of $16,323 each, and one final monthly installment thereafter in the amount of $11,795, with the first installment commencing within one month after the Employee becomes entitled thereto. The Company has secured the payment to which the Employee may become entitled pursuant to this subsection (e) by a letter of credit as described in and held and managed in accordance with a trust agreement known as the USI Employee Benefits Trust ("Benefits Trust") dated March 21, 1995, which provides that the Stay Bonus described above will be paid by the Benefits Trust as and when payable, provided the Employee has submitting to the trustee thereof a properly completed and executed Start Notice substantially in the form attached to the trust agreement as Schedule 4." 2. Section 3(f) is added as follows: "(f) Parachute Limitation. If the Employee determines that any payment pursuant to Section 3(e) would result in an Excess Parachute Payment, then the Company agrees, upon Employee's written request, to reduce the paments specified in Section 3(f) to the amount which will not result, directly or indirectly, in the treatment of any amount paid or payable by the Company to the Employee as an Excess Parachute Payment. For purposes of this Agreement, the term "Excess Parachute Payment" shall have the same meaning as the term has under section 280G of the Internal Revenue Code of 1986, as amended and the regulations thereunder." 3. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 4. Except as so amended, the Agreement is in all other respects unchanged. UNITED STATIONERS INC. EMPLOYEE: UNITED STATIONERS SUPPLY CO. By: - ------------------------ ---------------------------- Steven R. Schwarz Its 2 EX-10.66 8 AMDMT TO EMPLOYMENT AGREEMENT--TED S. RZESZUTO EXHIBIT 10.66 AMENDMENT TO ------------ EMPLOYMENT AND CONSULTING AGREEMENT ----------------------------------- This Amendment made as of this 30th day of August, 1995, between UNITED STATIONERS INC. ("USI"), UNITED STATIONERS SUPPLY CO. ("Supply Co.") (USI and Supply Co. are collectively referred to as the "Company"), and TED S. RZESZUTO ("Employee"). WHEREAS, the Company and Employee are parties to an Employment and Consulting Agreement dated April 3, 1987, and Amendment dated February 13, 1995 (collectively, the "Agreement"); and WHEREAS, the parties desire to revise a portion of the Agreement; THEREFORE, for valuable consideration which the parties acknowledge, Employee and the Company agree that the Agreement shall be amended as follows: 1. Section 3(e) of the Agreement is amended to read as follows: "(e) Stay Bonus. If the Term of Employment expires, is terminated by the Company other than for cause pursuant to Section 10(c) or is terminated voluntarily by the Employee with good reason pursuant to Section 10(a), then, upon the execution and delivery of the Release and Agreement attached hereto as Exhibit C, the Employee shall be entitled to and the Company shall pay to Employee, an amount equal to Five Hundred One Thousand, One Hundred Ninety-two Dollars ($501,192)("Stay Bonus") payable in an initial installment of $228,274, in 22 equal monthly installments thereafter in the amount of $12,305 each, and in a final installment of $2,208, with the first installment commencing within one month after the Employee becomes entitled thereto. The Company has secured the payment to which the Employee may become entitled pursuant to this subsection (e) by a letter of credit as described in and held and managed in accordance with a trust agreement known as the USI Employee Benefits Trust ("Benefits Trust") dated March 21, 1995,which provides that the Stay Bonus described above will be paid by the Benefits Trust as and when payable, provided the Employee has submitted a properly completed and executed Start Notice substantially in the form attached to the trust agreement as Schedule 4." 2. Section 3(f) is added as follows: "(f) Parachute Limitation. If the Employee determines that any payment pursuant to Section 3(e) would result in an Excess Parachute Payment, then the Company agrees, upon Employee's written request, to reduce the payments specified in Section 3(f) to the amount which will not result, directly or indirectly, in the treatment of any amount paid or payable by the Company to the Employee as an Excess Parachute Payment. For purposes of this Agreement, the term "Excess Parachute Payment" shall have the same meaning as the term has under section 280G of the Internal Revenue Code of 1986, as amended and the regulations thereunder." 3. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 4. Except as so amended, the Agreement is in all other respects unchanged. UNITED STATIONERS INC. EMPLOYEE: UNITED STATIONERS SUPPLY CO. By: - ------------------------------ ------------------------------ Ted S. Rzeszuto Its 2 EX-10.67 9 EMPLOYMENT AGREEMENTS EXHIBIT 10.67 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of October 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Daniel H. Bushell ("Bushell"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Bushell, and Bushell accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until September 30, 1997, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Bushell shall serve as an Executive Vice President and Chief Financial Officer of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such administrative, financial and other services to the Company as may be required of such position or as the Board may from time to time direct. Bushell shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Bushell shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Bushell shall be compensated as follows: 3.1. Base Salary. Bushell shall receive a base salary of no less than $225,000.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Bushell shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Bushell shall be included, to the extent eligible, in all plans, programs and policies providing general employee benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Bushell acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Bushell as a consequence of his employment by the Company (including information conceived, discovered or developed by Bushell during his employment with the Company or with Associated Stationers, Inc.) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Bushell or with Bushell's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Bushell prior to employment with the Company, or may now or in the future be in the public domain, Bushell acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Bushell, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Bushell further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Bushell shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Bushell conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Bushell participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Bushell (or after Bushell's death, Bushell's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Bushell shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Bushell's employment for whatever reason, Bushell (or in the event of death, Bushell's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Bushell or others, which are then in Bushell's possession or control. Records of payments made by the Company to or for the benefit of Bushell, Bushell's copy of this Agreement and other such things, lawfully possessed by Bushell which relate solely to taxes payable by Bushell, employee benefits due to Bushell or the terms of Bushell's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Bushell's employment, and during the two year period following his employment), Bushell shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Bushell may be engaged in the business of selling office products at retail and Bushell may be engaged by any company whose principal business is the manufacture of office products. 5.3. Bushell recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Bushell hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Bushell shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Bushell agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Bushell resigns on or before March 30, 1996, he shall be entitled to receive: 6.1.1. the unpaid portion of his base salary and accrued vacation pay attributable to all periods prior to and including the date of his resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his resignation; plus 6.1.2. a severance amount equal to two times his current base salary plus two times the amount of his bonuses earned from the Company for the year 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days from the date of resignation and continuing for 24 months (the "Severance Period"); provided, however, such amount shall be reduced by the amount of compensation earned by Bushell from any other employment or consulting arrangement during the Severance Period; and 6.1.3. in addition, Bushell shall be entitled to participate in the Company's health plan for the Severance Period, as if he were an employee. If Bushell resigns on or after March 31, 1996, or if Bushell gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Bushell For Good Reason. Bushell may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Bushell's consent, any of which shall be deemed "Good Reason": (a) the reduction of Bushell's base salary; (b) the exclusion of Bushell from, or diminution in Bushell's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company, officers or senior management personnel of the Company, other than exclusions, changes or diminutions applicable to all employees, officers or senior management personnel; or (c) any diminution in expense reimbursement benefits enjoyed by Bushell, except pursuant to a general change in the Company's reimbursement policies; or 5 (d) any material reduction in Bushell's title or duties which has the effect of materially reducing Bushell's status within the Company; provided, however, that any change in the office or officer to whom Bushell reports, or in Bushell's duties or title which does not diminish Bushell's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Bushell for Good Reason, Bushell shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment, payable on the Company's regular pay schedule; and 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 6.2.3. a severance amount equal to two times his base salary, plus two times his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Bushell to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Bushell and continuing for 24 months; and 6.2.4. Bushell shall be entitled to continue to participate in the Company's health plan for a period of two years following the date of the notice from Bushell, as if he were an employee. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Bushell shall be entitled to receive: 6.3.1 Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2 A severance amount equal to his base salary plus his bonus earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months; and 6 6.3.3 in addition, Bushell shall be entitled to participate in the Company's health plan for a period of 12 months following the expiration of the term as if he were an employee. 6.4. By Company For Cause. "Cause" means Bushell's (a) conviction of, or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.4.1 The Company may terminate the employment at any time for Cause (as hereinafter defined). If Bushell is terminated by the Company for Cause, Bushell shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. 6.4.2 In addition, if Bushell is terminated by the Company for Cause (but not otherwise), the Company and/or its designee(s) shall have the option ("Option") to purchase all or any portion of the shares of common stock of United Stationers Inc. held by Bushell. If the Company exercises such Option, Bushell agrees to sell said shares to the Company or its designee(s). The Company shall give written notice to Bushell of its election to exercise the Option within one year from the date of termination of Bushell's employment for Cause. If no notice is given within the time specified, the Option shall terminate. The purchase price to be paid for the shares purchased pursuant to the Option shall be the closing sale price of the common stock for the day preceding the date the Option is exercised, as reported on a national stock exchange or on the NASDAQ National Market System, or if there were no sales on such date, the next preceding day on which there were sales, or if the common stock is not listed for quotation on the NASDAQ National Market System or on a national stock exchange, the value of such common stock on such date as determined by the Board of Directors of United Stationers Inc. in good faith. The purchase price shall be paid in cash. The closing of the purchase shall take place at the Company's principal executive offices within 10 days after the purchase price has been determined, at which time Bushell shall deliver to the purchaser the certificates evidencing the common shares being purchased, duly endorsed. 7 To ensure the enforeceability of the Company's right under this Section, each certificate representing common stock of United Stationers Inc. held by Bushell shall bear a conspicuous legend in form acceptable to the Company. 6.5. By the Company. The Company may terminate Bushell's employment on written notice to Bushell at any time. If Bushell's employment is terminated by the Company, other than for Cause, Bushell shall be entitled to receive only: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment, payable on the Company's regular pay schedule; and 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. either: 6.5.3.1. if the termination is prior to the first anniversary of this Agreement, severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days after Bushell's receipt of the notice from the Company and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Bushell from any other employment or consulting arrangement during the severance period; or 6.5.3.2. if the termination is on or after the first anniversary of this Agreement, but before the second anniversary, severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, reduced (a) by 1/24th for each full month of employment after the first anniversary of this Agreement and, (b) by the amount of compensation earned by Bushell from any other employment or consulting arrangement during the severance period; or 6.5.3.3. if the termination is on or after the second anniversary of this Agreement, severance pay equal to his base pay plus his bonuses for the year preceding the year of termination; and 6.5.4. in addition, Bushell shall be entitled to participate in the Company's health plan for a period equal to the applicable severance period, as if he were an employee. 6.6. By Death or Disability. If Bushell's employment is terminated due to his death or permanent disability, Bushell shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Bushell's spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for 8 Bushell's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to the Bushell's spouse. Nothing in this Agreement shall affect Bushell's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Bushell or his designated beneficiary. 6.7. Retirement. Bushell agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Bushell shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Bushell shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, provided Bushell is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6-month period other than for Cause, Bushell shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Bushell's resignation within six months after the Change in Control or by the Company for Cause, Bushell shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Bushell's employment and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Bushell from any other employment or consulting arrangement during the severance period. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 9 8. Medical Benefits. The Company makes the following covenants to Bushell with respect to Bushell's medical benefits ("Medical Benefits"): 8.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Bushell's employment with the Company terminates for any reason, Bushell (and Bushell's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Bushell attains age sixty-five (65), and Bushell's spouse shall be entitled to continue to participate, in her own right, in the Plan until Bushell's spouse attains age sixty-five (65), but not for a period in excess of ten (10) years following Bushell's termination of employment with the Company; provided that, in the event Bushell terminates employment with the Company prior to attaining age fifty-five (55) Bushell (and Bushell's covered dependents at the time of such termination of employment) shall have the right to participate in the Plan for a period of ten (10) years, such period to commence on either Bushell's termination of employment with the Company or the date Bushell attains age fifty-five (55) as Bushell shall elect in writing at the time of his termination of employment, under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Bushell (and Bushell's covered dependents at the time of the termination of employment). 8.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on September 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Bushell shall be entitled to and the Company shall pay to Bushell THREE THOUSAND SEVENTY DOLLARS ($3,070.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: (i) the later of the date Bushell or Bushell's spouse attains age sixty-five (65); (ii) in the event of the death of Bushell, the date the spouse of Bushell attains age sixty-five (65); (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (iv) March 30, 1998. 8.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Bushell, subject to the following terms and conditions: 10 (i) Bushell (or any of Bushell's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Bushell's then current employer or a medical plan maintained by the employer of the spouse of Bushell, has exceeded the lifetime maximum benefit provided in such plan; (ii) payment of medical expenses or reimbursement for such claims under this subsection 8.3 shall not in the aggregate exceed the lesser of the following amounts: (a) a maximum of $300,000 for Bushell and all dependents (on an aggregate basis) of Bushell as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 8.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 8.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Bushell or Bushell's spouse attains age sixty-five; (b) in the event of the death of Bushell, the date the spouse of Bushell attains age sixty-five (65); (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. The coverage provided under this Section 8.3 shall be separate and in addition to the coverage provided under Section 8.2 above. 8.4 In addition, if Bushell is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD-3) ("Policy"), or a similar policy, Bushell shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 11 9. Miscellaneous. 9.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Bushell: 1829 Morgan Circle Naperville, IL 60565 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 9.2 This Agreement and all rights and benefits hereunder are personal to Bushell and neither this Agreement nor any right or interest of Bushell herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Bushell. Any attempt by Bushell to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Bushell's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Bushell's rights under the Agreement shall not be affected by any assignment or merger. 9.3 This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 9.4 This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof, including but not limited to the Employment Agreement between Bushell and Associated Stationers, Inc. dated January 31, 1992. 12 9.5 No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Bushell and an authorized representative of the Company other than Bushell. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 9.6 If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 9.7 The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 9.8 This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 9.9 If Bushell or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 10. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST:_______________________ By:__________________________ Ted S. Rzeszuto Tom Sturgess Assistant Secretary Chairman of the Board and Chief Executive Officer _____________________________________ Daniel H. Bushell 13 EXHIBIT A TO EMPLOYMENT AGREEMENT DANIEL H. BUSHELL The following are benefit plans, programs and policies in which Bushell is entitled to participate as of October 1, 1995: United Stationers Supply Co. Pension Plan Associated Stationers/United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Stationers Inc. Management Equity Plan United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased auto or equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 14 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of October 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Michael D. Rowsey ("Rowsey"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Rowsey, and Rowsey accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until September 30, 1997, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Rowsey shall serve as an Executive Vice President of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such administrative, sales and other services to the Company as may be required of such position or as the Board may from time to time direct. Rowsey shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Rowsey shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Rowsey shall be compensated as follows: 3.1. Base Salary. Rowsey shall receive a base salary of no less than $255,000.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Rowsey shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Rowsey shall be included, to the extent eligible, in all plans, programs and policies providing general employee benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Rowsey acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Rowsey as a consequence of his employment by the Company (including information conceived, discovered or developed by Rowsey during his employment with the Company or with Associated Stationers, Inc.) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Rowsey or with Rowsey's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Rowsey prior to employment with the Company, or may now or in the future be in the public domain, Rowsey acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Rowsey, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Rowsey further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Rowsey shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Rowsey conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Rowsey participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Rowsey (or after Rowsey's death, Rowsey's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Rowsey shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Rowsey's employment for whatever reason, Rowsey (or in the event of death, Rowsey's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Rowsey or others, which are then in Rowsey's possession or control. Records of payments made by the Company to or for the benefit of Rowsey, Rowsey's copy of this Agreement and other such things, lawfully possessed by Rowsey which relate solely to taxes payable by Rowsey, employee benefits due to Rowsey or the terms of Rowsey's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Rowsey's employment, and during the two year period following his employment), Rowsey shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Rowsey may be engaged in the business of selling office products at retail and Rowsey may be engaged by any company whose principal business is the manufacture of office products. 5.3. Rowsey recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Rowsey hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Rowsey shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Rowsey agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Rowsey resigns on or before March 30, 1996, he shall be entitled to receive: 6.1.1. the unpaid portion of his base salary and accrued vacation pay attributable to all periods prior to and including the date of his resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his resignation; plus 6.1.2. a severance amount equal to two times his current base salary plus two times the amount of his bonuses earned from the Company for the year 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days from the date of resignation and continuing for 24 months (the "Severance Period"); provided, however, such amount shall be reduced by the amount of compensation earned by Rowsey from any other employment or consulting arrangement during the Severance Period; and 6.1.3. in addition, Rowsey shall be entitled to participate in the Company's health plan for the Severance Period, as if he were an employee. If Rowsey resigns on or after March 31, 1996, or if Rowsey gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Rowsey For Good Reason. Rowsey may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Rowsey's consent, any of which shall be deemed "Good Reason": (a) the reduction of Rowsey's base salary; (b) the exclusion of Rowsey from, or diminution in Rowsey's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company, officers or senior management personnel of the Company, other than exclusions, changes or diminutions applicable to all employees, officers or senior management personnel; or (c) any diminution in expense reimbursement benefits enjoyed by Rowsey, except pursuant to a general change in the Company's reimbursement policies; or 5 (d) any material reduction in Rowsey's title or duties which has the effect of materially reducing Rowsey's status within the Company; provided, however, that any change in the office or officer to whom Rowsey reports, or in Rowsey's duties or title which does not diminish Rowsey's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Rowsey for Good Reason, Rowsey shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment, payable on the Company's regular pay schedule; and 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 6.2.3. a severance amount equal to two times his base salary, plus two times his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Rowsey to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Rowsey and continuing for 24 months; and 6.2.4. Rowsey shall be entitled to continue to participate in the Company's health plan for a period of two years following the date of the notice from Rowsey, as if he were an employee. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Rowsey shall be entitled to receive: 6.3.1 Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2 A severance amount equal to his base salary plus his bonus earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months; and 6 6.3.3 in addition, Rowsey shall be entitled to participate in the Company's health plan for a period of 12 months following the expiration of the term as if he were an employee. 6.4. By Company For Cause. "Cause" means Rowsey's (a) conviction of, or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.4.1 The Company may terminate the employment at any time for Cause (as hereinafter defined). If Rowsey is terminated by the Company for Cause, Rowsey shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. 6.4.2 In addition, if Rowsey is terminated by the Company for Cause (but not otherwise), the Company and/or its designee(s) shall have the option ("Option") to purchase all or any portion of the shares of common stock of United Stationers Inc. held by Rowsey. If the Company exercises such Option, Rowsey agrees to sell said shares to the Company or its designee(s). The Company shall give written notice to Rowsey of its election to exercise the Option within one year from the date of termination of Rowsey's employment for Cause. If no notice is given within the time specified, the Option shall terminate. The purchase price to be paid for the shares purchased pursuant to the Option shall be the closing sale price of the common stock for the day preceding the dat the Option is exercised, as reported on a national stock exchange or on the NASDAQ National Market System, or if there were no sales on such date, the next preceding day on which there were sales, or if the common stock is not listed for quotation on the NASDAQ National Market System or on a national stock exchange, the value of such common stock on such date as determined by the Board of Directors of United Stationers Inc. in good faith. The purchase price shall be paid in cash. The closing of the purchase shall take place at the Company's principal executive offices within 10 days after the purchase price has been determined, at which time Rowsey shall deliver to the purchaser the certificates evidencing the common shares being purchased, duly endorsed. 7 To ensure the enforeceability of the Company's right under this Section, each certificate representing common stock of United Stationers Inc. held by Rowsey shall bear a conspicuous legend in form acceptable to the Company. 6.5. By the Company. The Company may terminate Rowsey's employment on written notice to Rowsey at any time. If Rowsey's employment is terminated by the Company, other than for Cause, Rowsey shall be entitled to receive only: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment, payable on the Company's regular pay schedule; and 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. either: 6.5.3.1. if the termination is prior to the first anniversary of this Agreement, severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days after Rowsey's receipt of the notice from the Company and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Rowsey from any other employment or consulting arrangement during the severance period; or 6.5.3.2. if the termination is on or after the first anniversary of this Agreement, but before the second anniversary, severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, reduced (a) by 1/24th for each full month of employment after the first anniversary of this Agreement and, (b) by the amount of compensation earned by Rowsey from any other employment or consulting arrangement during the severance period; or 6.5.3.3. if the termination is on or after the second anniversary of this Agreement, severance pay equal to his base pay plus his bonuses for the year preceding the year of termination; and 6.5.4. in addition, Rowsey shall be entitled to participate in the Company's health plan for a period equal to the applicable severance period, as if he were an employee. 6.6. By Death or Disability. If Rowsey's employment is terminated due to his death or permanent disability, Rowsey shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Rowsey's spouse is then living, for the 8 remainder of such spouse's life the Company shall continue to provide health coverage for Rowsey's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to the Rowsey's spouse. Nothing in this Agreement shall affect Rowsey's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Rowsey or his designated beneficiary. 6.7. Retirement. Rowsey agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Rowsey shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Rowsey shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, provided Rowsey is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6-month period other than for Cause, Rowsey shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Rowsey's resignation within six months after the Change in Control or by the Company for Cause, Rowsey shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Rowsey's employment and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Rowsey from any other employment or consulting arrangement during the severance period. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 9 8. Medical Benefits. The Company makes the following covenants to Rowsey with respect to Rowsey's medical benefits ("Medical Benefits"): 8.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Rowsey's employment with the Company terminates for any reason, Rowsey (and Rowsey's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Rowsey attains age sixty-five (65), and Rowsey's spouse shall be entitled to continue to participate, in her own right, in the Plan until Rowsey's spouse attains age sixty-five (65), but not for a period in excess of ten (10) years following Rowsey's termination of employment with the Company; provided that, in the event Rowsey terminates employment with the Company prior to attaining age fifty-five (55) Rowsey (and Rowsey's covered dependents at the time of such termination of employment) shall have the right to participate in the Plan for a period of ten (10) years, such period to commence on either Rowsey's termination of employment with the Company or the date Rowsey attains age fifty-five (55) as Rowsey shall elect in writing at the time of his termination of employment, under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Rowsey (and Rowsey's covered dependents at the time of the termination of employment). 8.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on September 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Rowsey shall be entitled to and the Company shall pay to Rowsey THREE THOUSAND SEVENTY DOLLARS ($3,070.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: (i) the later of the date Rowsey or Rowsey's spouse attains age sixty-five (65); (ii) in the event of the death of Rowsey, the date the spouse of Rowsey attains age sixty-five (65); (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (iv) March 30, 1998. 8.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Rowsey, subject to the following terms and conditions: 10 (i) Rowsey (or any of Rowsey's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Rowsey's then current employer or a medical plan maintained by the employer of the spouse of Rowsey, has exceeded the lifetime maximum benefit provided in such plan; (ii) payment of medical expenses or reimbursement for such claims under this subsection 8.3 shall not in the aggregate exceed the lesser of the following amounts: (a) a maximum of $300,000 for Rowsey and all dependents (on an aggregate basis) of Rowsey as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 8.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 8.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Rowsey or Rowsey's spouse attains age sixty-five; (b) in the event of the death of Rowsey, the date the spouse of Rowsey attains age sixty-five (65); (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. The coverage provided under this Section 8.3 shall be separate and in addition to the coverage provided under Section 8.2 above. 8.4 In addition, if Rowsey is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD-3) ("Policy"), or a similar policy, Rowsey shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 11 9. Miscellaneous. 9.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Rowsey: 2987 Norwalk Court Aurora, Illinois 60504 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 9.2 This Agreement and all rights and benefits hereunder are personal to Rowsey and neither this Agreement nor any right or interest of Rowsey herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Rowsey. Any attempt by Rowsey to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Rowsey's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Rowsey's rights under the Agreement shall not be affected by any assignment or merger. 9.3 This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 9.4 This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof, including but not limited to the Employment Agreement between Rowsey and Associated Stationers, Inc. dated January 31, 1992. 12 9.5 No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Rowsey and an authorized representative of the Company other than Rowsey. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 9.6 If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 9.7 The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 9.8 This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 9.9 If Rowsey or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 10. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST:_______________________ By:_______________________ Daniel Bushell Tom Sturgess Secretary Chairman of the Board and Chief Executive Officer _____________________________________ Michael D. Rowsey 13 EXHIBIT A TO EMPLOYMENT AGREEMENT MICHAEL D. ROWSEY The following are benefit plans, programs and policies in which Rowsey is entitled to participate as of October 1, 1995: United Stationers Supply Co. Pension Plan Associated Stationers/United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Stationers Inc. Management Equity Plan ` United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased auto or equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 14 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of October 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Steven R. Schwarz ("Schwarz"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Schwarz, and Schwarz accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until September 30, 1997, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Schwarz shall serve as an Executive Vice President of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such administrative, sales, marketing and other services to the Company as may be required of such position or as the Board may from time to time direct. Schwarz shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Schwarz shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Schwarz shall be compensated as follows: 3.1. Base Salary. Schwarz shall receive a base salary of no less than $225,000.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Schwarz shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Schwarz shall be included, to the extent eligible, in all plans, programs and policies providing general benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Schwarz acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Schwarz as a consequence of his employment by the Company (including information conceived, discovered or developed by Schwarz during his employment with the Company) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Schwarz or with Schwarz's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Schwarz prior to employment with the Company, or may now or in the future be in the public domain, Schwarz acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Schwarz, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Schwarz further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Schwarz shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Schwarz conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Schwarz participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Schwarz (or after Schwarz's death, Schwarz's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Schwarz shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Schwarz's employment for whatever reason, Schwarz (or in the event of death, Schwarz's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Schwarz or others, which are then in Schwarz's possession or control. Records of payments made by the Company to or for the benefit of Schwarz, Schwarz's copy of this Agreement and other such things, lawfully possessed by Schwarz which relate solely to taxes payable by Schwarz, employee benefits due to Schwarz or the terms of Schwarz's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Schwarz's employment, and during the two year period following his employment), Schwarz shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Schwarz may be engaged in the business of selling office products at retail and Schwarz may be engaged by any company whose principal business is the manufacture of office products. 5.3. Schwarz recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Schwarz hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Schwarz shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Schwarz agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Schwarz resigns, or if Schwarz gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Schwarz For Good Reason. Schwarz may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Schwarz's consent, any of which shall be deemed "Good Reason": (a) the reduction of Schwarz's base salary; (b) the exclusion of Schwarz from, or diminution in Schwarz's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company, officers or senior management personnel of the Company, other than exclusions, changes or diminutions applicable to all employees, officers or senior management personnel; or (c) any diminution in expense reimbursement benefits enjoyed by Schwarz, except pursuant to a general change in the Company's reimbursement policies; or (d) any material reduction in Schwarz's title or duties which has the effect of materially reducing Schwarz's status within the Company; provided, however, that any change in the office or officer to whom Schwarz reports, or in Schwarz's duties or title which does not diminish Schwarz's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Schwarz for Good Reason, Schwarz shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment (but not for more than a 12 month period), payable on the Company's regular pay schedule; and 5 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 6.2.3. a severance amount equal to two times his base salary, plus two times his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Schwarz to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Schwarz and continuing for 24 months. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Schwarz shall be entitled to receive: 6.3.1. Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2. A severance amount equal to his base salary plus his bonus earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months. 6.4. By Company For Cause. The Company may terminate the employment at any time for Cause (as hereinafter defined). If Schwarz is terminated by the Company for Cause, Schwarz shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. "Cause" means Schwarz's (a) conviction of , or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.5. By the Company. The Company may terminate Schwarz's employment on written notice to Schwarz at any time. If Schwarz's employment is terminated by the Company, other than for Cause, Schwarz shall be entitled to receive: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment (but not for more than 12 months), payable on the Company's regular pay schedule; and 6 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. either: 6.5.3.1. if the termination is prior to the first anniversary of this Agreement, severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days after Schwarz's receipt of the notice from the Company and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Schwarz from any other employment or consulting arrangement during the severance period; or 6.5.3.2. if the termination is on or after the first anniversary of this Agreement, but before the second anniversary, severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, reduced (a) by 1/24th for each full month of employment after the first anniversary of this Agreement and, (b) by the amount of compensation earned by Schwarz from any other employment or consulting arrangement during the severance period; or 6.5.3.3. if the termination is on or after the second anniversary of this Agreement, severance pay equal to his base pay plus his bonuses for the year preceding the year of termination. 6.6. By Death or Disability. If Schwarz's employment is terminated due to his death or permanent disability, Schwarz shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Schwarz's spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for Schwarz's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to Schwarz's spouse. Nothing in this Agreement shall affect Schwarz's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Schwarz or his designated beneficiary. 6.7. Retirement. Schwarz agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Schwarz shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Schwarz shall be entitled to participate in the Company's health plan for retirees. 7 7. Change in Control. In the event of a Change in Control, provided Schwarz is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6- month period other than for Cause, Schwarz shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Schwarz's resignation within six months after the Change in Control or by the Company for Cause, Schwarz shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to two times his base salary plus two times his bonuses earned from the Company for 1995, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Schwarz's employment and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Schwarz from any other employment or consulting arrangement during the severance period. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 8. Stay Bonus. In addition to the payments to which Schwarz may be entitled pursuant to Section 6 above, unless Schwarz resigns prior to March 30, 1996, effective March 30, 1996, Schwarz shall also be entitled to receive the Stay Bonus, medical and other benefits to which he is entitled under the United Stationers Inc. Employee Benefits Trust dated March 22, 1995. 9. Medical Benefits. The Company makes the following covenants to Schwarz with respect to Schwarz's medical benefits ("Medical Benefits"): 9.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Schwarz's employment with the Company terminates for any reason, Schwarz (and Schwarz's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Schwarz attains age sixty-five (65), and Schwarz's spouse shall be entitled to continue to participate, in her own right, in the Plan 8 until Schwarz's spouse attains age sixty-five (65), but not for a period in excess of ten (10) years following Schwarz's termination of employment with the Company; provided that, in the event Schwarz terminates employment with the Company prior to attaining age fifty-five (55) Schwarz (and Schwarz's covered dependents at the time of such termination of employment) shall have the right to participate in the Plan for a period of ten (10) years, such period to commence on either Schwarz's termination of employment with the Company or the date Schwarz attains age fifty-five (55) as Schwarz shall elect in writing at the time of his termination of employment, under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Schwarz (and Schwarz's covered dependents at the time of the termination of employment). 9.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on September 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Schwarz shall be entitled to and the Company shall pay to Schwarz TWO THOUSAND SEVEN HUNDRED DOLLARS ($2,700.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: (i) the later of the date Schwarz or Schwarz's spouse attains age sixty-five (65); (ii) in the event of the death of Schwarz, the date the spouse of Schwarz attains age sixty-five (65); (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (iv) March 30, 1998. 9.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Schwarz, subject to the following terms and conditions: (i) Schwarz (or any of Schwarz's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Schwarz's then current employer or a medical plan maintained by the employer of the spouse of Schwarz, has exceeded the lifetime maximum benefit provided in such plan; (ii) payment of medical expenses or reimbursement for such claims under this subsection 9.3 shall not in the aggregate exceed the lesser of the following amounts: 9 (a) a maximum of $300,000 for Schwarz and all dependents (on an aggregate basis) of Schwarz as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 9.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 9.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Schwarz or Schwarz's spouse attains age sixty-five; (b) in the event of the death of Schwarz, the date the spouse of Schwarz attains age sixty-five (65); (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. The coverage provided under this Section 9.3 shall be separate and in addition to the coverage provided under Section 9.2 above. 9.4 In addition, if Schwarz is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD- 3)("Policy"), or a similar policy, Schwarz shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 10. Miscellaneous. 10.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: 10 If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Schwarz: 810 Andover Court Prospect Heights, IL 60070 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 10.2. This Agreement and all rights and benefits hereunder are personal to Schwarz and neither this Agreement nor any right or interest of Schwarz herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Schwarz. Any attempt by Schwarz to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Schwarz's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Schwarz's rights under the Agreement shall not be affected by any assignment or merger. 10.3. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 10.4. This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof, including but not limited to the Employment and Consulting Agreement between Schwarz and United Stationers Inc. and United Stationers Supply Co. dated September 1, 1989, as amended February 13, 1995 and August 30, 1995. 10.5. No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Schwarz and an 11 authorized representative of the Company other than Schwarz. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 10.6. If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 10.7 The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 10.8 This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 10.9 If Schwarz or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 11. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST:_______________________ By:_______________________ Daniel H. Bushell Tom Sturgess Secretary Chairman of the Board and Chief Executive Officer _____________________________________ Steven R. Schwarz 12 EXHIBIT A TO EMPLOYMENT AGREEMENT STEVEN R. SCHWARZ The following are benefit plans, programs and policies in which Schwarz is entitled to participate as of October 1, 1995: United Stationers Supply Co. Pension Plan United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Stationers Inc. Management Equity Plan United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased auto or equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 13 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of October 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Robert H. Cornell ("Cornell"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Cornell, and Cornell accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until September 30, 1996, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Cornell shall serve as Vice President, Human Resources of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such administrative and other services to the Company as may be required of such position or as the Board may from time to time direct. Cornell shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Cornell shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Cornell shall be compensated as follows: 3.1. Base Salary. Cornell shall receive a base salary of no less than $169,520.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Cornell shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Cornell shall be included, to the extent eligible, in all plans, programs and policies providing general benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Cornell acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Cornell as a consequence of his employment by the Company (including information conceived, discovered or developed by Cornell during his employment with the Company) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Cornell or with Cornell's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Cornell prior to employment with the Company, or may now or in the future be in the public domain, Cornell acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Cornell, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Cornell further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Cornell shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Cornell conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Cornell participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Cornell (or after Cornell's death, Cornell's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Cornell shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Cornell's employment for whatever reason, Cornell (or in the event of death, Cornell's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Cornell or others, which are then in Cornell's possession or control. Records of payments made by the Company to or for the benefit of Cornell, Cornell's copy of this Agreement and other such things, lawfully possessed by Cornell which relate solely to taxes payable by Cornell, employee benefits due to Cornell or the terms of Cornell's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Cornell's employment, and during the two year period following his employment), Cornell shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Cornell may be engaged in the business of selling office products at retail and Cornell may be engaged by any company whose principal business is the manufacture of office products. 5.3. Cornell recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Cornell hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Cornell shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Cornell agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Cornell resigns, or if Cornell gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Cornell For Good Reason. Cornell may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Cornell's consent, any of which shall be deemed "Good Reason": (a) the reduction of Cornell's base salary; (b) the exclusion of Cornell from, or diminution in Cornell's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company or to officers or management personnel of the Company at the level of vice president or lower, other than exclusions, changes or diminutions applicable to all employees or such management personnel or officers; or (c) any diminution in expense reimbursement benefits enjoyed by Cornell, except pursuant to a general change in the Company's reimbursement policies; or (d) any material reduction in Cornell's title or duties which has the effect of materially reducing Cornell's status within the Company; provided, however, that any change in the office or officer to whom Cornell reports, or in Cornell's duties or title which does not diminish Cornell's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Cornell for Good Reason, Cornell shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment (but not for more than a 12 month period), payable on the Company's regular pay schedule; and 5 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 6.2.3. a severance amount equal to his base salary, plus his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Cornell to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Cornell and continuing for 12 months. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Cornell shall be entitled to receive: 6.3.1. Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2. A severance amount equal to his base salary plus his bonuses earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months. 6.4. By Company For Cause. The Company may terminate the employment at any time for Cause (as hereinafter defined). If Cornell is terminated by the Company for Cause, Cornell shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. "Cause" means Cornell's (a) conviction of, or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.5. By the Company. The Company may terminate Cornell's employment on written notice to Cornell at any time. If Cornell's employment is terminated by the Company, other than for Cause, Cornell shall be entitled to receive: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment (but not for more than 12 months), payable on the Company's regular pay schedule; and 6 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year of termination. 6.6. By Death or Disability. If Cornell's employment is terminated due to his death or permanent disability, Cornell shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Cornell's spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for Cornell's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to Cornell's spouse. Nothing in this Agreement shall affect Cornell's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Cornell or his designated beneficiary. 6.7. Retirement. Cornell agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Cornell shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Cornell shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, provided Cornell is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6-month period other than for Cause, Cornell shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Cornell's resignation within six months after the Change in Control or by the Company for Cause, Cornell shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year in which the Change in Control occurs, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Cornell's employment and continuing for 12 months. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any 7 Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 8. Stay Bonus. In addition to the payments to which Cornell may be entitled pursuant to Section 6 or 7 above, unless Cornell resigns prior to March 30, 1996, effective March 30, 1996, Cornell shall also be entitled to receive the Stay Bonus and medical benefits to which he is entitled under the United Stationers Inc. Employee Benefits Trust dated March 22, 1995. 9. Medical Benefits. The Company makes the following covenants to Cornell with respect to Cornell's medical benefits ("Medical Benefits"): 9.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Cornell's employment with the Company terminates for any reason, Cornell (and Cornell's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Cornell attains age sixty-five (65), and Cornell's spouse shall be entitled to continue to participate, in her own right, in the Plan until Cornell's spouse attains age sixty-five (65), under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Cornell (and Cornell's covered dependents at the time of the termination of employment). 9.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on September 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Cornell shall be entitled to and the Company shall pay to Cornell THREE THOUSAND SEVENTY DOLLARS ($3,070.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: (i) the later of the date Cornell or Cornell's spouse attains age sixty-five (65); (ii) in the event of the death of Cornell, the date the spouse of Cornell attains age sixty-five (65); (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or 8 (iv) March 30, 1998. 9.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Cornell, subject to the following terms and conditions: (i) Cornell (or any of Cornell's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Cornell's then current employer or a medical plan maintained by the employer of the spouse of Cornell, has exceeded the lifetime maximum benefit provided in such plan; (ii) payment of medical expenses or reimbursement for such claims under this subsection 9.3 shall not in the aggregate exceed the lesser of the following amounts: (a) a maximum of $300,000 for Cornell and all dependents (on an aggregate basis) of Cornell as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 9.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 9.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Cornell or Cornell's spouse attains age sixty-five; (b) in the event of the death of Cornell, the date the spouse of Cornell attains age sixty-five (65); (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. The coverage provided under this Section 9.3 shall be separate and in addition to the coverage provided under Section 9.2 above. 9 9.4 In addition, if Cornell is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD- 3)("Policy"), or a similar policy, Cornell shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 10. Miscellaneous. 10.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Cornell: 474 Pine Woods Drive Barrington, IL 60010 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 10.2. This Agreement and all rights and benefits hereunder are personal to Cornell and neither this Agreement nor any right or interest of Cornell herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Cornell. Any attempt by Cornell to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Cornell's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Cornell's rights under the Agreement shall not be affected by any assignment or merger. 10 10.3. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 10.4. This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof, including but not limited to the Employment and Consulting Agreement between Cornell and United Stationers Inc. and United Stationers Supply Co. dated February 1, 1988, as amended on August 23, 1989, September 1, 1994 and February 13, 1995. 10.5. No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Cornell and an authorized representative of the Company other than Cornell. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 10.6. If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 10.7 The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 10.8 This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 10.9 If Cornell or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 11. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. 11 UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST: By: ---------------------- ---------------------------- Daniel H. Bushell Tom Sturgess Secretary Chairman of the Board and Chief Executive Officer ------------------------------- Robert H. Cornell 12 EXHIBIT A TO EMPLOYMENT AGREEMENT ROBERT H. CORNELL The following are benefit plans, programs and policies in which Cornell is entitled to participate as of October 1, 1995: United Stationers Supply Co. Pension Plan United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Stationers Inc. Management Equity Plan United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased autoor equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 13 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of October 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Ted S. Rzeszuto ("Rzeszuto"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Rzeszuto, and Rzeszuto accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until September 30, 1996, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Rzeszuto shall serve as Vice President and Controller of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such administrative, financial and other services to the Company as may be required of such position or as the Board may from time to time direct. Rzeszuto shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Rzeszuto shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Rzeszuto shall be compensated as follows: 3.1. Base Salary. Rzeszuto shall receive a base salary of no less than $140,400.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Rzeszuto shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Rzeszuto shall be included, to the extent eligible, in all plans, programs and policies providing general benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Rzeszuto acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Rzeszuto as a consequence of his employment by the Company (including information conceived, discovered or developed by Rzeszuto during his employment with the Company) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Rzeszuto or with Rzeszuto's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Rzeszuto prior to employment with the Company, or may now or in the future be in the public domain, Rzeszuto acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Rzeszuto, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Rzeszuto further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Rzeszuto shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Rzeszuto conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Rzeszuto participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Rzeszuto (or after Rzeszuto's death, Rzeszuto's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Rzeszuto shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Rzeszuto's employment for whatever reason, Rzeszuto (or in the event of death, Rzeszuto's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Rzeszuto or others, which are then in Rzeszuto's possession or control. Records of payments made by the Company to or for the benefit of Rzeszuto, Rzeszuto's copy of this Agreement and other such things, lawfully possessed by Rzeszuto which relate solely to taxes payable by Rzeszuto, employee benefits due to Rzeszuto or the terms of Rzeszuto's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Rzeszuto's employment, and during the two year period following his employment), Rzeszuto shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Rzeszuto may be engaged in the business of selling office products at retail and Rzeszuto may be engaged by any company whose principal business is the manufacture of office products. 5.3. Rzeszuto recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Rzeszuto hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Rzeszuto shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Rzeszuto agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Rzeszuto resigns, or if Rzeszuto gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Rzeszuto For Good Reason. Rzeszuto may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Rzeszuto's consent, any of which shall be deemed "Good Reason": (a) the reduction of Rzeszuto's base salary; (b) the exclusion of Rzeszuto from, or diminution in Rzeszuto's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company or to officers or management personnel of the Company at the level of vice president or lower, other than exclusions, changes or diminutions applicable to all employees or such management personnel or officers; or (c) any diminution in expense reimbursement benefits enjoyed by Rzeszuto, except pursuant to a general change in the Company's reimbursement policies; or (d) any material reduction in Rzeszuto's title or duties which has the effect of materially reducing Rzeszuto's status within the Company; provided, however, that any change in the office or officer to whom Rzeszuto reports, or in Rzeszuto's duties or title which does not diminish Rzeszuto's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Rzeszuto for Good Reason, Rzeszuto shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment (but not for more than a 12 month period), payable on the Company's regular pay schedule; and 5 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 6.2.3. a severance amount equal to his base salary, plus his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Rzeszuto to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Rzeszuto and continuing for 12 months. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Rzeszuto shall be entitled to receive: 6.3.1. Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2. A severance amount equal to his base salary plus his bonuses earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months. 6.4. By Company For Cause. The Company may terminate the employment at any time for Cause (as hereinafter defined). If Rzeszuto is terminated by the Company for Cause, Rzeszuto shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. "Cause" means Rzeszuto's (a) conviction of , or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.5. By the Company. The Company may terminate Rzeszuto's employment on written notice to Rzeszuto at any time. If Rzeszuto's employment is terminated by the Company, other than for Cause, Rzeszuto shall be entitled to receive: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment, payable on the Company's regular pay schedule; and 6 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year of termination. 6.6. By Death or Disability. If Rzeszuto's employment is terminated due to his death or permanent disability, Rzeszuto shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Rzeszuto's spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for Rzeszuto's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to Rzeszuto's spouse. Nothing in this Agreement shall affect Rzeszuto's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Rzeszuto or his designated beneficiary. 6.7. Retirement. Rzeszuto agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Rzeszuto shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Rzeszuto shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, provided Rzeszuto is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6- month period other than for Cause, Rzeszuto shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Rzeszuto's resignation within six months after the Change in Control or by the Company for Cause, Rzeszuto shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year in which the Change in Control occurs, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Rzeszuto's employment and continuing for 12 months. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any 7 Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 8. Stay Bonus. In addition to the payments to which Rzeszuto may be entitled pursuant to Section 6 or 7 above, unless Rzeszuto resigns prior to March 30, 1996, effective March 30, 1996, Rzeszuto shall also be entitled to receive the Stay Bonus and medical benefits to which he is entitled under the United Stationers Inc. Employee Benefits Trust dated March 22, 1995. 9. Medical Benefits. The Company makes the following covenants to Rzeszuto with respect to Rzeszuto's medical benefits ("Medical Benefits"): 9.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Rzeszuto's employment with the Company terminates for any reason, Rzeszuto (and Rzeszuto's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Rzeszuto attains age sixty-five (65), and Rzeszuto's spouse shall be entitled to continue to participate, in her own right, in the Plan until Rzeszuto's spouse attains age sixty-five (65), but not for a period in excess of ten (10) years following Rzeszuto's termination of employment with the Company; provided that, in the event Rzeszuto terminates employment with the Company prior to attaining age fifty-five (55) Rzeszuto (and Rzeszuto's covered dependents at the time of such termination of employment) shall have the right to participate in the Plan for a period of ten (10) years, such period to commence on either Rzeszuto's termination of employment with the Company or the date Rzeszuto attains age fifty-five (55) as Rzeszuto shall elect in writing at the time of his termination of employment, under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Rzeszuto (and Rzeszuto's covered dependents at the time of the termination of employment). 9.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on September 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Rzeszuto shall be entitled to and the Company shall pay to Rzeszuto TWO THOUSAND SEVEN HUNDRED DOLLARS ($2,700.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: 8 (i) the later of the date Rzeszuto or Rzeszuto's spouse attains age sixty-five (65); (ii) in the event of the death of Rzeszuto, the date the spouse of Rzeszuto attains age sixty-five (65); (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (iv) March 30, 1998. 9.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Rzeszuto, subject to the following terms and conditions: (i) Rzeszuto (or any of Rzeszuto's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Rzeszuto's then current employer or a medical plan maintained by the employer of the spouse of Rzeszuto, has exceeded the lifetime maximum benefit provided in such plan; (ii) payment of medical expenses or reimbursement for such claims under this subsection 9.3 shall not in the aggregate exceed the lesser of the following amounts: (a) a maximum of $300,000 for Rzeszuto and all dependents (on an aggregate basis) of Rzeszuto as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 9.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 9.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Rzeszuto or Rzeszuto's spouse attains age sixty-five; (b) in the event of the death of Rzeszuto, the date the spouse of Rzeszuto attains age sixty-five (65); 9 (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. The coverage provided under this Section 9.3 shall be separate and in addition to the coverage provided under Section 9.2 above. 9.4 In addition, if Rzeszuto is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD-3)("Policy"), or a similar policy, Rzeszuto shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 10. Miscellaneous. 10.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Rzeszuto: 9 S. 433 Helen Court Downers Grove, IL 60516 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 10.2. This Agreement and all rights and benefits hereunder are personal to Rzeszuto and neither this Agreement nor any right or interest of Rzeszuto herein, or 10 arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Rzeszuto. Any attempt by Rzeszuto to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Rzeszuto's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Rzeszuto's rights under the Agreement shall not be affected by any assignment or merger. 10.3. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 10.4. This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof, including but not limited to the Employment and Consulting Agreement between Rzeszuto and United Stationers Inc. and United Stationers Supply Co. dated April 3, 1987, as amended February 13, 1995 and August 30, 1995. 10.5. No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Rzeszuto and an authorized representative of the Company other than Rzeszuto. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 10.6. If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 10.7 The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 10.8 This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 10.9 If Rzeszuto or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time 11 on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 11. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST: By: ----------------------- ---------------------------- Daniel H. Bushell Tom Sturgess Secretary Chairman of the Board and Chief Executive Officer ------------------------------- Ted S. Rzeszuto 12 EXHIBIT A TO EMPLOYMENT AGREEMENT TED S. RZESZUTO The following are benefit plans, programs and policies in which Rzeszuto is entitled to participate as of September 1, 1995: United Stationers Supply Co. Pension Plan United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased auto or equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2-1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 13 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of October 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Albert Shaw ("Shaw"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Shaw, and Shaw accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until September 30, 1996, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Shaw shall serve as Vice President, Operations of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such operational, administrative and other services to the Company as may be required of such position or as the Board may from time to time direct. Shaw shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Shaw shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Shaw shall be compensated as follows: 3.1. Base Salary. Shaw shall receive a base salary of no less than $155,000.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Shaw shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Shaw shall be included, to the extent eligible, in all plans, programs and policies providing general benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Shaw acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Shaw as a consequence of his employment by the Company (including information conceived, discovered or developed by Shaw during his employment with the Company) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Shaw or with Shaw's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Shaw prior to employment with the Company, or may now or in the future be in the public domain, Shaw acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Shaw, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Shaw further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Shaw shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Shaw conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Shaw participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Shaw (or after Shaw's death, Shaw's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Shaw shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Shaw's employment for whatever reason, Shaw (or in the event of death, Shaw's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Shaw or others, which are then in Shaw's possession or control. Records of payments made by the Company to or for the benefit of Shaw, Shaw's copy of this Agreement and other such things, lawfully possessed by Shaw which relate solely to taxes payable by Shaw, employee benefits due to Shaw or the terms of Shaw's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Shaw's employment, and during the two year period following his employment), Shaw shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Shaw may be engaged in the business of selling office products at retail and Shaw may be engaged by any company whose principal business is the manufacture of office products. 5.3. Shaw recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Shaw hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Shaw shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Shaw agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Shaw resigns, or if Shaw gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Shaw For Good Reason. Shaw may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Shaw's consent, any of which shall be deemed "Good Reason": (a) the reduction of Shaw's base salary; (b) the exclusion of Shaw from, or diminution in Shaw's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company or to officers or management personnel of the Company at the level of vice president or lower, other than exclusions, changes or diminutions applicable to all employees or such management personnel or officers; or (c) any diminution in expense reimbursement benefits enjoyed by Shaw, except pursuant to a general change in the Company's reimbursement policies; or (d) any material reduction in Shaw's title or duties which has the effect of materially reducing Shaw's status within the Company; provided, however, that any change in the office or officer to whom Shaw reports, or in Shaw's duties or title which does not diminish Shaw's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Shaw for Good Reason, Shaw shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment (but not for more than a 12 month period), payable on the Company's regular pay schedule; and 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 5 6.2.3. a severance amount equal to his base salary, plus his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Shaw to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Shaw and continuing for 12 months. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Shaw shall be entitled to receive: 6.3.1. Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2. A severance amount equal to his base salary plus his bonuses earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months. 6.4. By Company For Cause. The Company may terminate the employment at any time for Cause (as hereinafter defined). If Shaw is terminated by the Company for Cause, Shaw shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. "Cause" means Shaw's (a) conviction of , or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.5. By the Company. The Company may terminate Shaw's employment on written notice to Shaw at any time. If Shaw's employment is terminated by the Company, other than for Cause, Shaw shall be entitled to receive: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment (but not for more than 12 months), payable on the Company's regular pay schedule; and 6 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year of termination. 6.6. By Death or Disability. If Shaw's employment is terminated due to his death or permanent disability, Shaw shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Shaw's spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for Shaw's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to Shaw's spouse. Nothing in this Agreement shall affect Shaw's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Shaw or his designated beneficiary. 6.7. Retirement. Shaw agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Shaw shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Shaw shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, provided Shaw is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6-month period other than for Cause, Shaw shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Shaw's resignation within six months after the Change in Control or by the Company for Cause, Shaw shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year in which the Change in Control occurs, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Shaw's employment and continuing for 12 months. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any 7 Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 8. Medical Benefits. The Company makes the following covenants to Shaw with respect to Shaw's medical benefits ("Medical Benefits"): 8.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Shaw's employment with the Company terminates for any reason, Shaw (and Shaw's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Shaw attains age sixty-five (65), and Shaw's spouse shall be entitled to continue to participate, in her own right, in the Plan until Shaw's spouse attains age sixty-five (65), but not for a period in excess of ten (10) years following Shaw's termination of employment with the Company; provided that, in the event Shaw terminates employment with the Company prior to attaining age fifty-five (55) Shaw (and Shaw's covered dependents at the time of such termination of employment) shall have the right to participate in the Plan for a period of ten (10) years, such period to commence on either Shaw's termination of employment with the Company or the date Shaw attains age fifty-five (55) as Shaw shall elect in writing at the time of his termination of employment, under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Shaw (and Shaw's covered dependents at the time of the termination of employment). 8.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on October 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Shaw shall be entitled to and the Company shall pay to Shaw THREE THOUSAND SEVENTY DOLLARS ($3,070.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: (i) the later of the date Shaw or Shaw's spouse attains age sixty-five (65); (ii) in the event of the death of Shaw, the date the spouse of Shaw attains age sixty-five (65); 8 (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (iv) March 30, 1998. 8.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Shaw, subject to the following terms and conditions: (i) Shaw (or any of Shaw's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Shaw's then current employer or a medical plan maintained by the employer of the spouse of Shaw, has exceeded the lifetime maximum benefit provided in such plan; (ii) Payment of medical expenses or reimbursement for such claims under this subsection 8.3 shall not in the aggregate exceed the lesser of the following amounts: (a) a maximum of $300,000 for Shaw and all dependents (on an aggregate basis) of Shaw as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 8.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 8.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Shaw or Shaw's spouse attains age sixty-five; (b) in the event of the death of Shaw, the date the spouse of Shaw attains age sixty-five (65); (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. 9 The coverage provided under this Section 8.3 shall be separate and in addition to the coverage provided under Section 8.2 above. 8.4 In addition, if Shaw is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD- 3)("Policy"), or a similar policy, Shaw shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 9. Miscellaneous. 9.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Shaw: 1224 Gartner Road Naperville, Illinois 60540 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 9.2. This Agreement and all rights and benefits hereunder are personal to Shaw and neither this Agreement nor any right or interest of Shaw herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Shaw. Any attempt by Shaw to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Shaw's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which 10 agrees to be bound hereby. The enforceability of Shaw's rights under the Agreement shall not be affected by any assignment or merger. 9.3. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 9.4. This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof. 9.5. No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Shaw and an authorized representative of the Company other than Shaw. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 9.6. If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 9.7 The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 9.8 This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 9.9 If Shaw or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 10. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. 11 UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST: By: ----------------------- ----------------------------- Daniel H. Bushell Tom Sturgess Secretary Chairman of the Board and Chief Executive Officer -------------------------------- Albert Shaw 12 EXHIBIT A TO EMPLOYMENT AGREEMENT ALBERT SHAW The following are benefit plans, programs and policies in which Shaw is entitled to participate as of October 1, 1995: United Stationers Supply Co. Pension Plan United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Inc. Management Equity Plan United Stationers Management Incentive Plan United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased auto or equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 13 EX-10.68 10 EMPLOYMENT AGREEMENT EXHIBIT 10.68 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of November 1, 1995 by and between United Stationers Supply Co., an Illinois corporation (the "Company") and Otis H. Halleen ("Halleen"). In consideration of the mutual promises and agreements contained in this Agreement, the Company hereby employs Halleen, and Halleen accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the d ate of this Agreement and shall continue until October 30, 1996, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Halleen shall serve as General Counsel of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such professional, administrative and other services to the Company as may be required of such position or as the Board may from time to time direct. Halleen shall be available at all reasonable times for consultation with the Board on matters relating to the Company's, or its affiliates' business. Halleen shall devote his best efforts and his full and exclusive business time and attention (except for reasonable periods of vacation, illness or other incapacity) to the business and affairs of the Company and its affiliates. 3. Compensation. During the term of employment, Halleen shall be compensated as follows: 3.1. Base Salary. Halleen shall receive a base salary of no less than $160,000.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Halleen shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. 3.3. Benefits. Halleen shall be included, to the extent eligible, in all plans, programs and policies providing general benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Halleen acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Halleen as a consequence of his employment by the Company (including information conceived, discovered or developed by Halleen during his employment with the Company) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example, Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and supplier; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Halleen or with Halleen's assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Halleen prior to employment with the Company, or may now or in the future be in the public domain, Halleen acknowledges that the compilation of that information contained in the 2 Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Halleen, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Halleen further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Halleen shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Halleen conceives, makes or develops during his employment (whether or not during working hours or with use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Halleen participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Halleen (or after Halleen's death, Halleen's personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Halleen shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 3 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Halleen's employment for whatever reason, Halleen (or in the event of death, Halleen's personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Halleen or others, which are then in Halleen's possession or control. Records of payments made by the Company to or for the benefit of Halleen, Halleen's copy of this Agreement and other such things, lawfully possessed by Halleen which relate solely to taxes payable by Halleen, employee benefits due to Halleen or the terms of Halleen's employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Halleen's employment, and during the two year period following his employment), Halleen shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2. Notwithstanding Section 5.1., following the term of employment, Halleen may be engaged in the business of selling office products at retail and Halleen may be engaged by any company whose principal business is the manufacture of office products. 5.3. Halleen recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Halleen hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4. If Halleen shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5. Halleen agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 4 6. Termination and Severance. 6.1. Resignation. If Halleen resigns, or if Halleen gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1, he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2. By Halleen For Good Reason. Halleen may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Halleen's consent, any of which shall be deemed "Good Reason": (a) the reduction of Halleen's base salary; (b) the exclusion of Halleen from, or diminution in Halleen's participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company or to officers or management personnel of the Company at the level of vice president or lower, other than exclusions, changes or diminutions applicable to all employees or such management personnel or officers; or (c) any diminution in expense reimbursement benefits enjoyed by Halleen, except pursuant to a general change in the Company's reimbursement policies; or (d) any material reduction in Halleen's title or duties which has the effect of materially reducing Halleen's status within the Company; provided, however, that any change in the office or officer to whom Halleen reports, or in Halleen's duties or title which does not diminish Halleen's status within the Company, shall not be deemed "Good Reason"; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Halleen for Good Reason, Halleen shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment, payable on the Company's regular pay schedule; and 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 5 6.2.3. a severance amount equal to his base salary, plus his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Halleen to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Halleen and continuing for 12 months. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement, Halleen shall be entitled to receive: 6.3.1. Accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2. A severance amount equal to his base salary plus his bonuses earned for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months. 6.4. By Company For Cause. The Company may terminate the employment at any time for Cause (as hereinafter defined). If Halleen is terminated by the Company for Cause, Halleen shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. "Cause" means Halleen's (a) conviction of, or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; or (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company. 6.5. By the Company. The Company may terminate Halleen's employment on written notice to Halleen at any time. If Halleen's employment is terminated by the Company, other than for Cause, Halleen shall be entitled to receive: 6.5.1. the unpaid portion of his base salary for the remaining portion of the term of employment (but not for more than 12 months), payable on the Company's regular pay schedule; and 6 6.5.2. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 6.5.3. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year of termination. 6.6. By Death or Disability. If Halleen's employment is terminated due to his death or permanent disability, Halleen shall be entitled to severance pay in accordance with the provisions of 6.5.2 and 6.5.3 above. In addition, if Halleen's spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for Halleen's spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to Halleen's spouse. Nothing in this Agreement shall affect Halleen's right to receive death benefit payments under any policy of insurance carried by the Company and payable to Halleen or his designated beneficiary. 6.7. Retirement. Halleen agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7., Halleen shall be entitled to: 6.7.1. accrued vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Halleen shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, provided Halleen is either (a) still employed by the Company 6 months after the date of the Change in Control, or (b) has been terminated by the Company during that 6- month period other than for Cause, Halleen shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, except by Halleen's resignation within six months after the Change in Control or by the Company for Cause, Halleen shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to his base salary plus his bonuses earned from the Company for the year preceding the year in which the Change in Control occurs, payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Halleen's employment and continuing for 12 months. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act"); provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any 7 Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 8. Stay Bonus. In addition to the payments to which Halleen may be entitled pursuant to Section 6 or 7 above, Halleen shall also be entitled to receive the remasining balance of his Stay Bonus and the medical benefits to which he is entitled under the United Stationers Inc. Employee Benefits Trust dated March 22, 1995. 9. Medical Benefits. The Company makes the following covenants to Halleen with respect to Halleen's medical benefits ("Medical Benefits"): 9.1 In the event the United Stationers Medical Plan ("Plan") remains in effect and Halleen's employment with the Company terminates for any reason, Halleen (and Halleen's covered dependents at the time of such termination of employment) shall be entitled to continue to participate in the Plan until Halleen attains age sixty-five (65), and Halleen's spouse shall be entitled to continue to participate, in her own right, in the Plan until Halleen's spouse attains age sixty-five (65), under the same terms and conditions applicable to persons who are provided coverage as active employees under the Plan; provided, however, that a minimum $1,000,000 Comprehensive Medical Lifetime Maximum Payment shall remain applicable to Halleen (and Halleen's covered dependents at the time of the termination of employment). 9.2 In the event of the termination of the Plan or any cessation of coverage under the Plan not occurring in accordance with the terms of the Plan as in effect on September 1, 1995 (the date any such event first occurs being referred to as the 'Coverage Cessation Date'), Halleen shall be entitled to and the Company shall pay to Halleen THREE THOUSAND SEVENTY DOLLARS ($3,070.00) per month for the period commencing on the first day of the month following the month in which the Coverage Cessation Date occurs and ending on the first to occur of: (i) the later of the date Halleen or Halleen's spouse attains age sixty-five (65); (ii) in the event of the death of Halleen, the date the spouse of Halleen attains age sixty-five (65); (iii) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or 8 (iv) March 30, 1998. 9.3 After the Coverage Cessation Date, the Company shall pay claims or reimburse expenses for those medical expenses which are considered deductible under section 213 of the Code or any successor provision, (without regard to any applicable threshold for deductibility) to Halleen, subject to the following terms and conditions: (i) Halleen (or any of Halleen's covered dependents as of the Coverage Cessation Date) if covered by a medical plan maintained by Halleen's then current employer or a medical plan maintained by the employer of the spouse of Halleen, has exceeded the lifetime maximum benefit provided in such plan; (ii) payment of medical expenses or reimbursement for such claims under this subsection 9.3 shall not in the aggregate exceed the lesser of the following amounts: (a) a maximum of $300,000 for Halleen and all dependents (on an aggregate basis) of Halleen as of the Coverage Cessation Date; or (b) the amount by which $700,000 exceeds the aggregate amount of all medical claims under this subsection 9.3 for the group of employees referred to as "Contract Officers" under the Plan (including all covered dependents of such Contract Officers as of the Coverage Cessation Date) prior to the date of the requested payment by the Contract Officer; and (iii) reimbursement for such claims under this subsection 9.3 shall be made for the period commencing on the Coverage Cessation Date and ending on the first to occur of: (a) the later of the date Halleen or Halleen's spouse attains age sixty-five; (b) in the event of the death of Halleen, the date the spouse of Halleen attains age sixty-five (65); (c) the end of the eighteen (18) month period commencing on the Coverage Cessation Date; or (d) March 30, 1998. The coverage provided under this Section 9.3 shall be separate and in addition to the coverage provided under Section 9.2 above. 9 9.4 In addition, if Halleen is or becomes an eligible retired officer in accordance with the definition of a "retired officer" contained in the Company's Officer Medical Expense Reimbursement Policy (presently LD-3) ("Policy"), or a similar policy, Halleen shall be entitled to the medical expense reimbursement benefits thereof whether or not the Policy is later modified or revoked. 10. Miscellaneous. 10.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 E. Golf Road Des Plaines, IL 60016 Attn: President If to Halleen: 636 S. Mallard Drive Palatine, IL 60067 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 10.2. This Agreement and all rights and benefits hereunder are personal to Halleen and neither this Agreement nor any right or interest of Halleen herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Halleen. Any attempt by Halleen to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Halleen's consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Halleen's rights under the Agreement shall not be affected by any assignment or merger. 10 10.3. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 10.4. This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof. 10.5. No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Halleen and an authorized representative of the Company other than Halleen. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 10.6. If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 10.7. The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 10.8. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 10.9. If Halleen or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 11. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. 11 UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST:_______________________ By:___________________________ Daniel H. Bushell Tom Sturgess Secretary Chairman of the Board and Chief Executive Officer ______________________________ Otis H. Halleen 12 EXHIBIT A TO EMPLOYMENT AGREEMENT OTIS H. HALLEEN The following are benefit plans, programs and policies in which Halleen is entitled to participate as of November 1, 1995: United Stationers Supply Co. Pension Plan United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Stationers Inc. Management Equity Plan United Group Medical and Dental Benefit Plans Retiree Health Plan Annual physical exam at Company expense Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 13 EX-10.69 11 EMPLOYMENT AGREEMENT EXHIBIT 10.69 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made as of January 1, 1996 by and between United Stationers Supply Co., an Illinois corporation and United Stationers Inc., a Delaware corporation, (collectively the "Company") and Thomas W. Sturgess ("Sturgess"). In consideration of the services and contributions of Sturgess as Chairman of the Board of the Company since March 30, 1995 and as President and Chief Executive Officer of the Company since May 31, 1995, and for the mutual promises and agreements contained in this Agreement, the Company hereby employs Sturgess, and Sturgess accepts employment with the Company on the terms and conditions contained in this Agreement. 1. Term of Employment. The term of employment shall commence as of the date of this Agreement and shall continue until December 31, 1998, and thereafter shall be extended automatically for additional one-year periods unless written notice is given by either party to the other at least 60 days prior to the end of such term, or any extension thereof. 2. Position and Duties. During the term of employment, Sturgess shall serve as Chairman of the Board, President and Chief Executive Officer of the Company, and, in accordance with the authority and direction of the board of directors of the Company (the "Board") shall render such administrative and other services to the Company as may be required of such position or as the Board may from time to time direct. Sturgess shall be available at all reasonable times upon reasonable notice, for consultation with the Board on matters relating to the Company's, or its affiliates' business. Sturgess shall devote his best efforts and his full and exclusive business time and attention to the business and affairs of the Company and its affiliates except for his pre-existing part-time responsibilities as Chairman of Redman Industries, Inc.; his responsibilities as a General Partner of Wingate Partners, L.P. and a Principal (inactive) of Wingate Partners II, L.P. Sturgess will not take on additional business responsibilities without the prior approval of the Board of Directors provided, however, Sturgess shall be permitted to monitor and administer his personal investments. Sturgess shall be reasonably available, in the Board's discretion, to perform his full-time duties at the Company's headquarters in the Chicago metropolitan area during normal business hours in a manner commensurate with his position as the Chief Executive Officer of the Company, subject to permitted pre-existing responsibilities, travel on business for the Company and reasonable vacations. 3. Compensation. During the term of employment, Sturgess shall be compensated as follows: 3.1. Base Salary. Sturgess shall receive a base salary of no less than $495,000.00 per year, payable in accordance with the Company's normal payment schedule for management employees. The base salary shall be reviewed by the Board annually and may, in the Board's sole discretion, be increased when deemed appropriate. 3.2. Bonus. Sturgess shall be eligible to participate in any bonus plans approved by the Board and made generally available to senior management employees of the Company, and shall be entitled to such bonus amounts as shall be determined in accordance with such plans. MIP payouts will be at the following percentages of annual pay and based on performance as determined under the Company's Management Incentive Plan. Minimum 75% Target 100% Maximum 150% 3.3. Benefits. Sturgess shall be included, to the extent eligible, in all plans, programs and policies providing general employee benefits for the Company's employees or its senior management employees (as approved by the Board and in effect from time to time). The benefit plans, programs and policies presently in effect are listed on Exhibit A attached to this Agreement. This paragraph shall not be construed to require the Company to establish or maintain any policy, plan or program. 4. Confidential Information. 4.1. Sturgess acknowledges the Company's exclusive ownership of all information useful in the Company's business (including its dealings with suppliers, customers and other third parties, whether or not a true "trade secret"), which at the time or times concerned is not generally known to persons engaged in businesses similar to those conducted by the Company, and which has been or is from time to time disclosed to, discovered by, or otherwise known by Sturgess as a consequence of his employment by the Company (including information conceived, discovered or developed by Sturgess during his employment with the Company or with Associated Stationers, Inc.) (collectively, "Confidential Information"). Confidential Information includes, but is not limited to the following especially sensitive types of information: (i) The identity, purchase and payment patterns of, and special relations with, the Company's customers; (ii) The identity, net prices and credit terms of, and special relations with, the Company's suppliers; (iii) The Company's inventory selection and management techniques; (iv) The Company's product development and marketing plans; and (v) The Company's finances, except to the extent publicly disclosed. 4.2. The term "Proprietary Materials" shall mean all business records, documents, drawings, writings, software, programs and other tangible things which were or are created or received by or for the Company in furtherance of its business, including, by or but not limited to, those which contain Confidential Information. For example. Proprietary Materials include, but are not limited to, the following especially sensitive types of materials: applications software, the 2 data bases of Confidential Information maintained in connection with such software, and printouts generated from such data bases; market studies and strategic plans; customer, supplier and employee lists; contracts and correspondence with customers and suppliers; documents evidencing transactions with customers and suppliers; sales calls reports, appointment books, calendars, expense statements and the like, reflecting conversations with any company, customer or supplier; architectural plans; and purchasing, sales and policy manuals. Proprietary Materials also include, but are not limited to, any such things which are created by Sturgess or with Sturgess' assistance and all notes, memoranda and the like prepared using the Proprietary Materials and/or Confidential Information. 4.3. While some of the information contained in Proprietary Materials may have been known to Sturgess prior to employment with the Company, or may now or in the future be in the public domain, Sturgess acknowledges that the compilation of that information contained in the Proprietary Materials has or will cost the Company a great effort and expense, and affords persons to whom Proprietary Materials are disclosed, including Sturgess, a competitive advantage over persons who do not know the information or have the compilation of the Proprietary Materials. Sturgess further acknowledges that Confidential Information and Proprietary Materials include commercially valuable trade secrets and automatically become the Company's exclusive property when they are conceived, created or received. Sturgess shall report to the Company fully and promptly, orally (or, at the Company's request, in writing) all discoveries, inventions and improvements, whether or not patentable, and all other ideas, developments, processes, techniques, designs and other information which may be of benefit to the Company, which Sturgess conceives, makes or develops during his employment (whether or not during working hours or with the use or assistance of Company facilities, materials or personnel, and which either (i) relate to or arise out of any part of the Company's business in which Sturgess participates, or (ii) incorporate or make use of Confidential Information or Proprietary Materials) (all items referred to in this Section 4.3 being sometimes collectively referred to herein as the "Intellectual Property"). All Intellectual Property shall be deemed Confidential Information of the Company, and any writing or other tangible things describing, referring to, or containing Intellectual Property shall be deemed the Company's Proprietary Materials. At the request of the Company, during or after the term of employment, Sturgess (or after Sturgess' death, Sturgess' personal representative) shall, at the expense of the Company, make, execute and deliver all papers, assignments, conveyances, installments or other documents, and perform or cause to be performed such other lawful acts, and give such testimony, as the Company deems necessary or desirable to protect the Company's ownership rights and Intellectual Property. 4.4. Confidentiality Duties. Sturgess shall, except as may be required by law, during the term of employment, and thereafter for the longest time permitted by applicable law: 4.4.1. Comply with all of the Company's instructions (whether oral or written) for preserving the confidentiality of Confidential Information and Proprietary Materials. 4.4.2. Use Confidential Information and Proprietary Materials only at places designated by the Company, in furtherance of the Company's business, and pursuant to the Company's directions. 3 4.4.3. Exercise appropriate care to advise other employees of the Company (and, as appropriate, subcontractors) of the sensitive nature of Confidential Information and Proprietary Materials prior to their disclosure, and to disclose the same only on a need-to-know basis. 4.4.4. Not copy all or any part of Proprietary Materials, except as the Company directs. 4.4.5. Not sell, give, loan or otherwise transfer any copy of all or any part of Proprietary Materials to any person who is not an employee of the Company, except as the Company directs. 4.4.6. Not publish, lecture on or otherwise disclose to any person who is not an employee of the Company, except as the Company directs, all or any part of Confidential Information or Proprietary Materials. 4.4.7. Not use all or any part of any Confidential Information or Proprietary Materials for the benefit of any third party without the Company's written consent. Upon the termination of Sturgess' employment for whatever reason, Sturgess (or in the event of death, Sturgess' personal representative) shall promptly surrender to the Company the original and all copies of Proprietary Materials (including all notes, memoranda and the like concerning or derived therefrom), whether prepared by Sturgess or others, which are then in Sturgess' possession or control. Records of payments made by the Company to or for the benefit of Sturgess, Sturgess' copy of this Agreement and other such things, lawfully possessed by Sturgess which relate solely to taxes payable by Sturgess, employee benefits due to Sturgess or the terms of Sturgess' employment with the Company, shall not be deemed Proprietary Materials for purposes of this Section 4. 5. Non-competition. 5.1. During Sturgess' employment, and during the two year period following his employment), Sturgess shall not, in any way, directly or indirectly, manage, operate, control (or participate in any of the foregoing), accept employment or a consulting position with or otherwise advise or assist or be connected with or directly or indirectly own or have any other interest in or right with respect to (other than through Ownership of not more than 1% of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise (other than for the Company or for the benefit of the Company) which is a wholesaler of office products having annual sales in excess of $1,000,000. 5.2 Notwithstanding Section 5.1., following the term of employment, Sturgess may be engaged in the business of selling office products at retail and Sturgess may be engaged by any company whose principal business is the manufacturer of office products. 4 5.3 Sturgess recognizes that the foregoing limitations are reasonable and properly required for the adequate protection of the business of the Company. If any such limitations are deemed to be unreasonable by a court having jurisdiction of the matter and parties, Sturgess hereby agrees and submits to the reduction of any such limitations to such territory or time as to such court shall appear reasonable. 5.4 If Sturgess shall be in violation of any of the foregoing restrictive covenants and if the Company seeks relief from such breach in any court or other tribunal, such covenants shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 5.5 Sturgess agrees that the remedy at law for any breach of the provisions of Section 4 or this Section 5 shall be inadequate and that the Company shall be entitled to injunctive relief in addition to any other remedies it may have. 6. Termination and Severance. 6.1. Resignation. If Sturgess resigns, or if Sturgess unilaterally gives notice to the Company of non-extension of the term of employment pursuant to Paragraph 1 (provided the conditions of extended employment include adjustment of Base Salary at least commensurate with any increase in the consumer price index from January 1, 1996 to the applicable date for proposed extension), he shall be entitled to receive only the unpaid portion of his base salary and accrued vacation attributable to and including the date of resignation, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination. 6.2 By Sturgess For Good Reason. Sturgess may elect to terminate his employment by written notice to the Company within 60 days after the occurrence of any of the following events without Sturgess' consent, any of which shall be deemed "Good Reason;" (a) the reduction of Sturgess' base salary; (b) the exclusion of Sturgess from, or diminution in Sturgess' participation in, any pension, bonus, management incentive, profit sharing and other similar incentive, compensation or deferred compensation plans made available to employees of the Company, officers or senior management personnel of the Company, other than exclusions, changes or diminutions applicable to all employees, officers or senior management personnel; or (c) any diminution in expense reimbursement benefits enjoyed by Sturgess, except pursuant to a general change in the Company's reimbursement policies; or (d) any material reduction in Sturgess' title or duties which has the effect of materially reducing Sturgess' status within the Company; or (e) any relocation of the Company's headquarters outside of the Chicago metropolitan area; or 5 (f) the breach by the Company of any of its covenants or obligations under this Agreement. If the employment is terminated by Sturgess for Good Reason, Sturgess shall be entitled to receive: 6.2.1. the unpaid portion of his base salary for the remainder of his term of employment, payable on the Company's regular pay schedule; and 6.2.2. reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the termination; and 6.2.3 a severance amount equal to two times his base salary, plus two times his bonuses earned from the Company for the calendar year preceding the year in which notice is given by Sturgess to the Company, payable in equal installments on the Company's regular pay schedule, commencing within 30 days after receipt by the Company of written notice from Sturgess and continuing for 24 months; if no bonus has been paid because Sturgess is a new employee the bonus payable shall be deemed to have been earned at the 100% MIP rate; and 6.2.4 Sturgess shall be entitled to continue to participate in the Company's health plan for a period of two years following the date of the notice from Sturgess, as if he were an employee. 6.3. By Expiration of the Term of Employment. If the term of employment expires and notice has been given by the Company that the term will not be extended or further extended pursuant to Paragraph 1 of this Agreement or such notice has not been given but the term of employment is not extended by mutual agreement of the parties, Sturgess shall be entitled to receive: 6.3.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the expiration of the Term of Employment; and 6.3.2 a severance amount equal to two times his base salary plus two times his bonuses earned from the Company for the calendar year preceding the date of expiration, payable in equal installments on the Company's regular pay schedule commencing within 30 days and continuing for 12 months; and 6.3.3 in addition, Sturgess shall be entitled to participate in the Company's health plan for a period of 12 months following the expiration of the term as if he were an employee. 6.4. By Company for Cause. The Company may terminate the employment at any time for Cause (as hereinafter defined). If Sturgess is terminated by the Company for Cause, Sturgess shall be entitled to receive only the unpaid portion of his base salary and accrued vacation 6 attributable to all periods prior to and including the date of his termination, and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of his termination. The Company shall be required to present written notice of "cause" and provide a thirty (30) day period to cure, under (f), (g) and (h) of the following paragraph. Sturgess shall be permitted to present his case in front of full Board of Directors. "Cause" means Sturgess' (a) conviction of, or plea of nolo contendere to a felony; (b) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its affiliates; (c) use of illegal drugs; (d) material breach of this Agreement; (e) commission of any act or acts of moral turpitude in violation of Company policy; (f) gross negligence or willful misconduct in the performance of his duties; (g) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in directly competitive acts while employed by the Company; or (h) failure to be reasonably available, in the Board's discretion, to perform his full-time duties at the Company's headquarters in the Chicago metropolitan area during normal business hours in a manner commensurate with his position as the chief executive officer of the Company, subject to permitted pre-existing responsibilities, travel on business for the Company and reasonable vacations. 6.5. By the Company. The Company may terminate Sturgess' employment on written notice to Sturgess at any time. If Sturgess' employment is terminated by the Company, other than for Cause, Sturgess shall be entitled to receive only: 6.5.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination and the unpaid portion of his base salary to the date of termination; and 6.5.2. severance pay at a per annum rate equal to his base salary and bonuses earned for the year preceding the year of termination, payable in equal installments on the Company's regular pay schedule commencing with the first scheduled pay date after the date of termination and continuing for 24 months; if no bonuses have been paid yet because Sturgess is a new employee the bonuses will be deemed to be at the 100% MIP rate. 6.5.3. in addition, Sturgess shall be entitled to participate in the Company's health plan for the 24 month severance period, as if he were an employee. 6.6. By Death or Disability. If Sturgess' employment is terminated due to his death or permanent disability, Sturgess shall be entitled to severance pay in accordance with the provisions of 6.5 above. In addition, if Sturgess' spouse is then living, for the remainder of such spouse's life the Company shall continue to provide health coverage for Sturgess' spouse and dependent children in accordance with the Company's health plans made generally available to employees of the Company, without cost to Sturgess' spouse. Nothing in this Agreement shall affect Sturgess' right to receive death benefit payments under any policy of insurance carried by the Company and payable to Sturgess or his designated beneficiary. 7 6.7 Retirement. Sturgess agrees that, in any event, his employment shall terminate automatically on his sixty-fifth birthday. If his employment is terminated pursuant to this Section 6.7, Sturgess shall be entitled to: 6.7.1. accrued earned and unpaid base and bonus, vacation pay and reimbursement for reasonable expenses incurred on behalf of the Company prior to the date of termination, and 6.7.2. in addition, Sturgess shall be entitled to participate in the Company's health plan for retirees. 7. Change in Control. In the event of a Change in Control, Sturgess shall be entitled to resign before the first anniversary of the Change in Control. Upon termination of his employment after a Change in Control, Sturgess shall be entitled to: 7.1. accrued vacation pay and reimbursement for reasonable reimbursable expenses incurred on behalf of the Company prior to the date of termination; and 7.2. severance pay equal to two times his base salary plus two times his bonuses earned from the Company for the preceding calendar year, (if no bonus paid because Sturgess is a new employee, bonus shall be deemed to be at 100% of MIP payout.) payable in equal installments on the Company's regular pay schedule commencing within 30 days after termination of Sturgess' employment and continuing for 24 months; provided however, such amount shall be reduced by the amount of compensation earned by Sturgess from any other employment or consulting arrangement during the severance period except for employment or consulting agreements which were existing at the date of change of control. "Change in Control" shall mean a change in control of a nature that would be required to be reported in responses to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended and presently in force (the "Exchange Act") ; provided that, without limitation, a Change in Control shall be deemed to have occurred if (a) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of United Stationers Inc. representing thirty percent (30%) or more of the combined voting power of United Stationers Inc.'s then outstanding equity having the power to seat the Board generally, or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by United Stationers, Inc.'s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period. 8. Sturgess shall receive 240,000 post-split stock options under the MEP program granted under the same conditions as other executive management members. Sturgess' rights to such options shall vest as follows: (i) 80,000 on the same basis as other executive management members; 8 (ii) 80,000 to vest on the later to occur of (a) December 31, 1996, provided Sturgess is still employed as chief executive officer of the Company on such date, or (b) on the same basis as other executive management members. (iii) 80,000 to vest on the later to occur of (a) March 31, 1997, provided Sturgess is still employed as chief executive officer of the Company on such date, or (b) on the same basis as other executive management members. In each case the vesting and Sturgess' ability to exercise such options shall accelerate upon (x) the occurrence of certain transactions as provided under the MEP plan and (y) the termination of Sturgess' employment if such termination is by Sturgess for Good Reason, by expiration of the term of employment, by the Company other than for Cause, due to a Change in Control, or due to Sturgess' death or permanent disability. 9. Sturgess shall receive an additional 120,000 post-split options under the same conditions as the MEP recipients except that the exercise price will be $5.12 per share, fixed. Sturgess' ability to exercise such options shall accelerate upon (x) the occurrence of certain transactions as provided under the MEP plan and (y) the termination of Sturgess' employment if such termination is by Sturgess for Good Reason, by expiration of the term of employment, by the Company other than for Cause, due to a Change in Control, or due to Sturgess' death or permanent disability. 10. Miscellaneous. 10.1. All notices hereunder shall be given in writing and sent to the party for whom such is intended by hand delivery or United States certified or registered mail, return receipt requested, postage prepaid, or overnight courier service, addressed to the party for whom intended at the following respective addresses: If to the Company: United Stationers Supply Co. 2200 East Golf Road Des Plaines, IL 60016 Attn: Executive Vice President and Chief Financial Officer If to Sturgess: Thomas W. Sturgess c/o Wingate Partners 750 North St. Paul/Suite #1200 Dallas, TX 75201 or to such other persons and/or at such other addresses as may be designated by written notice served in accordance with the provisions hereof. Such notices shall be deemed to have been served, if hand delivered, on the day delivered, and if mailed, on the third day following the date deposited in the mail. Urgent notices shall be given by Telex or cable to the same addresses and confirmed by mail as provided above. All notices sent by Telex or cable shall be deemed to have 9 been served upon receipt of the Telex or cable, but only if in fact confirmed by mail promptly after dispatch of the Telex or cable. 10.2. This Agreement and all rights and benefits hereunder are personal to Sturgess and neither this Agreement nor any right or interest of Sturgess herein, or arising hereunder, shall be voluntarily or involuntarily sold, transferred or assigned by Sturgess except if to a "family affiliate" including Trusts for the benefit of his children. Any attempt by Sturgess to assign, execute, attach, transfer, pledge, hypothecate or otherwise dispose of any such benefits or amounts or any rights or interests contrary to the foregoing provisions, or the levy or attachment or similar process thereupon, shall be null and void and of no effect and shall relieve the Company of all liabilities hereunder. This Agreement and all of the Company's right and obligations hereunder may be assigned and/or delegated, as the case may be, without Sturgess' consent, to any entity which merges with the Company or which acquires substantially all of the assets of the Company and which agrees to be bound hereby. The enforceability of Sturgess' rights under the Agreement shall not be affected by any assignment or merger. 10.3. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors and permitted assigns. 10.4. This Agreement constitutes the entire agreement between the parties and contains all the agreements between such parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, oral or in writing, between the parties with respect to the subject matter hereof. 10.5. No change or modification of this Agreement shall be valid unless the same shall be approved by the Board and in writing and signed by Sturgess and an authorized representative of the Company other than Sturgess. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the person or party to be charged. 10.6. If any provisions of this Agreement (or portions thereof) shall, for any reason, be invalid or unenforceable, such provisions (or portions thereof) shall be ineffective only to the extent of such invalidity or unenforceability, and the remaining provisions or portions shall nevertheless be valid, enforceable and of full force and effect. 10.7. The Section or paragraph headings or titles are for convenience only and shall not be deemed a part of this Agreement. 10.8. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a single instrument. 10.9. If Sturgess or his estate or designee prevails in any action to enforce their rights under this Agreement, they shall be entitled to receive their attorneys' fees, costs and expenses incurred in enforcing their rights under this Agreement, as well as interest at the Prime Rate as publicly announced by The Northern Trust Company from time to time on the amount of the judgment from the date of demand for payment hereunder through the date of receipt of the amount of the judgment. 10 11. Arbitration. Each of the undersigned hereby agrees that any controversy or claim arising out of or relating to this Agreement, or the breach thereof, including but not limited to any claims of discrimination and wrongful termination, will be submitted for arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. UNITED STATIONERS INC., a Delaware corporation; UNITED STATIONERS SUPPLY CO., an Illinois corporation ATTEST: By: ------------------------ ---------------------------------- Daniel H. Bushell Gary G. Miller, Director Secretary and Member Compensation Committee By: ---------------------------------- James T. Callier, Jr., Director and Member Compensation Committee -------------------------------------- Thomas W. Sturgess 11 EXHIBIT A TO EMPLOYMENT AGREEMENT THOMAS W. STURGESS The following are benefit plans, programs and policies in which Sturgess is entitled to participate as of January 1, 1996: United Stationers Supply Co. Pension Plan United Stationers Inc. Profit Sharing PluSavings Plan United Stationers Inc. Flexible Spending Plan United Stationers Management Incentive Plan United Stationers Inc. Management Equity Plan United Group Medical and Dental Benefit Plans Officer Medical Expense Reimbursement Policy Retiree Health Plan Annual physical exam at Company expense Leased auto or equivalent cash compensation in accordance with Policy Group Term Life Insurance - 2 1/2 times base salary Travel and Accident Insurance - $300,000 Split Dollar Life Insurance Disability Insurance in accordance with insurance policy Club and Association Dues - in accordance with Company Policy Financial and Tax Consulting - and tax return preparation, in accordance with Company Policy Officer Indemnification and Insurance - D&O insurance is provided on a claims-made basis; and Restated Certificate of Incorporation, and Delaware and Illinois law provide indemnification of officers and directors Other - Vacations in accordance with Company Policy; other benefits that may from time to time be made available to employees generally 12 EX-10.71 12 CONSULTING AGREEMENT EXHIBIT 10.71 CONSULTING AGREEMENT -------------------- THIS AGREEMENT is made as of October 1, 1995 between United Stationers Supply Co., an Illinois corporation, 2200 East Golf Road, Des Plaines, Illinois 60016 ("United"), and Jeffrey K. Hewson, 925 Walden Lane, Lake Forest, Illinois 60045 ("Hewson"). In consideration of the mutual promises contained herein, the parties agree as follows: 1. Consulting Services. Hewson agrees to provide consulting services to United as follows: advice and counsel to the Chairman of the Board of United, or his designee(s) as from time to time designated in writing by the Chairman of the Board of United, as mutually agreed on at least a quarterly basis concerning critical business matters, including developing new markets, identification of possible acquisition candidates and joint venture partners, geographic expansion, Canadian operations, cost efficiency opportunities, and business integration. Hewson shall perform the consulting services in the Chicago metropolitan area, area, except as may from time to time otherwise be agreed. In any event, United shall give Hewson ten days notice of requested travel. 2. Term. This Agreement shall be for a term of 15 months, commencing October 1, 1995 and ending December 31, 1996. 3. Time Requirements. Hewson agrees to provide up to 65 hours of consulting services per quarter. Hours of consulting service shall include any necessary travel time. To the extent the hours of service actually provided during any quarter are more or less than 65 hours, they shall be cumulated and applied toward subsequent quarters during the term of this Agreement. 4. Payment. United will pay Hewson the total sum of $130,000 for the work to be performed under this agreement, payable in equal quarterly installments of $26,000 per quarter commencing October 1, 1995, and thereafter on the first day of each calendar quarter. In addition, to the extent that the hours of service actually provided by Hewson exceed 325 hours (65 hours X 5 quarters), United agrees to pay Hewson $400 per hour for each hour in excess of said 325 hours. In the event of Hewson's disability or death during the term of this agreement said quarterly installments shall continue, and, in the event of his death, shall be paid to Hewson's estate. Hewson shall not be required to render consulting services hereunder in the event of his illness, incapacity, disability or death. If at any time United fails to make any payment when due hereunder, Hewson shall be entitled to immediate injunctive relief ordering such payment to be made immediately, to which relief United hereby agrees. Any claim or purported claim upon which United may base any such failure to pay may be brought by United in a court of competent jurisdiction (which may, but need not be, the same court in which Hewson seeks injunctive relief), and if such claim is the subject of a final adjudication in United's favor, Hewson shall forthwith pay back the adjudicated sum to United. 5. Expense Reimbursement. United will reimburse Hewson for all necessary funds advanced and for reasonable out-of-pocket expenses incurred at United's request, including travel expenses incurred solely for United's benefit. Expenses hereunder shall be reimbursable on the same basis, including travel and lodging, as expenses of the most senior officer of United. 6. Relationship of Parties. The parties intend that an independent contractor relationship will be created by this agreement. United is interested in the results that will be achieved, and the conduct and control of the work will lie solely with Hewson. Hewson is not to be considered an agent or employee of United for any purpose. It is agreed that United does not agree to use Hewson exclusively. It is further agreed that, subject to the non- competition provisions of Hewson's prior employment and consulting agreement with United, Hewson is free to contract for similar services to be performed for others while under contract with United. 7. Liability. The work to be performed by Hewson under this Agreement will be performed entirely at Hewson's risk. Hewson agrees to indemnify United for any liability or loss to third parties arising out of Hewson's negligence in his performance of this Agreement. UNITED STATIONERS SUPPLY CO. By: ________________________ Its ____________________________ Jeffrey K. Hewson 2 EX-10.72 13 LETTER AGREEMENT EXHIBIT 10.72 November 29, 1995 Mr. Joel D. Spungin 3041 Burgundy Drive North Palm Beach Gardens, FL 33410 RE: Grant of Restricted Stock Dear Joel: This will confirm that the Board of Directors has granted you an award of restricted stock of United Stationers Inc. subject to the terms and conditions provided in this Letter Agreement: 1. Grant of Restricted Common Stock. In consideration of the services you shall render to the Company as a director for a three-year term, United Stationers Inc. ("Company") hereby grants and issues to you 9,678 shares of its common stock, par value $0.10 per share ("Shares"), on the terms and conditions contained in this Letter Agreement. 2. Restrictions and Forfeiture. None of the Shares granted to you as provided in this Letter Agreement may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, until the second anniversary of the date of the grant of the Shares. If you resign your position as a director prior to March 30, 1997, you will forfeit your entire interest in the Shares. 3. Representations. By executing a copy of this Letter Agreement, you represent that: (a) you are acquiring the Shares for investment and not with any present intention to sell the Shares, and none of the Shares shall be disposed of unless a registration statement under the Securities Act of 1933 and regulations of the Securities and Exchange Commission is in effect as to the Shares, or unless an exemption from registration is available for such disposition; (b) you assume all risks incident to any change in the applicable laws or regulations or in market value of the Shares occurring after their issuance; and (c) you understand that the Shares, when vested, are subject to all applicable income tax laws. 4. Legend. All certificates evidencing Shares will bear the following legend: "THESE SECURITIES ARE NOT COVERED BY A REGISTRATION STATE-MENT UNDER THE SECURITIES ACT OF 1933. IF YOU ARE AN AFFILIATE, YOU MAY REOFFER OR RESELL THESE SECURITIES ONLY IF REGISTERED UNDER A SEPARATE REGISTRATION STATEMENT UTILIZING THE PROPER FORM OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN A LETTER AGREEMENT DATED NOVEMBER 29, 1995, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS." November 29, 1995 Joel D. Spungin Page 2 5. General. This agreement: (a) is the sole agreement with respect to its subject matter; (b) can be amended only in writing; (c) is severable; (d) will bind and inure to the benefit of the parties, their successors and permitted assigns; provided that you may not assign your rights under this Letter Agreement; (e) will be enforced and interpreted according to the internal laws of the State of Illinois, without regard to its laws or rules concerning conflicts of law; and (f) may be executed in counterparts. Section headings are for convenience only. If this letter accurately reflects the agreement between you and the Company, please sign the enclosed copy of this letter in the space provided below and return it to the Company. Sincerely, UNITED STATIONERS INC. By: ___________________________ Thomas W. Sturgess Chairman of the Board, and Chief Executive Officer Agreed to and Accepted as of the date first above written. __________________________________ Joel D. Spungin EX-10.96 14 LEASE AGREEMENT EXHIBIT 10.96 EXECUTION COPY LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease") is made and entered into this ___ day of January, 1996, by and between ROBINSON PROPERTIES, L.P., a Pennsylvania limited partnership with offices at 6507 Wilkins Avenue, Pittsburgh, Pennsylvania 15217 (hereinafter called "Landlord"), and UNITED STATIONERS SUPPLY CO., an Illinois corporation with offices at 2200 East Golf Road, Des Plaines, Illinois 60016, (hereinafter called "Tenant"), with the intent to be legally bound. 1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby takes and hires from Landlord, the real property located at 760 Commonwealth Drive, Thorn Hill RIDC Park, Cranberry Township, Butler County, Pennsylvania, more particularly described on Exhibit A attached hereto and incorporated by reference herein (the "Land") and the 84,176 square foot office and warehouse building erected thereon (the "Building") for the Term and upon the conditions and agreements set forth in this Lease. The Land and the Building are collectively referred to herein as the "Premises." For all purposes hereof the Building shall be conclusively deemed to consist of 84,176 square feet of rentable area. 2. TERM. The term of this Lease (the "Term") shall commence on February 1, 1996 (the "Commencement Date") and shall expire on the last day of the sixtieth (60th) full calendar month thereafter unless sooner terminated or extended as provided herein. 3. POSSESSION. If Landlord fails to tender possession of the Premises on or before the Commencement Date through no omission, delay or default by Tenant, then all rent shall abate until Landlord tenders possession, and except as otherwise provided in this Section 3, Tenant hereby accepts such abatement in full settlement of any and all claims Tenant may have against Landlord arising from Landlord's failure to tender possession on the Commencement Date. The Term of this Lease shall be extended as a result of such failure by Landlord to tender possession on the Commencement Date for a period equal to such delay. In addition to the foregoing, for each day elapsing from and including the Commencement Date through February 29, 1996 on which the Landlord fails to deliver possession of the Premises, Tenant's obligation to pay rent pursuant to Section 4 shall be abated for one day after Landlord delivers possession of the Premises, up to a total of twenty-nine (29) days. No formal tender of possession by Landlord, in writing or otherwise, shall be required. The foregoing notwithstanding, should Landlord fail to deliver possession of the Premises on or prior to February 29, 1996 through no omission, delay or default by Tenant, Tenant may thereafter terminate this Lease prior to delivery of possession of the Premises by Landlord upon written notice to Landlord, in which event neither Landlord nor Tenant shall have any further rights or remedies hereunder. 4. RENT. As minimum rent for the Premises (the "Rent") Tenant shall pay to Landlord, in advance and without demand, counterclaim or offset, at its offices or at such other place as Landlord may from time to time designate in writing, beginning on the first day of the Term and continuing on the first day of every month thereafter until the expiration of the Term: for the period commencing February 1, 1996 through and including January 31, 2001, the sum of One Million, Six Hundred Sixty-Two Thousand, Four Hundred Seventy-Six and 00/100 Dollars ($1,662,476) (being $3.95 per annum per square foot of rentable area in the Building) (sometimes referred to hereinafter as the "Base Rent") which shall be due and payable in equal monthly installments of Twenty-Seven Thousand, Seven Hundred Seven and 93/100 Dollars ($27,707.93). In the event that Tenant's obligation to pay Rent commences on a day other than the first day of a calendar month, Tenant shall pay to the Landlord a pro rata portion of the monthly installment of Rent, such pro rata portion to be calculated on the number of days remaining in such partial month after the day upon which Tenant's obligation to pay Base Rent commences. Nothing herein contained shall be deemed to suspend or delay the payment of any sum at the time the same became due and payable hereunder, or limit any other remedy of Landlord. 5. ADDITIONAL RENT; LATE PAYMENT INTEREST. In addition to payment of the Rent as set forth in Section 4 herein, Tenant hereby covenants and agrees to pay when due any and all other sums of money, charges or other amounts required to be paid by Tenant to Landlord or to another person under this Lease (collectively referred to herein as the "Additional Rent"). Nonpayment of Additional Rent when due hereunder shall constitute a default under this Lease to the same extent, and shall entitle the Landlord to the same remedies, as nonpayment of the Rent. Except as otherwise herein provided, all Additional Rent payable hereunder shall be due within thirty (30) days of the date of Tenant's receipt of Landlord's invoice therefor. All payments of Rent and Additional Rent required hereunder shall be paid when due, in lawful currency of the United States of America, at the office of Landlord or at such other place as Landlord may from time to time direct. If payment be by check, such checks shall be made payable to Landlord. All payments of Rent and Additional Rent not received within five (5) days of the due date thereof shall thereafter bear interest from the due date until paid at the rate of 18% per annum, and said interest charge shall be collected as Additional Rent hereunder. 6. SECURITY DEPOSIT. Intentionally omitted. 7. HOLDING OVER. Upon failure of Tenant to surrender possession of the Premises upon the expiration of the Term of this Lease, as renewed and extended hereunder, or the sooner termination thereof, Tenant shall pay to Landlord, as an occupancy charge, an amount equal to 150% of the rate of Rent and other sums required to be paid under this Lease with respect to the year immediately preceding the expiration or sooner termination of the Term of this Lease, as applied to any period in which Tenant shall remain in possession after such expiration or sooner termination of this Lease; provided, however, that in such event Tenant shall not be released from any further costs, damages or liabilities whether direct, indirect or consequential, suffered by Landlord and occasioned by Tenant's holding over to the extent that such holding over extends beyond thirty (30) days from the expiration of the Term of this Lease, as renewed and extended hereunder, or the sooner termination thereof. In the event of such holding over, Tenant shall be considered a tenant-at-will. 8. REAL ESTATE TAXES. As and for Additional Rent, Tenant shall pay to Landlord, without setoff or deduction, any and all real estate taxes (as defined below) relating to the Premises during the Term of this Lease. The term "real estate taxes" shall mean all taxes and assessments (whether general or special) levied, assessed or imposed at any time by any governmental body or authority upon or against the Premises, this Lease, and the improvements to any portion of the Premises, and includes any tax, assessment or licensing fees levied, assessed or imposed at any time by any governmental body or authority relating to Tenant's operations or property in the Premises or in connection with the receipt of income or rents from the Premises to the extent that same shall be in lieu of (and/or in lieu of an increase in) all or a portion of any of the aforesaid taxes or assessments upon or against the Premises. The term "real estate taxes" shall also include, to the extent that the same are charged to Landlord rather than directly to Tenant, any of the following taxes relating to Tenant's use, occupancy of, or operations conducted at the Premises: gross receipts tax, ad valorem tax, capital stock or franchise tax, business privilege tax, sales tax, parking tax, value added tax, or personal property tax, and any similar taxes not presently in effect which may hereafter be assessed and levied by any governmental body or other authority. "Real Estate taxes" shall not include any of Landlord's franchise, business privilege, payroll, or federal or state income tax or any estate or inheritance taxes unless the same shall be in lieu of (and/or in lieu of an increase in) all or a portion of any of the aforesaid real estate taxes or assessments upon or against the Premises. All such real estate taxes due or payable shall be paid to Landlord within 30 days of the date Tenant receives Landlord's invoice thereof. Tenant shall only be responsible for real estate taxes imposed for tax years (or the pro rata portion thereof for partial tax years) during the Term of this Lease and any extensions, renewals, and hold-over periods hereof. A "tax year" shall be deemed to be a calendar year, notwithstanding the assessment or collection thereof on a different basis by any taxing authority. Tenant may, at its sole cost and expense, contest any assessment or levy of real estate taxes, provided that Tenant either pays such real estate taxes under protest or deposits with Landlord, prior to the date on which the taxes are due and payable, an amount which is necessary to pay the total amount of such real estate taxes, together with all penalties and interest, in the event that such contest is unsuccessful. To the extent necessary therefor, Landlord will consent to execute such documents and participate in such proceedings as may be reasonably necessary. 9. USE OF PREMISES; RULES AND REGULATIONS. Tenant covenants that it shall use and occupy the Premises solely as offices and warehousing facilities in connection with Tenant's business and activities related thereto. Tenant shall not use or occupy the Premises for any other purpose or business without the prior written consent of Landlord which consent shall not unreasonably be withheld or delayed if such proposed other purpose or business is consistent with the character and nature of businesses operating in Thorn Hill RIDC Park. Tenant shall observe and comply with all laws, rules, regulations and ordinances applicable to the Premises and Tenant's use and occupancy thereof including all rules and regulations of the Thorn Hill RIDC Park ("RIDC Park"). All such laws, rules and regulations shall apply to Tenant and its employees, agents, licensees, servants, invitees, contractors, permitted subtenants and assigns. Any breach of said laws, rules and regulations shall, at Landlord's option, constitute a default under this Lease to the same extent, and shall entitle Landlord to the same remedies, as any other material default hereunder. 10. HAZARDOUS SUBSTANCES. Except as provided in Paragraph 10(c), below, Tenant covenants that it shall not, at any time during the Term of this Lease, place, store, install upon, discharge, release or generate on, in or under the Premises, or allow to escape from the Premises, any pollutants or other toxic or Hazardous Substances (as defined below), or containers or storage or processing facilities thereof including, but not limited to, any asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") in the form of electrical equipment, fluorescent light fixtures with ballasts, cooling oils or any other form, or any solid, liquid, gaseous or thermal irritant or contaminant, such as smoke, vapor, soot, fumes, alkalis, acids, chemicals, pesticides, herbicides, sewage, industrial sludge or other similar wastes, or industrial, nuclear or medical by-products, or install underground storage tanks (whether filled or unfilled). Tenant shall protect, defend, indemnify and hold harmless Landlord from any and all costs (including costs of remediation), expenses (including attorneys' fees), liabilities, losses, damages, suits, actions, fines, penalties, claims or demands of any kind arising out of or in any way connected with, and Landlord shall not be liable to Tenant or any other party on account of, the Tenant or Tenant's servants, agent's, employees, licensees, invitees, and contractors placing, storing, installing, discharging, releasing or generating on, in, under or about the Premises, or allowing to escape from the Premises, any Hazardous Substances during the Term of this Lease or any renewal or extension hereof. (a) As used in this Lease, the following terms shall have the following meanings: "Environmental Rule" shall mean any Governmental Rule which relates to Hazardous Substances, pollution or protection of the environment, including without limitation any Governmental Rule relating to the generation, use treatment, storage, release, transport or disposal of Hazardous Substances and any common laws of nuisance, negligence and strict liability relating thereto, and shall specifically include the Clean Water Act, also known as the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq., as amended by the Water Quality Act of 1987, Pub. L. No. 100-4 (Feb. 4, 1987), the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S) 136 et seq., the Safe Drinking Water Act, 42 U.S.C. (S) 300f et seq., the Surface Mining Control and Reclamation Act, 30 U.S.C. (S) 1021 et seq., the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community Right to Know Act, 42 U.S.C. (S) 11001 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq., and the Occupational Safety and Health Act ("OSHA"), 29 U.S.C. (S) 655 and (S) 657, as any of the same have been or may be amended, together with all rules, regulations and orders issued thereunder. "Governmental Person" shall mean any governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, agency, bureau, body or entity of the United States of America or of any state, county, municipality or other political subdivision located therein. "Governmental Rule" shall mean any law (including common law), statute, rule, regulation, ordinance, code, order, writ, judgment, injunction, decree, guideline, directive or decision of any Governmental Person, whether or not having the force of law and whether now or hereafter existing, as any of the same may be amended. "Hazardous Substance" means any substance which constitutes, in whole or in part, a pollutant, contaminant or toxic or hazardous substance or waste under, or the generation, use, treatment, storage, release, transport or disposal of which is regulated by, any Governmental Rule, and shall specifically include any substance which (i) constitutes a "hazardous substance" under CERCLA or a "hazardous waste" under RCRA, (ii) exhibits any of the hazardous characteristics enumerated in 40 C.F.R. Sections 261.20-261.24, inclusive, (iii) constitutes any of those extremely hazardous substances listed under (S) 302 of SARA which are present in threshold planning or reportable quantities as defined under SARA, (iv) constitutes toxic or hazardous chemical substances which are present in quantities which exceed exposure standards, as those terms are defined under (S)(S) 6 and 8 of OSHA and 29 C.F.R. Part 1910, subpart 2, (v) constitutes asbestos, urea formaldehyde, chlorinated biphenyls (polychlorinated or monochlorinated) or petroleum products or (vi) constitutes a hazardous material which, when transported, is subject to regulation by the United States Department of Transportation at 49 C.F.R. Parts 171-199. (b) Tenant shall comply with all Governmental Rules applicable to the Premises and to Tenant's use and occupancy thereof, including without limitation all Environmental Rules. Tenant shall obtain, maintain and comply with all licenses and permits issued by any Governmental Person which are necessary in connection with the ownership, occupancy or use of the Premises. (c) Tenant shall not, and shall not permit any other Person to, generate, use, treat, store, release or dispose of any Hazardous Substance on the Premises; provided, that the foregoing shall not prohibit Tenant from using or storing on the Premises reasonable quantities of petroleum products, cleaning materials and other substances which fall within the definition of "Hazardous Substance" and which are necessary for the conduct of its business or the maintenance of the Premises so long as such use and storage is in compliance with applicable Environmental Rules. (d) Tenant shall notify Landlord immediately after becoming aware of (i) any presence on or under the Premises, or on any property adjacent thereto, of any Hazardous Substance in violation of any Environmental Rule or in excess of any reportable quantity established under any Environmental Rule or (ii) any violation of any Environmental Rule by Tenant or any other Person which affects the Premises or could potentially impose any liability on Landlord. Tenant shall forward to Landlord immediately upon its receipt thereof copies of all orders, reports, notices and other communications relating to any of the foregoing matters. (e) Upon prior written notice from Landlord, Tenant shall permit such Persons as Landlord may designate to visit the Premises and perform environmental site investigations and assessments on the Premises for the purpose of determining whether there is any unlawful presence of Hazardous Substances on the Premises or any other condition which constitutes a violation of any Environmental Rule. Tenant shall supply to such Persons all such information regarding the Premises and Tenant's operations thereon as such Persons may reasonably request. If any such assessment shall disclose a material violation of any Environmental Rule by Tenant, the Tenant shall be liable for the cost of such assessment, which amount shall be due as Additional Rent hereunder; otherwise, Landlord shall pay the cost of such assessment. (f) Tenant, at its sole expense, shall remediate any unlawful presence of Hazardous Substances on or under the Premises in a timely manner and in accordance with applicable Environmental Rules and directives of any Governmental Person having authority over such remediation; provided, that Tenant shall not be required to remediate any such unlawful presence of Hazardous Substances (i) to the extent that the same are present on or under the Premises on the date hereof or (ii) to the extent that the same are not attributable to the acts, omissions, or negligence of the Tenant or its employees, agents, invitees, customers, contractors, successors and assigns. (g) Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, losses, damages, liabilities, costs and expenses (including without limitation reasonable attorneys' fees and court costs) which arise out of any breach by Tenant of any of the foregoing covenants, which obligation shall survive the expiration or earlier termination of this Lease. (h) Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims, losses, damages, liabilities, costs and expenses (including without limitation reasonable attorney's fees and court costs) which arise out of any environmental matter not an obligation of Tenant pursuant to subparagraphs (a) through (g), above; therefore, such indemnity shall not extend to claims, losses, damages, liabilities, costs or expenses as are caused by or resulting from the acts, omissions, or negligence of the Tenant or its employees, agents, invitees, customers, contractors, successors and assigns. 11. TENANT'S ACCEPTANCE. Tenant, by its taking possession of the Premises, shall be deemed to have acknowledged that it has inspected the Premises and any improvements made thereto, considers it to be suited for the use intended by Tenant and shall accept the Premises as is and any improvements thereon in their then present condition. The foregoing notwithstanding, prior to the Commencement Date, Tenant shall have the right to inspect the Building and the Premises and all systems and other components thereof. Prior to the Commencement Date, Tenant shall notify Landlord in writing (i) of any material defects in any major component of the HVAC, plumbing or electrical system of the Premises ("Systems Defects"), and (ii) of any material defects in other components of the Building or the Premises ("Non-Systems Defects"). Within 90 days of the Commencement Date, Landlord shall (i) remedy such Systems Defects, and (ii) remedy such Non-Systems Defects to the extent that the cost to remedy such Non-Systems Defects exceeds Five Thousand Dollars ($5,000), with Tenant assuming responsibility for the repair of all Non-Systems Defects up to Five Thousand Dollars ($5,000). Following the Commencement Date and with the exception of repairs, if any, made as provided in this Section 11, all maintenance and repair of the Premises, including without limitation the repair of defects, if any, existing as of the Commencement Date and of which Landlord was not notified as provided above, shall be governed as hereinafter provided. 12. ALTERATIONS AND ADDITIONS. No alteration, addition or improvement to or installation in the Premises shall be made or permitted to be made by Tenant without the express prior written consent of Landlord. Landlord may impose such conditions to its consent as it may elect, including conditions that Tenant (a) obtain Landlord's approval of final plans and specifications; (b) obtain Landlord's approval of all contractors and subcontractors and their respective contracts; (c) obtain all permits, approvals, and certificates required by any governmental or quasi-governmental bodies and, upon completion, provide said certificates to Landlord; (d) carry, and cause all contractors and subcontractors to carry, worker's compensation, general liability, personal and property damage insurance; (e) agree at its sole cost to remove any such alteration, addition, improvement or installation on or before the expiration or sooner termination of the Term and to restore the Premises to its prior condition; (f) require all contractors, subcontractors, suppliers and materialmen to sign waiver and release of lien agreements in form, scope and substance satisfactory to Landlord; and (g) provide security satisfactory to Landlord in order to insure that the Premises shall be kept free from mechanics' or materialmen's liens and Hazardous Wastes and that the cost of all alterations or additions will be fully paid by Tenant. Unless Landlord requires their removal as set forth hereinabove at the time of its consent, all alterations, additions, improvements and installations which may be made to the Premises shall become the property of Landlord upon installation and shall remain upon and be surrendered with the Premises. Notwithstanding the foregoing, Tenant's personal property and trade fixtures, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Tenant and may be removed by Tenant at any time during the Term so long as Tenant is not in default under this Lease. Tenant agrees to repair immediately, at is sole cost and expense, any and all damage to the Premises caused by, or in connection with, the removal of any articles of personal property, business or trade fixtures, alterations, improvements and installations, to Landlord's satisfaction. 13. MAINTENANCE OF THE PREMISES. Tenant covenants and agrees to use, maintain and occupy the Premises in a careful, safe and proper manner and shall not permit the Premises to be used in a manner which will injure the reputation of either Landlord or Tenant or use the Premises in a manner which renders it a nuisance or annoyance to the other tenants of the RIDC Park. Tenant shall, at its own cost and expense, keep the Premises and all leasehold improvements therein, including all parking areas and sidewalks, in a clean, safe and healthy condition and shall clean the snow, ice, dirt and rubbish from the parking areas and sidewalks on and contiguous to the Premises during the Term of this Lease. In the event that any of the parking areas, sidewalks, or other parts of the Premises shall be in an unsafe, unclean, or unsightly condition, Tenant shall remedy such condition to Landlord's satisfaction within ten (10) days from the date of receipt of Landlord's notice of such condition, or Landlord at its option may correct such condition and the entire cost thereof plus 15% for Landlord's administrative costs and overhead shall be collected from Tenant as Additional Rent. 14. UTILITIES, MAINTENANCE AND BUILDING SERVICES. Tenant shall be responsible for and shall provide, at its own cost and expense, the following utilities, maintenance, services and facilities in and about the Premises: (a) Any and all oil, gas, electricity, water, telephone, sanitary sewer, storm or drainage sewer and all other utilities utilized in or about the Premises. (b) Maintenance and service of all HVAC systems and conduits and the operation of adequate air conditioning (between the first day of May and the first day of October) and heat (between the first day of October and first day of May) in such respective amounts as Landlord shall deem to be necessary to protect and preserve the Building. (c) Maintenance and service of all restrooms, and all plumbing and sewer lines in and about the Premises. (d) Maintenance and service of all electrical wires, cable, fixtures, outlets and boxes in and about the Premises. (e) Maintenance of all hardware installed in the Building. (f) Cleaning of both the outside (four times per calendar year) and inside of exterior window panes of the Building. (g) Janitorial service, including but not limited to the removal of debris, cleaning of space, vacuuming of carpets, and dusting of furniture, at least five days per week, except holidays. (h) Other maintenance as may be required to preserve and protect the Premises and its constituent parts, including those items contained in Sections 13, 15, 16 and 17 hereof. 15. LANDSCAPING. Tenant shall, at its own cost and expense, maintain all lawns, gardens, trees, and shrubbery on the Premises in a manner consistent with the level of quality maintained throughout the RIDC Park. 16. REFUSE REMOVAL. Tenant shall, at its own cost and expense, provide for all trash, garbage, and refuse removal from the Premises at all times during the Term of this Lease. Tenant shall at all times comply with all health and safety laws, rules, regulations and ordinances with respect to the storage and removal of trash, garbage and refuse on and from the Premises. 17. REPAIRS. At all times during the Term of this Lease, Tenant shall make, at its sole cost and expense, any and all necessary repairs and capital improvements to the Building, both structural and non-structural in order to preserve, protect, and maintain the Premises to their condition as of the date hereof, reasonable wear and tear excepted, or to such superior condition as Tenant may desire, including but not limited to the walls (interior), doors (both interior and exterior), plumbing (including without limitation, all filters, drains, water, gas and sewer lines), heating, air conditioning, and electrical systems and equipment (including, without limitation, interior and exterior lighting and security systems), windows, floors, (including floor coverings such as, without limitation, tiles or carpeting) and all other items which constitute a part of the Building and the Premises. Tenant's obligation for repairs extends to repairs made after the Tenant has vacated the Premises which were necessary because of Tenant's use or occupancy of the Premises. If the Tenant refuses or neglects to commence such repairs or fails to diligently prosecute the same to completion within fifteen (15) days from the date on which Tenant receives written notice from Landlord of the need therefor, Landlord may make such repairs at the expense of Tenant and such expense plus fifteen percent for Landlord's cost of administration and overhead shall be collectible as Additional Rent hereunder. Tenant's repair obligations shall not extend to the exterior walls or roof except for any maintenance or repair thereto required due to the willful misconduct, gross negligence or negligence of Tenant, its employees, agents, invitees, assignees or subtenants. The foregoing notwithstanding, recognizing that the Term of this Lease is five (5) years, the following limitations shall apply to Tenant's obligation to replace (as opposed to repair, to which no limitation shall apply) all or any major component (as opposed to replacement of minor components in the course of normal maintenance and repair) of the plumbing (including without limitation, all filters, drains, water, gas and sewer lines), heating, air conditioning, and electrical systems and equipment (the "Building Systems"): (A) Tenant's obligations shall be limited to Twenty-Five Thousand Dollars ($25,000) in the aggregate per one year period during each one year period of the Term (as the same may be extended or renewed hereunder), provided that the unused portion of such annual limit shall carry forward cumulatively to each succeeding year of the Term to increase the limit for such succeeding year; (B) If, because the relevant dollar limit for Tenant's obligations under this Section 17 is exceeded in a given year, it becomes necessary for Landlord to contribute to the cost of replacing all or any major component of the Building Systems, Landlord shall pay Landlord's share of such cost, and such cost paid by Landlord shall be amortized by Landlord over a ten (10) year amortization period, with the monthly portion of such amortized cost charged to and paid by Tenant as Additional Rent hereunder. In the event that the amortization period exceeds the Term of this Lease (as the same may be extended, renewed, or earlier terminated hereunder), Tenant shall not be responsible for the balance of such amortized costs not yet charged as Additional Rent. 18. EMERGENCY REPAIRS. Landlord reserves the right to interrupt heating, air conditioning, plumbing, electrical, gas, or water service, and/or other services in the Building when in Landlord's reasonable judgment, such interruption is deemed necessary by reason of accident, or emergency or for repairs, alterations, replacements or improvements which Landlord is required to make hereunder. The foregoing notwithstanding, Landlord shall use its best reasonable efforts to avoid disrupting Tenant's use of the Premises for its intended purpose. 19. ASSIGNMENT AND SUBLETTING. Tenant, for itself, its successors, legal representatives and assigns, expressly covenants that Tenant shall not, either voluntarily or by operation of law, assign, transfer, mortgage or otherwise encumber this Lease or sublet the Premises or any part thereof or grant any license, concession or other right of occupancy, or permit any part thereof to be used or occupied by anyone other than Tenant without the prior written consent of Landlord, which consent shall not unreasonably be withheld or delayed. The foregoing notwithstanding, Landlord's consent shall not be considered unreasonably withheld if (i) the proposed subtenant's or assignee's financial resources are unacceptable to Landlord or any mortgagee of Landlord or (ii) based on the unacceptability to the Landlord (or any mortgagee of Landlord) of the proposed subtenant's or assignee's proposed use or business. If Tenant is a corporation, then any transfer of this Lease from Tenant by merger, consolidation or dissolution or any change in ownership or power to vote a majority of the voting stock in Tenant outstanding on the execution date of this Lease shall constitute an assignment for the purposes of this Section 19. As used in the previous sentence, the term "voting stock" shall refer to shares of capital stock regularly entitled to vote for the election of directors of the corporation involved. In the event of any assignment or sublease (to which Landlord consents in advance), Tenant shall not be released from its obligations under this Lease, notwithstanding any amendment, modification, supplement or extension thereafter made by Landlord with respect to this Lease. No consent given by Landlord to any assignment or subletting shall be construed to be a consent to any further assignment of this Lease or subletting of the Premises by Tenant or any other party, and Landlord's right to withhold its consent with respect thereto is hereby expressly reserved. In the event Tenant or any of its permitted assignees or subtenants should desire to assign this Lease or sublet the Premises or any part thereof, Tenant shall provide written notice thereof to Landlord at least thirty (30) days in advance of the date on which Tenant desires to make such assignment or sublease, which notice shall specify: (a) the name, address and business of the proposed assignee or sublessee, (b) the amount and location of the space in the Premises affected, (c) the proposed effective date and duration of the subletting or assignment, (d) a certified financial statement indicating the financial worthiness of the proposed assignee or subtenant, (e) a copy of the proposed sublease or instrument of assignment which shall include the proposed rent to be paid by said sublessee or assignee, and (f) any other information about the proposed assignee or sublessee as Landlord may reasonably request. Landlord shall have a period of fifteen (15) days following receipt of such notice within which to notify Tenant in writing that Landlord elects either (i) to terminate this Lease as to the space so affected as of the date so specified by Tenant, in which event Tenant shall on that date be relieved of all further obligations to pay Rent as to such space (such reduction in Rent to be prorated based on the rentable area of the remaining portion of the Premises); or (ii) to permit Tenant to assign this Lease or sublet such space; or (iii) to withhold Landlord's consent in reasonable discretion (subject to the qualifications in the foregoing paragraph) and to continue this Lease in full force and effect as to the entire Premises. If Landlord should fail to notify Tenant in writing of such election within said fifteen (15) day period, Landlord shall be deemed to have elected option (iii) above. The provisions of this Section shall be binding on all successive assignees and subtenants. Tenant may, without Landlord's consent, assign this Lease or sublet the Premises or any part thereof to any subsidiary or affiliate of Tenant, provided that prior to the effectiveness of such assignment or subletting, Tenant demonstrates to the satisfaction of Landlord that such subsidiary or affiliate has a net worth of not less than Forty Million Dollars ($40,000,000) and provided further that Tenant remains substantially in control of the operations of such subsidiary or affiliate for the duration of the Term of the Lease. For purposes of this Section 19, the terms "subsidiary" and "affiliate" shall be defined as any corporation or entity which controls Tenant, is controlled by Tenant, or is under the common control with Tenant by the same parent corporation or other entity. If such assignment or sublease is made, Tenant shall remain liable as a surety under the terms hereof notwithstanding such assignment or sublease unless otherwise agreed to by the parties. 20. INSPECTION. Landlord and its employees, servants and agents shall have the right to enter the Premises at all reasonable times upon reasonable notice (which notice may be oral) during business hours for the purpose of showing the same to prospective purchasers, mortgagees, or, within 12 months of the expiration of the Term of this Lease, to prospective tenants of the Premises, or for making such alterations, repairs, improvements or additions to the Premises or portions of the Premises which Landlord is required to make hereunder, or examining or inspecting the Premises in order to ascertain whether Tenant is complying with all of its obligations hereunder. Landlord shall be allowed to take all material into and upon the Premises that may be required therefor without the same constituting an eviction of Tenant in whole or in part, and the Rent shall in no way abate while said alterations, repairs, improvements or additions are being made, whether by reason of loss or interruption of Tenant's business or otherwise. If representatives of Tenant shall not be present to open and permit entry into the Premises at any time when such entry by Landlord is necessary or permitted hereunder, Landlord may enter by means of a master key (or forcibly in the event of an emergency) without liability to Tenant and without such entry constituting either an eviction of Tenant or termination of this Lease. 21. SURRENDER OF PREMISES. (a) At the end of the Term, or any renewal or extension thereof, Tenant shall surrender the Premises to Landlord, together with all alterations, additions, renovations and improvements thereto, in broom-clean condition and in good order and repair except for ordinary wear and tear and damages which Tenant is not obligated to repair hereunder and which Tenant or its servants, agents, employees, licensees or invitees has not caused, failing which Landlord may restore the Premises to such condition and Tenant shall pay the cost of said repair and restoration. If not then in default as to the payment of any Rent or Additional Rent due and owing hereunder, Tenant shall have the right at the end of the Term to remove any personal property and trade fixtures to the extent permitted in Section 12 hereof. Tenant's goods, effects, personal property, business and trade fixtures, machinery and equipment not removed by Tenant at the expiration or other termination of this Lease (or within forty-eight (48) hours after a termination by reason of Tenant's default) shall be considered abandoned and Landlord may dispose of the same as it deems expedient, but Tenant shall promptly reimburse Landlord for any expenses incurred by Landlord in connection therewith including without limitation the cost of removal thereof and repairing any damage occasioned by such removal. Tenant shall surrender the Premises to Landlord at the end of the term hereof, without notice of any kind, and Tenant waives all right to any such notice as may be provided under any laws now or hereafter in effect. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the Term of this Lease. (b) TENANT EXPRESSLY WAIVES TO LANDLORD THE BENEFIT TO TENANT OF 68 P.S. SECTION 250.501, BEING SECTION 501 OF THAT ACT, APPROVED APRIL 6, 1951, ENTITLED "LANDLORD AND TENANT ACT OF 1951", AS MAY BE AMENDED FROM TIME TO TIME, REQUIRING NOTICE TO QUIT UPON THE EXPIRATION OF THE TERM OF THIS LEASE OR AT THE EXPIRATION OF ANY EXTENSION OR RENEWAL THEREOF, OR UPON ANY EARLIER TERMINATION OF THIS LEASE, AS HEREIN PROVIDED. TENANT COVENANTS AND AGREES TO VACATE, REMOVE FROM AND DELIVER UP AND SURRENDER THE POSSESSION OF THE PREMISES TO LANDLORD UPON THE EXPIRATION OF THE TERM OR UPON THE EXPIRATION OF ANY EXTENSION OR RENEWAL THEREOF, OR UPON ANY EARLIER TERMINATION OF THIS LEASE, AS HEREIN PROVIDED, WITHOUT SUCH NOTICE, IN THE CONDITION AS REQUIRED ABOVE. 22. WAIVER OF CLAIMS. Landlord and Landlord's agents, servants and employees shall not be liable for, and Tenant hereby releases Landlord, its agents, servants and employees from, all liability in connection with any and all loss of life, personal injury, damage to or loss of property, or loss or interruption of business occurring to Tenant, its agents, servants, employees, invitees, licensees, visitors or any other person, firm, corporation or entity, in or about or arising out of, in or upon the Premises, including, without limitation, (a) any fire, other casualty, accident, occurrence or condition; (b) any defect in or failure of (i) plumbing, sprinkling, electrical, heating or air conditioning systems or equipment, or any other systems and equipment, and (ii) the stairways, railings or walkways; (c) any steam, gas, oil, water, rain, frost, ice, snow or flooding that may leak into, issue or flow from any part of the Premises or from the drains, pipes or plumbing, sewer or other installation of same, or from any other cause, place or quarter; (d) the breaking or disrepair of any services, installations and equipment; (e) the falling of any fixtures or any wall or ceiling materials; (f) broken or dislodged glass; (g) patent or latent defects; (h) the carrying out of any construction work or repairs; (i) the exercise of any right by Landlord under the terms of this Lease; (j) any acts or omissions of other persons; (k) any acts or omissions of Landlord, its agents, servants, and employees excepting an act of negligence by any such person; (l) acts or omissions of third party contractors, and (m) theft, act of God, act of a public enemy, injunction, riot, strike, labor dispute, public demonstration, insurrection, war, court order, or any order of any governmental authority having jurisdiction over the Premises. 23. SPRINKLERS. If any sprinkler system or other fire prevention, detection, or suppression system installed in the Building or any of its appliances shall be damaged or destroyed by a cause other than fire or other casualty described in Section 25 and by reason of any act or omission of Tenant or of Tenant's agents, servants, employees, contractors, licensees or invitees; or if the Board of Fire Underwriters of any bureau, department or official of the state or city government having jurisdiction shall require or recommend that any changes, modifications, alterations, or additional sprinkler heads or other fire prevention, detection, suppression system or other equipment be installed, made or supplied by reason of Tenant's business, or by any changes in the location of partitions, trade fixtures, or other contents of the Premises or if any such changes, modifications, alterations, additional sprinkler heads or other such equipment become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the initial insurance rate as fixed by the appropriate board or authority, or by a fire insurance company, then, in any such event Tenant shall be liable for the cost of installing, repairing or replacing as the case may be, any such applications or equipment, and the cost of any such installation, changes, modifications, alterations, additional sprinkler heads or such other equipment. 24. INDEMNIFICATION AND LIABILITY. Tenant shall protect, defend, indemnify, and hold harmless Landlord from and against any and all costs, expenses (including attorneys' fees), liabilities, losses, damages, suits, actions, fines, penalties, claims or demands of any kind arising out of or in any way connected with, and Landlord shall not be liable to Tenant on account of (i) any failure by Tenant to perform any of the agreements, terms, covenants or conditions of this Lease required to be performed by Tenant, (ii) any failure by Tenant to comply with any statutes, ordinances, laws, rules, regulations or orders of any governmental authority, (iii) any act or omission of Tenant or any of its servants, employees, agents, contractors, invitees or licensees, (iv) any accidents, death or personal injury occurring in, on or about the Premises, or (iv) Tenant's use or occupancy of the Premises. 25. FIRE OR OTHER CASUALTY. (a) In the event that the Premises shall be damaged in whole or in part as a result of the fault or neglect of Tenant or any of its servants, employees, agents, contractors, invitees or licensees, then Tenant at its own expense shall promptly repair and restore the same, and the Rent shall not be abated or apportioned. Any election by Landlord to repair or restore the Premises or any portion thereof after any damage caused in whole or in part by the fault or neglect of Tenant or any of its servants, employees, agents, contractors, invitees or licensees shall not relieve Tenant of any responsibility under this Lease. (b) In the event that the Premises shall be damaged by fire or other casualty without the fault or neglect of Tenant or its servants, employees, agents, contractors, invitees or licensees, and Tenant shall not have the obligation to repair or restore the same as provided in subsection (a) above, then, if the same can be restored within one-hundred eighty (180) days after such casualty, Landlord shall commence the restoration of the same promptly upon settlement of such loss with all insurance carriers and shall diligently complete the same, subject to delays as provided in Section 36 of this Lease, and this Lease shall remain in full force except that Rent shall abate with respect to the unusable portion of the Premises, as described below. In the event that Landlord shall not have completed the restoration as aforesaid within one hundred eighty (180) days after such casualty, subject to delays as provided in Section 36 of this Lease, then Tenant shall have the right to terminate this Lease as its sole remedy against Landlord. In no event shall Tenant have any right to terminate this Lease if such damage is caused in whole or in part by the fault or neglect of Tenant or any of its servants, employees, agents, contractors, invitees or licensees. Except as provided in subsection (a), in the event of damage or destruction to the Premises in accordance with this Section 25(b), Rent shall be apportioned during the period of any restoration according to the part of the Premises which is usable by Tenant (and shall abate with respect to the unusable portion of the Premises) and Rent shall recommence upon the completion of such restoration by Landlord. (c) In the event of any fire or other casualty, all of Tenant's insurance proceeds payable as a result of such casualty (other than proceeds as a result of damage to Tenant's personal property which Tenant is entitled by this Lease to remove upon the expiration of the Term) shall be paid directly by Tenant's insurer to Landlord and Tenant hereby assigns the same to Landlord and authorizes and directs such insurer to make such payments directly to Landlord. Tenant shall name Landlord as the principal loss payee on all casualty insurance policies of Tenant with respect to the Premises or the contents thereof. In the event that this Lease shall be terminated as provided in this Section, Landlord shall have the right to all insurance proceeds assigned to Landlord pursuant to this subsection. In the event that this Lease shall not be so terminated, Landlord shall have the right to retain such proceeds to the extent required by Landlord to defray the cost of restoration of the Premises as provided in subsection (b) above. 26. INSURANCE. Tenant shall, at its own cost and expense, obtain or cause to be obtained, insurance policies naming the Landlord and any mortgagee of Landlord as a direct loss payee or additional insured, as appropriate, under said policies insuring against such risks, and in such amounts, as follows: (i) Broad perils coverage, including flood and earthquake coverage as appropriate, at all times in an amount equal to 100% of the full replacement cost and full insurable value of the Premises, exclusive of excavations and foundations, with such insurance to provide for unqualified replacement cost claim recovery; (ii) Boiler and Machinery coverage at all times in an amount equal to 100% of the full replacement cost and full insurable value of the Premises insuring against all losses and damages arising from such occurrences not covered by All Risk coverage including the explosion of a boiler or similar steam generating vessel; (iii) comprehensive general liability insurance with a minimum limit of $2,500,000 per person and $5,000,000 per occurrence, and property damage coverage with a minimum limit of $2,500,000; (iv) Worker's Compensation Coverage and any other type of insurance required by the laws of the Commonwealth of Pennsylvania; and (v) rental and business interruption insurance covering expenses of operating the Premises for a period of not less than 12 months following any damage to or destruction of the Premises. All of the insurance policies (including endorsements) required hereunder (i) shall expressly provide that the coverage shall not be materially changed, reduced or canceled absent thirty (30) days' prior written notice to the Landlord; (ii) shall be limited to insure Landlord's insurable interest alone (and not that of Tenant) or if said policies are to include the insurable interest of Tenant, shall contain an endorsement to the effect that Landlord's insurable interest shall not be reduced or invalidated by any act or neglect of Tenant or of any subtenant of the Premises, nor by the use of the Premises by such party for purposes more hazardous than are permitted by the policy; (iii) shall not contain any clause which would result in the insured thereunder being required to carry insurance with respect to the Premises or the property covered thereby, in an amount equal to a minimum specific percentage of the full replacement cost of such property in order to prevent the insured named therein from becoming a co-insurer of any loss under such policy; (iv) shall be issued by an insurer or insurers licensed in Pennsylvania as an insurance carrier within the state, and rated no less than "A, VIII" by the Best Key Rating Guide published by the A.M. Best Company; (v) shall contain a waiver of subrogation; and (vi) shall contain standard non- contributory mortgagee clauses in favor of and acceptable to any mortgagee of Landlord.. The Tenant shall provide the Landlord, within five (5) business days following Landlord's written request, with certificates of insurance evidencing the coverage provided by the insurers at such times as may be necessary (but in no event less than once each year) to show that insurance is being maintained as required by this Section 26. In the event Tenant shall fail to deliver to Landlord such certificates evidencing that such coverage is in full force and effect, Landlord may undertake to obtain such insurance and the full cost thereof shall be payable hereunder by Tenant as Additional Rent. 27. CONDEMNATION. In the event that the entire Premises is taken for any public or quasi-public use or purpose in eminent domain proceedings, or in the event the entire Premises is conveyed to a governmental authority or other entity having the power of eminent domain ("condemning authority") in lieu of such proceedings, this Lease shall terminate upon the date when the possession shall be surrendered to said condemning authority. Any prepaid Rent attributable to periods after such termination date shall be refunded to Tenant. Tenant shall not be entitled to share in or receive any part of such condemnation award or payment in lieu thereof, the same being hereby assigned to Landlord by Tenant; provided, however, that Tenant shall be entitled to seek its moving expenses so long as the same do not reduce any amount otherwise payable to Landlord. In the event eminent domain proceedings shall be instituted in order to take a portion of either the Premises or the Building, or if the grade of any street or alley adjacent to the Premises is changed so that, as a result of either such events, structural alteration or reconstruction of a portion of the Building is necessary or desirable in Landlord's judgment, Landlord may elect to terminate this Lease by giving Tenant not less than ninety (90) days' notice of termination prior to a termination date specified in such notice, and any prepaid Rent attributable to periods after such termination date specified in such notice shall be refunded to Tenant. If Landlord does not so elect to terminate this Lease, this Lease shall be and remain in full force and effect for the balance of its term, except that Rent shall be proportionately abated to the extent of any portion of the Building taken. In the event eminent domain proceedings shall be instituted in order to take a Material portion of the Building or the Premises, Tenant may elect to terminate this Lease by giving Landlord not less than ninety (90) days' notice of termination prior to a termination date specified in such notice, and any prepaid Rent attributable to periods after such termination date specified in such notice shall be refunded to Tenant; such notice shall be ineffective if, prior to the expiration of such 90 day period, Landlord agrees in writing to restore within 180 days from the date of such notice the portion of the Building or Premises taken, in which case, this Lease shall be and remain in full force and effect for the balance of its term, except that Rent shall be proportionately abated to the extent of the portion taken until such restoration is completed. For purposes of this provision, a taking shall not be considered "Material" unless the taking (i) reduces the rentable square footage of the Building by more than 33% (ii) eliminates ingress or egress to and from the Premises, or (iii) eliminates more than 33% of the parking spaces on the Premises. If Tenant does not so elect to terminate this Lease, this Lease shall be and remain in full force and effect for the balance of its term, except that Rent shall be proportionately abated to the extent of any portion of the Building taken. Tenant shall not share in such condemnation award or payment in lieu thereof or in any award for damages resulting from any taking, the same being hereby assigned to Landlord by Tenant; provided, however, that nothing herein shall preclude Tenant from separately claiming and receiving from the condemning authority, if legally payable, compensation for the taking of Tenant's tangible property (exclusive of fixtures or leasehold improvements), for Tenant's removal and relocation costs and/or for Tenant's loss of business and/or business interruption, provided that such compensation does not reduce any compensation otherwise payable to Landlord. 28. SUBORDINATION AND ATTORNMENT. Tenant accepts this Lease subject and subordinate in all respects to all mortgages, liens and other encumbrances which may now or hereafter be placed on or affect the Premises or any part thereof, including without limitation subject and subordinate to the terms, rights, privileges and lien(s) thereof, irrespective of any obligations which may be secured thereby. Such subordination shall be self-operative, and no further instrument of subordination shall be required by any mortgagee. However, in confirmation of such subordination, within ten (10) days after request by Landlord, Tenant shall execute and deliver promptly any and all certificates or other written assurances which Landlord or any mortgagee of all or any part of the premises may request, designed to give effect to or provide evidence of the same. In the event of a sale in foreclosure of any mortgage to which this Lease is subordinate, or a transfer in lieu of foreclosure, or a taking of possession of the Premises by the mortgagee or other person acting for or through the mortgagee under any mortgage to which this Lease is subordinate, then, and upon the happening of any such events, Tenant shall attorn to and recognize the purchaser as the party who, but for this Lease, would be entitled to possession of the Premises. No holder of any mortgage shall, nor shall have the power to, join Tenant in any action to foreclose such mortgage, or in any other action or proceeding to enforce the rights of the holder of such mortgage, for the purpose of terminating Tenant's interest or estate under this Lease, and Tenant's right to possession shall not be disturbed thereby so long as Tenant is not in default hereunder. 29. ESTOPPEL CERTIFICATES. Tenant shall, at any time and from time to time, within a period of ten (10) days following written request from Landlord, execute, acknowledge and deliver to Landlord a written statement certifying (a) that a true and correct copy of this Lease is attached to such statement, (b) that this Lease is in full force and effect and unmodified (or, if modified, stating the nature of such modification and attaching a copy thereof), (c) the date to which the Rent reserved hereunder has been paid, (d) that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any give rise to claims hereunder, and (e) as to such other matters as Landlord or any prospective purchaser or mortgagee may reasonably request. Any such statement may be relied upon by Landlord and any prospective purchaser or mortgagee of all or any part of the Premises. Tenant's failure to deliver such statement within the said period shall be conclusive upon Tenant that this Lease is in full force and effect and unmodified, and that there are no uncured defaults in Landlord's performance hereunder. 30. EVENT OF DEFAULT. The occurrence of any of the following shall, at Landlord's option, constitute a material default and breach of this Lease by Tenant (an "Event of Default"): (a) A failure by Tenant to pay any Rent or Additional Rent when due hereunder, where such failure continues for five (5) days; (c) The filing of any lien against the Premises or any portion thereof or interest therein as a result of the act or omission of the Tenant which is not discharged or insured over or released within thirty (30) days thereafter; (d) A failure by Tenant to fully observe and perform the provisions or covenants of this Lease contained in Sections 10(c), 20, 21, 24, 26, 28 and 29 to be observed or performed by Tenant, where such failure continues for five (5) days after written notice thereof from Landlord to Tenant; (e) A failure by Tenant to fully observe and perform any other provision or covenant of this Lease to be observed or performed by Tenant, where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant or such longer period as is reasonably necessary to cure such failure, provided that Tenant diligently prosecutes the same to completion; or 31. ACCELERATED RENT. In the event of any Event of Default, the Rent reserved herein for the entire unexpired portion of the Term shall, at Landlord's option, thereupon immediately become due and payable. To the extent permitted by law, Tenant shall be obligated for such accelerated Rent regardless of which, if any, of the other remedies provided either in this Lease or by law the Landlord elects to pursue. 32. REMEDIES. In the event of any Event of Default, Landlord, at its option, may terminate this Lease upon and by giving written notice of termination to Tenant, or Landlord, without terminating this Lease, may at any time after an Event of Default, without notice or demand additional to that which may be required by Section 30 hereof, and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such Event of Default or breach, exercise any one or more of the remedies hereinafter provided in this Section or as otherwise provided at law or in equity, all of such remedies (whether provided herein or by law) being cumulative and not exclusive: (a) Landlord may enter the Premises (with or without process of law and without thereby incurring any liability to Tenant and without such entry being constituted an eviction of Tenant or termination of this Lease) and take possession of the Premises and all personal property of every kind on the Premises, and Landlord may (i) apply against the accelerated Rent and all other Rent or Additional Rent becoming due or payable to Landlord, and the expenses, including attorney's fees, which Landlord may have incurred in connection with such repossession, either the value of such personal property or the proceeds, after selling expenses, from the sale of such personal property, whichever Landlord chooses to do, and (ii) at any time at its option relet the Premises or any part thereof for the account of Tenant, for such terms, upon such conditions and at such rental as Landlord may elect. In the event of such reletting, (1) Landlord shall receive and collect the rent therefrom and shall first apply such rent against such expenses as Landlord may at any time or from time to time have incurred in recovering possession of the Premises, placing the same in good order and condition, altering or repairing the same for reletting, and such other expenses, commissions and charges, including attorney's fees, which Landlord may at any time or from time to time have paid or incurred in connection with such repossession and reletting, and then shall apply such rent against other sums payable by Tenant to Landlord hereunder, and (2) Landlord may execute any lease in connection with such reletting in Landlord's name or in Tenant's name, as Landlord may see fit, and the tenant of such reletting shall be under no obligation to see to the application by Landlord of any rent collected by Landlord, nor shall Tenant have any right to collect any rent under such reletting. No re-entry by Landlord shall be deemed to be an acceptance of a surrender by Tenant of this Lease or of the Premises. (b) Landlord may cure, at any time, without notice except as otherwise herein provided, any default by Tenant under this Lease; and whenever Landlord so elects, all costs and expenses incurred by Landlord in curing a default, including, without limitation, reasonable attorneys fees, together with interest on the amount of costs and expenses so incurred at the rate of 18% per annum which shall be paid by Tenant to Landlord on demand, and shall be recoverable as Additional Rent. (c) FOR VALUE RECEIVED AND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, OR UPON TERMINATION OF THE TERM OF THIS LEASE AND THE FAILURE OF TENANT TO DELIVER POSSESSION TO LANDLORD, TENANT, AT THE OPTION OF LANDLORD, AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR TENANT AND ANY OTHER PERSON CLAIMING UNDER, BY OR THROUGH TENANT, AND CONFESS JUDGMENT FORTHWITH AGAINST TENANT AND SUCH OTHER PERSONS AND IN FAVOR OF LANDLORD IN AN AMICABLE ACTION OF EJECTMENT FOR THE DEMISED PREMISES, WITH RELEASE OF ALL ERRORS. LANDLORD MAY FORTHWITH ISSUE A WRIT OR WRITS OF EXECUTION FOR POSSESSION OF THE DEMISED PREMISES WITHOUT LEAVE OF COURT, AND LANDLORD MAY, BY LEGAL PROCESS, WITHOUT NOTICE RE- ENTER AND EXPEL TENANT FROM THE DEMISED PREMISES, AND ALSO ANY PERSONS HOLDING UNDER TENANT. 33. WAIVER. The failure or delay on the part of either party to enforce or exercise at any time any of the provisions, rights or remedies in this Lease shall in no way be construed to be a waiver thereof, nor in any way to affect the validity of this Lease of any part hereof, or the right of either party to thereafter enforce each and every such provision, right or remedy. No waiver or any breach of this Lease shall be held to be a waiver of any other or subsequent breach. The receipt by Landlord of Rent at a time when the Tenant is in default under this Lease shall not be construed as a waiver of such default. The receipt by Landlord of a lesser amount than the Rent or Additional Rent due shall not be construed to be other than a payment on account of the Rent or Additional Rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of the Rent or Additional Rent due or to pursue any other remedies provided in this Lease. No act or thing done by Landlord or Landlord's servants, agents or employees during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such a surrender shall be valid, unless in writing and signed by Landlord. 34. QUIET ENJOYMENT. If and so long as Tenant pays the Rent or Additional Rent and observes and performs all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises for the Term and any renewal thereof, subject nevertheless to all of the provisions of this Lease. 35. SIGNS. Tenant shall not place, install or affix, or permit the placement, installation or fixation of any sign of any nature whatsoever which can be seen from outside the Building without first obtaining the written consent of Landlord. All such signs shall be installed and maintained by Tenant in compliance with all applicable laws, statutes, ordinances, rules and regulations of all governmental authorities and agencies and the RIDC Park. Any permitted signs installed on or about the Premises shall be removed at the expiration or sooner termination of the Term of this Lease and the Premises promptly repaired or restored to its original condition where such sign has been removed. Tenant shall pay all expenses, and all license and permit fees relating to the installation and maintenance of authorized signs, and shall pay all expenses of removal and costs of repairs resulting therefrom. 36. UNAVOIDABLE DELAY. In the event that either party shall be delayed or hindered in, or prevented from, the performance of any work, service or other act required under this Lease to be performed by the party and such delay or hindrance is due to strikes, lockouts, acts of God, governmental restrictions, enemy act, civil commotion, fire or other casualty, or other causes of a like nature beyond the control of the party so delayed or hindered, then performance of such work, service, or other act shall be excused for the period of such delay and the period for the performance of such work or other act shall be extended for a period equivalent to the period of such delay. In no event shall such delay constitute a termination of this Lease. The provisions of this Section shall not operate to excuse Tenant from the prompt payment of any Rent or Additional Rent due and owing under this Lease. 37. CORPORATE AUTHORITY. If Tenant is a corporation (or partnership), each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this lease on behalf of said corporation (or partnership) in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the bylaws of said corporation (or under the pertinent partnership agreements) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. 38. SUCCESSORS. The respective rights and obligations provided in this Lease shall bind and shall inure to the benefit of the parties hereto, their legal representatives, heirs, successors and permitted assigns; provided, however, that no rights shall inure to the benefit of any successor of Tenant unless Landlord's written consent for the transfer to such successor has first been obtained to the extent required by this Lease. 39. GOVERNING LAW. This Lease shall be construed, governed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 40. SEPARABILITY. If any provision of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall in no way be affected or impaired and such remaining provisions shall remain in full force and effect. 41. CAPTIONS. Marginal captions, titles and exhibits to this Lease are for convenience and reference only and are in no way to be construed as defining, limiting or modifying the scope or intent of the various provisions of this Lease. 42. PERSONS; GENDER. As used in this Lease, the word "person" shall mean and include, where appropriate, an individual, corporation, partnership or other entity; the plural shall be submitted for the singular, and the singular for the plural, where appropriate; and words of any gender shall mean to include any other gender. 43. NOTICES. Any bill, statement, notice or communications required or permitted hereunder shall be deemed sufficiently given if sent by certified mail, return receipt requested, postage prepaid, or by nationally recognized overnight delivery service, or by telefacsimile transmission with an original counterpart to follow by one of the foregoing methods (provided that the failure to deliver an original counterpart shall not affect the validity or effect of the communication hereunder) and addressed as follows: To Landlord: Robinson Properties, L.P. 6507 Wilkins Avenue Pittsburgh, Pennsylvania 15217 Fax: (412) 661-4645 Attention: Mr. Stephen G. Robinson With a copy to: Jeffrey B. Markel, Esquire Cohen & Grigsby, P.C. 2900 CNG Tower 625 Liberty Avenue Pittsburgh, PA 15222 Fax: (412) 391-3382 To Tenant: United Stationers Supply Co. 2200 East Golf Road Des Plaines, IL 60016 Fax: (708) 699-0891 Attention: President With a copy to: 2200 East Golf Road Des Plaines, IL 60016 Fax: (708) 699-0891 Attention: General Counsel and addressed to Tenant and delivered at the Premises after the Commencement Date of this Lease. Either party may change its address for purposes of this Section 43 by written notice so given to the other party. Notice shall be deemed given when received (by facsimile transmission or otherwise) or when delivered to Tenant at the Premises. 44. BROKERS. Tenant represents and warrants that in this transaction it has dealt with no real estate broker other than Grubb & Ellis and that no one else has or will represent it in this transaction. 45. LEASE NOT AN OFFER. The submission of this Lease to Tenant should not be construed as an offer, nor shall Tenant have any rights with respect thereto unless and until Landlord shall execute this Lease and deliver the same to Tenant, which rights may be revoked by Landlord at any time prior to receipt by Tenant of this Lease duly executed by Landlord. 46. TIME OF THE ESSENCE. With respect to all acts of the Tenant required under or pursuant to this Lease, time is of the essence. 47. LANDLORD'S OBLIGATIONS. Landlord's obligations hereunder shall be binding upon Landlord only for the period of time that Landlord is the owner of the Premises; and, upon termination of that ownership, Tenant shall look solely to Landlord's successor in interest in the Premises for the satisfaction of each and every obligation of Landlord hereunder. 48. LANDLORD'S EXCULPATORY. Anything contained in this Lease to the contrary notwithstanding, Tenant agrees that in any judicial proceeding involving the collection of any judgment (or other judicial process) requiring the payment of money by Landlord or any partner, officer or employee of Landlord, Tenant shall look solely to the estate and property of Landlord in the Premises and to no other property or assets of Landlord, nor to any property of any partner in Landlord, nor shall any property of either the Landlord (with the exception of the Premises) or any partner, officer or employee of Landlord become subject to levy, execution, attachment or other enforcement procedures for the satisfaction of Tenant's remedies. In addition, Tenant covenants and agrees that no personal liability or responsibility is assumed by, nor shall at any time be asserted or enforceable against, any partner, officer, or employee of Landlord on account of any covenant, undertaking or obligation under or with respect to this Lease, all such personal liability and responsibility, if any, being expressly waived and released. 49. COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and expense, comply and take all action necessary to comply with all laws, orders, ordinances, regulations and rules all governmental authorities, including the local Board of Fire Underwriters, having jurisdiction with respect to the occupancy, use or manner of use of the Premises. Tenant shall give Landlord prompt notice of any violation or recommendation of change of which it shall have received notice from any such authority. Tenant shall obtain, if required, maintain and comply with any and all licenses and permits issued by governmental authorities, including a Certificate of Occupancy, which are necessary in connection with or in any way related to the use, or occupancy of the Premises. Tenant shall not do or permit to be done any act or thing which will invalidate or be in conflict with any Certificate of Occupancy for the Building. The foregoing notwithstanding, Landlord shall, if and when required pursuant to a final, unappealable order of a court or other governmental authority, make all readily achievable barrier removal or provide readily achievable access alternatives so required in order for the Building and the Premises to comply with Title III of the Americans with Disabilities Act ("ADA") except to the extent that such actions are required as a result of Tenant's use thereof. Tenant covenants, represents and warrants to Landlord that Tenant shall not use the Premises as a "place of public accommodation" as defined by the ADA (or the substantially equivalent term under any similar state statute). 50. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between Landlord and Tenant that the respective parties hereto shall and hereby do waive trial by jury (unless such waiver would preclude a right to counterclaim) in any action or proceeding brought by either of the parties hereto against the other (except for proceedings involving either personal injury or property damages) on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of said Premises, and any emergency statutory or any other statutory remedy. 51. MODIFICATIONS. This Lease, including Exhibit A attached hereto, contains all of the agreements, conditions, understandings, representations and warranties made between the parties hereto with respect to the subject matter hereof and may not be modified orally or in any manner other than by an agreement in writing signed by both parties hereto or their respective successors in interest. 52. OPTION TO RENEW. Provided that no Event of Default by Tenant shall be continuing under this Lease, Tenant is hereby granted one (l) option to renew this Lease on the same terms and conditions (except as hereinafter provided) as contained in the other provisions of this Lease, such option being for a term of five (5) years ("option period"), commencing immediately after the expiration date of this Lease referred to in Section 2 hereof. Tenant may exercise the foregoing option only by rendering written notice to Landlord no later than nine full calendar months prior to the expiration date of the original Term. Provided that no Event of Default shall then exist, the Term of the Lease shall thereupon be extended for the duration of said option period upon Landlord's receipt of valid notice from Tenant as described above. The Base Rent during the option period shall be as follows: (a) For the period commencing February 1, 2001 through and including January 31, 2006, the sum derived by multiplying One Million, Six Hundred Sixty- Two Thousand, Four Hundred Seventy-Six and 00/100 Dollars ($1,662,476) (being $3.95 per annum per square foot of rentable area in the Building) (the "Base Rent") by the CPI Adjustment (as defined below) which sum shall be due and payable in sixty equal monthly installments during the option period; provided, however, that in no case shall the Base Rent be less than $1,662,476. In calculating the CPI Adjustment, Landlord may rely on the relevant Consumer Price Index (defined below) information as reported by the Bureau of National Affairs ("BNA"), Commerce Clearing House ("CCH"), Prentice-Hall ("P-H") or other nationally recognized consumer or labor reporting service. (b) When used in this Lease, the following terms shall have the following meanings: (1) "CPI Adjustment" shall mean that fraction of which the numerator shall be the Consumer Price Index as announced and in effect for the month of January, 2001, and the denominator of which shall be the Consumer Price Index (as defined below) for month of January, 1996. (2) "Consumer Price Index" shall mean the Consumer Price Index, All Urban Consumers (U.S. City Average; yearly average; 1982-84 = 100) being publicly announced or reported for the month and year in question and as compiled by the United States Department of Labor Bureau of Labor Statistics. If said CPI should in the future be compiled on a different basis, appropriate adjustments shall be made for purposes of said computations. If the United States Department of Labor Bureau of Labor Statistics no longer compiles and publishes the Consumer Price Index, any comparable index published by any other branch or department of the federal government, or the statistics reflecting cost of living changes, as compiled by any institution, organization or individual, generally recognized as an authority by financial and insurance institutions, shall be used as a basis for such adjustments. 53. UNCONDITIONAL OBLIGATION. The obligation of Tenant to pay all Rent and Additional Rent and other sums as provided hereunder and the obligation of Tenant to perform Tenant's covenants and duties hereunder, constitute independent and unconditional obligations to be performed at all times provided for hereunder. Tenant waives and relinquishes all rights which Tenant might have to claim any nature of lien against or withhold, or deduct from or offset against, any rental and other sums provided hereunder to be paid to Landlord by Tenant. 54. JOINT AND SEVERAL LIABILITY OF TENANTS Intentionally omitted. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and date as first above written. TENANT: WITNESS: UNITED STATIONERS SUPPLY CO. _____________________________ By_____________________________ Title:_________________________ LANDLORD: WITNESS: ROBINSON PROPERTIES, L.P., a Pennsylvania Limited Partnership _____________________________ By_____________________________ Title:_________________________ STATE OF ILLINOIS ) ) SS: COUNTY OF COOK ) On this, the _____ day of January, 1996, before me, the undersigned officer, personally appeared _______________________, who acknowledged himself to be the ____________________ of UNITED STATIONERS SUPPLY CO., an Illinois corporation, and that he as such _________________________, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as ________________. In witness whereof, I hereunto set my hand and official seal. Sworn to and subscribed to before me this _____ day of January, 1996. ______________________________ Notary Public My Commission Expires: COMMONWEALTH OF PENNSYLVANIA ) ) SS: COUNTY OF ALLEGHENY ) On this, the _____ day of January, 1996, before me, the undersigned officer, personally appeared Stephen G. Robinson, who acknowledged himself to be the Managing General Partner of Robinson Properties, L.P., a limited partnership, and that he as such Managing General Partner, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the limited partnership by himself as Managing General Partner. In witness whereof, I hereunto set my hand and official seal. Sworn to and subscribed to before me this _____ day of January, 1996. _______________________________ Notary Public My Commission Expires: EX-10.97 15 REAL ESTATE AGREEMENT Exhibit 10.97 REAL ESTATE AGREEMENT --------------------- THIS AGREEMENT is made this 9th day of January, 1996, by and between UNITED STATIONERS SUPPLY CO., an Illinois corporation ("Seller") and SEID STREET, LTD., an Ohio limited liability Company ("Purchaser"). The parties agree as follows: 1. Premises. Seller shall sell to Purchaser and Purchaser shall purchase from Seller, at the price and on the terms and conditions set forth herein, fee simple marketable title (subject to Permitted Exceptions hereinafter defined) in and to certain improved real property, consisting of approximately 24 acres, more or less, together with improvements thereon or attached thereto, including, but not limited to, a certain warehouse/office building of approximately Two Hundred Thirty-Three Thousand (233,000) square feet, and all easements, rights and privileges appurtenant thereto, including all right, title and interest of Seller in and to any land lying in the bed of any street, road or avenue opened or proposed in front of or adjoining the premises, and all riparian rights, said premises being commonly known as 9450 Allen Drive, Valley View, Cuyahoga County, Ohio, as described in Exhibit A attached hereto and by this reference made a part hereof ("Premises"). 2. Purchase Price. Purchaser shall pay Seller the sum of Five Million Nine Hundred Sixty-Eight Thousand Dollars ($5,968,000.00) for the Premises ("Purchase Price"). The Purchase Price shall be paid to Seller as follows: (a) Concurrently with the execution of this Agreement, Purchaser shall deposit into escrow with Continental Title Agency Corp. ("Escrow Agent") the sum of Fifty Thousand Dollars ($50,000.00) on account of the Purchase Price (the "Earnest Money"). The Earnest Money will be deposited into an interest-bearing account for the benefit of Purchaser. (b) Upon satisfaction of the conditions specified in Section 3(a) and (b) below, Purchaser shall deposit with the Escrow Agent the additional sum of Fifty Thousand Dollars ($50,000.00) on account of the Purchase Price (the "Additional Earnest Money"). The Additional Earnest Money will be added to the interest- bearing account described in Section 2(a) above. (c) Purchaser shall pay the balance of the Purchase Price, plus or minus applicable adjustments and prorations, at Closing in cash, cashier's check or wire transfer, as the parties shall agree. 3. Conditions Precedent to Closing. Purchaser's obligations hereunder are subject to the satisfaction of the following conditions: (a) Within forty-five (45) days after the date of this Agreement, Purchaser shall have the right to conduct such 2 engineering, environmental, and feasibility studies, including soil tests, borings, drainage tests and similar tests on the Premises as Purchaser deems necessary to determine the suitability of the Premises for Purchaser's proposed use, and Purchaser shall have determined, in its reasonable discretion, that the Premises are suitable for Purchaser's proposed use. Such studies shall be conducted by Purchaser at its sole cost and expense. Seller agrees to allow Purchaser reasonable access to the Premises to conduct such studies. In the event Purchaser is not satisfied, then Purchaser may terminate this Agreement by giving written notice thereof to the Seller and to the Escrow Agent, in which event all funds and documents deposited by the parties with the Escrow Agent or each other shall be returned forthwith to the party who so deposited the same and the parties shall thereupon be released from any further obligations hereunder each to the other. The parties acknowledge, however, that in the event Purchaser is satisfied and/or this condition precedent is waived, nothing contained herein shall be construed as prohibiting Purchaser from reasonable access to the Premises or from conducting additional studies, review and tests after the expiration of the aforesaid 45-day period provided such access shall not interfere with Seller's normal operations in the conduct of its business. Purchaser shall save, defend, indemnify, and hold Seller harmless from and against all claims, lawsuits, judgments, losses, liabilities, or expenses of any kind 3 or nature which may be incurred by Seller as the result of Purchaser's examination, tests, or studies on the Premises (excluding the discovery of any preexisting condition on the Premises). The obligations of Purchaser imposed by the preceding sentence shall survive any termination of this Agreement and shall survive Closing; (b) Within seventy-five (75) days of the date of this Agreement, Purchaser shall have received a commitment for a first mortgage loan on the Premises in the amount of not less than Five Million Two Hundred Thousand Dollars ($5,200,000.00) or such lesser amount as Purchaser shall accept, with an interest rate and on terms reasonably acceptable to Purchaser. If Purchaser makes a good faith effort but is unable to obtain a commitment for the mortgage loan contemplated herein, or reasonably believes that it cannot comply with the terms and conditions of such commitment, Purchaser will so notify Seller in writing within the time specified, indicating the interest rate and terms which would be acceptable to Purchaser. If Seller is not so notified within said seventy-five (75) days, Purchaser shall for all purposes be deemed to have secured such commitment or to have agreed to purchase the Premises without financing or based upon any mortgage commitment actually obtained. If Seller is so notified, Seller may, at Seller's option, within thirty (30) days after said notice, elect to provide purchase money financing or to secure a mortgage 4 commitment on behalf of Purchaser upon the same terms and conditions previously indicated by Purchaser as being acceptable. In such case, Purchaser agrees to furnish Seller all requested credit and financial information and to sign commercially reasonable papers relating to application for such mortgage commitment. If Seller is unable or unwilling to secure such commitment or to accept purchase money financing, this Agreement shall be of no further force and effect, and the Earnest Money shall be returned to Purchaser. (c) The conditions of the title to the Premises and survey matters shall have been approved by Purchaser in accordance with the procedure set forth in Sections 11 and 12. (d) Prior to Closing, Purchaser shall have received an executed original of Seller's certification of nonforeign status made pursuant to Section 1445 of the Internal Revenue Code and in a form substantially similar to Exhibit B attached hereto and incorporated by this reference; (e) Prior to Closing and after satisfaction of the conditions set forth in Sections 3(a) and (b) above, Seller agrees that the Purchaser shall have the right to file, at Purchaser's sole cost and expense, any and all plans required in order to obtain a building permit, zoning or rezoning, subdivision or lot split, or any other approval or permit from any and all governmental authorities having jurisdiction over the Premises. 5 Seller agrees that, upon Purchaser's request, Seller shall join in the execution of any application or plat required in order to obtain such permit or approval, and that Seller otherwise shall cooperate with Purchaser with respect to any permit or approval process. Without limiting the foregoing, Seller also agrees that it will not institute any legal proceedings against Purchaser and/or any governmental authority in opposition to any building permit, zoning or rezoning, subdivision, lot split or other approval or permit sought by Purchaser with respect to the Premises. (f) Purchaser shall have the periods specified in Sections 3(a) and (b) in which to determine whether the conditions set forth therein are satisfied and, in the case of the condition of title and survey matters, the periods set forth in Sections 11 and 12. If any of such conditions are not satisfied, in the reasonable judgment of Purchaser, Purchaser may terminate this Agreement upon written notice to Seller within the applicable time, (subject to the right of Seller, if it elects, to seek to obtain or provide financing in accordance with Section (3)(b)). Absent such written notice to Seller, Purchaser shall be deemed to have waived all unsatisfied conditions and shall proceed to close this transaction. 4. Risk of Condemnation and Loss (a) if any governmental entity or any other entity with the power of condemnation gives Seller notice that it intends to 6 commence condemnation of or commences condemnation for all or any portion of or interest in the Premises or improvements thereto, Seller shall immediately notify Purchaser of such event. In such event, Purchaser may, at its option within ten (10) days of receipt of such notice from Seller, terminate this Agreement and neither party shall have any further rights or obligations under this Agreement, except as provided in Section 22. Should Purchaser elect not to exercise the foregoing option to terminate this Agreement, Seller shall appoint Purchaser as its agent to conduct all negotiations with the condemning party and, at Closing, shall assign to Purchaser all of its rights against the condemning party or proceeds received from the condemning party. In such case, the sale provided for herein shall be closed without reduction in or adjustment to the Purchase Price. (b) All risk of loss or damage to the Premises from fire or other casualty shall remain with the Seller to the date of transfer of title. If, prior to Closing, the Premises or any portion thereof, is totally or partially damaged by any casualty, Seller shall promptly so notify Purchaser, and Purchaser shall, to the extent that the cost of repair of the damage equals or exceeds Fifty Thousand Dollars ($50,000.00), have the right, for a period of ten (10) days after receipt of such notice, to terminate the Agreement by written notice to Seller. If the Agreement is terminated pursuant to this Section 4(b), neither party hereto 7 shall be liable to the other hereunder, except for Purchaser's obligations under Section 3(a) (if still appropriate in light of the scope of damage) and this Agreement shall be null and void. If Purchaser shall not terminate this Agreement or if there shall be damage to the Premises not in excess of Fifty Thousand Dollars ($50,000.00), the parties shall proceed to Closing, in which event Purchaser shall be entitled to a credit against the Purchase Price in an amount equal to the cost of restoring the Premises to a condition substantially equivalent to that which existed immediately prior to the occurrence of the casualty (as calculated by a reputable contractor or engineer retained by Purchaser and reasonably acceptable to Seller). Notwithstanding the above, the Closing Date shall be postponed (by no more than sixty (60) days) if Purchaser's mortgagee so requires in order to insure that the provisions of this Section shall be complied with by the parties. (c) Seller covenants and agrees to maintain insurance coverage on the Premises in an amount of not less than the Purchase Price through the Closing Date, and to cooperate with Purchaser in the event of the occurrence of any casualty described in Section 4(b). 5. Taxes and Assessments: Closing Costs. (a) Real estate taxes, general and special ("Taxes") (and personal property taxes, utilities, and other similar items, if any) shall be prorated between the parties as of the date of 8 Closing, such that credits and charges for the Closing Date and all days preceding the Closing Date shall be allocated to Seller, and credits and charges for all days after the Closing Date shall be allocated to Purchaser. The Purchase Price shall be adjusted at the Closing to reflect the prorations. (b) If the actual amount of Taxes is not known on the Closing Date, Taxes shall be prorated on the basis of the last available certified duplicates and rates, with Seller and Purchaser re-prorating Taxes upon issuance of the actual tax bills. All special assessments, reassessed assessments, and/or respread Taxes upon the Premises shall be paid out of Seller's funds at Closing. (c) If any errors or omissions are made regarding adjustments and prorations as aforesaid, the parties shall make the appropriate corrections promptly upon the discovery thereof. If any estimations are made at the Closing regarding adjustments or prorations, the parties shall make the appropriate correction promptly when accurate information becomes available. Any corrected adjustment or proration shall be paid in cash to the party entitled thereto. (d) Seller shall not assign any policies of liability or property damage insurance covering the Premises. No insurance premiums shall be prorated. Purchaser shall pay for recording fees and for one-half of any Closing fees, including escrow fees. Transfer taxes and assessments, deed stamps and one-half of any 9 Closing fees, including escrow fees, shall be paid by Seller. Each party shall pay its own attorneys' fees and all expenses incurred by it other than expenses specifically enumerated in this Section 5. 6. Deed. Subject to Purchaser's review and acceptance of Title Evidence defined in Section 11 hereinafter, Seller shall convey the Premises to Purchaser by general warranty deed (the "Deed") conveying good and marketable, indefeasible fee simple title to the Premises subject only to the following (collectively the "Permitted Exceptions"): a. Building and zoning laws, ordinances, state and federal regulations; b. Current real estate taxes and special assessments; c. Rights-of-way, easements, restrictions, reservations and mineral rights of record (which are approved by Purchaser pursuant to Section 11 hereof); d. Acts done or suffered or judgments against Purchaser or any person claiming by, through or under Purchaser. Such deed shall contain a legal description of the Premises which is based upon and consistent with the survey of the Premises provided for in Section 12. In addition to the obligations required to be performed hereunder by Seller at the Closing, Seller agrees to perform such other acts, and/or to execute and deliver to Purchaser such 10 further instruments, documents and other materials, as are reasonably requested by Purchaser at or subsequent to Closing in order to effectuate the consummation of the transaction contemplated herein and to vest title to the Premises in Purchaser, including, without limitation, the assignment of all rights of Seller in and to any easements for the benefit of the Premises; provided, however, that the foregoing instruments and other materials, if any, shall not enlarge the scope of Seller's liabilities hereunder. 7. Possession. Purchaser shall be entitled to possession of the Premises at Closing. The Premises shall be delivered in substantially the same condition of repair and working order as at the date of signing this Agreement, free of debris and in broom-clean condition. If the Premises are not so delivered to Purchaser, Seller agrees to reimburse Purchaser for the cost of making such repairs and cleaning as necessary to achieve such condition of the Premises. Prior to Closing, Seller shall have removed from the Premises all personal property stored or in use thereon which belongs to Seller or others that is not to be conveyed to Purchaser under the terms of this Agreement (the "Excluded Personalty). If Seller fails to remove such Excluded Personalty prior to Closing, Purchaser may remove and dispose of such 11 Excluded Property as it sees fit, and it may recover its costs of doing so from the Seller. Purchaser represents that it has investigated the Premises and/or will have further investigated the Premises pursuant to Section 3(a) above to Purchaser's satisfaction. Except as otherwise provided in this Agreement, Purchaser agrees that the Premises are being sold in its present condition "AS IS". 8. Closing. The term "Closing" as used in this Agreement means the payment by Purchaser to Seller of the Purchase Price and the delivery by Seller to Purchaser of the Deed. Unless otherwise agreed by the parties, Closing shall take place on July 1, 1996, at 10:00 a.m. Cleveland time. This transaction shall be closed through an escrow that is to be held by Continental Title Agency Corp. (also sometimes referred to herein as the "Title Company"), in accordance with the general provisions of the usual form of escrow agreement then in use by such Title Company for transactions similar to this with such special provisions inserted as may be required to conform with this Agreement. Each party shall execute and deliver on a timely basis all escrow instructions, deeds, funds, and other documents reasonably necessary to accomplish Closing. In addition to, and not in limitation of, the foregoing: a. On or before the Closing Date, Seller shall execute items (i), (ii), (iii) and (iv) below and 12 deliver or cause to be delivered to the Title Company all of the items listed below: (i) The Deed; (ii) Any instruments then required pursuant to Section 6; (iii) Title Affidavits, if any, required by the Title Company; (iv) Seller's affidavit of non-foreign status, as contemplated by Section 1445 of the Internal Revenue Code of 1986, as amended; and b. On or before the Closing date, Purchaser shall deliver or cause to be delivered to Title Company all of the items listed below: (i) The balance of the Purchase Price, subject to the prorations as hereinafter provided. c. The transactions provided for in this Agreement shall be completed by the Title Company on the Closing Date by doing the following: (i) by delivering the Deed to Purchaser by filing the Deed for record in Deed Records of Cuyahoga County, Ohio (which shall be deemed delivery to Purchaser); (ii) by causing the issuance of the Title Policy, subject only to the Permitted Exceptions, and forwarding the Title Policy to Purchaser with a copy to Seller; (iii) by prorating taxes and assessments, in accordance with Section 5 with respect to the Premises, and paying and charging Purchaser and Seller for those costs and expenses to be paid by Seller and Purchaser pursuant to Section 11; 13 (iv) by delivering to Purchaser the FIRPTA Affidavit executed by Seller; and (v) by preparing and forwarding to both Purchaser and Seller two (2) signed copies of the Title Company's Settlement Statement setting forth all receipts and disbursements provided for herein. Purchaser shall, concurrent with Title Company's performance of the foregoing items, deliver to Seller (or cause to deliver, by instruction to its first mortgagee), in cash or by wire transfer, the Purchase Price less the full amount of Seller's closing costs under Section 5), the payoff of all mortgages, liens or other encumbrances which can be satisfied with the payment of money, and prorations and credits to which Purchaser is entitled. d. In the event the Title Company is unable to simultaneously perform all instructions set forth in Section 8(c)(i) through (v) on the Closing Date, the Title Company shall so notify Seller and Purchaser, and shall retain all documents deposited with the Title Company until receipt by the Title Company of written instructions executed by Seller and Purchaser or by a Court of competent jurisdiction. e. If either Purchaser or Seller (i) disapproves any condition referred to in this Agreement within the applicable time period and in the manner set forth in the Agreement, or (ii) is otherwise allowed to terminate this Agreement and cancel the 14 Escrow, without thereby committing an act of default under this Agreement or the Escrow and does so, all obligations of the parties under this Agreement shall, except as otherwise set forth, terminate and neither party shall have any further obligation to the other under this Agreement. In such event, Escrow Agent shall return all funds (after deducting its charges, if its charges are to be borne by the party depositing such funds) and documents then in Escrow to the party depositing same, and each party shall promptly return all documents in the possession of such party to the other party. If Escrow fails to close due to a breach of this Agreement by Seller, Seller agrees to promptly direct Escrow Agent to return the Escrow Deposit to Purchaser. f. In the event Escrow fails to close because of failure of Purchaser to comply with its obligations hereunder, the Escrow cancellation charges shall be paid by Purchaser. In the event Escrow fails to close because of failure of Seller to comply with its obligations hereunder, such costs shall be paid by Seller. In the event Escrow shall fail to close for any other reason, such costs shall be divided equally between the parties. g. Section 1445 of the Internal Revenue Code provides that the transferee of a United States real property interest must deduct and withhold a tax equal to ten percent (10%) of the amount realized by the transferor on the disposition, if the 15 transferor is a foreign person. Seller is not a foreign person, and the "FIRPTA" certification will be provided to Purchaser as provided for in Section 3(c) hereinabove. 9. Brokers. Purchaser warrants to Seller that, other than The Galbreath Company ("Galbreath"), no person or other entity of any sort is entitled to any commissions or other fees, broker's fee, finder's fee, or other payment by reason of the action of Purchaser in connection with this transaction, Seller warrants to Purchaser that, other than Grubb & Ellis ("Grubb"), no person or other entity of any sort is entitled to any commission, broker's fee, finder's fee, or any other payment by reason of the action of Seller in connection with this transaction. Upon and in the event of Closing, Seller shall pay a commission to Grubb in the total amount of One Hundred Thirty-Two Thousand Dollars ($132,000.00). Purchaser shall be responsible for any and all commission to be paid to Galbreath upon and in the event of Closing. Each party shall hold harmless, indemnify, and defend the other from and against all claims by parties other than The Galbreath Company and Grubb & Ellis for commissions or other fees which arise from or are based upon the actions of the indemnifying party and which constitute a violation of the indemnifying party's warranty contained in this Section 9. 16 10. Default. If Purchaser fails to close this transaction when and as required hereby, Seller may terminate this Agreement, in which case Seller shall be entitled to all remedies as Seller may have at law or in equity. If Seller fails to close this transaction in accordance with its terms, Purchaser may terminate this Agreement. The foregoing remedy shall be in addition to any other remedy Purchaser may have at law or in equity, including but not limited to the right of specific performance. 11. Title Commitment; Defects. a. The Seller shall cause the Title Company to issue and deliver its commitment (the "Commitment") for issuance of an ALTA owner's policy (Form B - revised 10-17-70) of title insurance covering the Premises in the full amount of the Purchase Price, which Commitment shall show marketable fee simple title to the Premises to be good in Seller. The Commitment shall show the results of a special tax search of the Premises. Copies of the Commitment, together with copies of each document affecting title to the Premises, shall be delivered to Purchaser not later than twenty (20) days after the date of this Agreement. The cost and expense of the Commitment shall be borne by the Seller. b. The Commitment and the Survey (as hereinafter defined in Section 12) are referred to as the "Title Evidence". Purchaser shall notify Seller of Purchaser's disapproval of any 17 matter contained in the Title Evidence within ten (10) days after Purchaser's receipt of all of the Title Evidence and copies of the documents referred to in the Title Evidence as exceptions or exclusions from coverage. If the Title Evidence is not satisfactory to Purchaser (Collectively, "Defects"), those Defects shall, as a condition to Purchaser's obligations under this Agreement, be cured or removed from the Title Evidence within thirty (30) days after notice to Seller of the item of Title Evidence disclosing the Defects, or at Closing if the Defects consist of mortgages, other security instruments or monetary liens that Seller intends to discharge and cancel at the Closing out of the Purchase Price. If Seller elects not to cure and remove all Defects, this Agreement may be terminated, at Purchaser's election, by written notice given to Seller within five (5) days after expiration of the period allowed for cure or Purchaser may, at Purchaser's sole election, proceed to close this transaction notwithstanding any Defects. Upon termination, the parties will be release from further liability hereunder, except for Purchaser's obligations, if any, under Section 3. c. Notwithstanding any provision of this Section 11 to the contrary, Seller shall have the obligation, on or prior to the Closing Date, to secure releases, discharges, or satisfactions, or otherwise cure at no cost to Purchaser, any Defect which is a lien for the payment of money only (except real 18 estate taxes and assessments which shall be prorated in accordance with Section 5), including, without limitation, all mortgages, any lien or encumbrance which may be released or discharged by the payment of a definite sum of money or any exception to title which arose after the date of this Agreement as the result of the act or violation of Seller or anyone claiming by, from, through or under Seller. d. It shall be a condition precedent to Purchaser's obligation to consummate the transaction contemplated hereby that the Title Company can and will, upon filing the instruments of conveyance of record, issue its ALTA owner's fee policy (Form B revised 10-17-70) of title insurance (the "Title Policy") in the full amount of the Purchase Price, at standard rates, insuring Purchaser as the owner in fee simple of the Premises subject only to the Permitted Exceptions, and without the exception for certain of the standard printed exceptions (encroachments, overlaps, boundary line disputes, or any other matters which would be disclosed by an accurate survey or inspection of the Premises, easements or claims of easements not shown by the public records, or any lien or right to a lien for services, labor, or materials furnished to the Premises, imposed by law, and not shown by the public records), unless and except to the extent that any such matters included in the so-called standard printed exceptions have been approved or waived by Purchaser. 19 The Title Policy shall also affirmatively insure: (i) Purchaser's right to use any appurtenant easements in accordance with their terms and conditions; (ii) contiguity of the parcels described in Exhibit "A" (if more than one parcel); (iii) that the Premises has the benefit of full and free ingress and egress, both pedestrian and vehicular, to and from a public highway, either directly or by a perpetual easement; and (iv) that the Premises is zoned for its intended purpose of an office, warehousing and distribution facility. Seller agrees to execute and deliver to the Title Company such affidavits and instruments as may be reasonably required to permit the Title Company to issue Purchaser's Title Evidence in the form required by this subsection and to provide a copy of such affidavits and instruments to Purchaser. The parties hereto agree that the Seller shall bear all of the cost of the Title Policy. e. Notwithstanding the foregoing, in no event shall the Closing take place later than September 1, 1996, unless a later date shall be mutually agreed upon by Seller and Purchaser. 12. Survey. Within sixty (60) days after the date of this Agreement, Seller shall cause a registered surveyor or professional engineer to prepare a survey (the "Survey") in form sufficient to enable the Title Company to delete from the Title Policy the so-called standard exception for matters disclosed by an accurate survey. If Purchaser so requests, a perimeter legal 20 description of the Premises as prepared by such surveyor or engineer shall be used to describe the Premises in the Deed. The cost and expense of such survey shall be borne by the Seller. The Survey shall include: (a) a full metes and bounds legal description of the Premises; (b) identification of all perimeter lines with distance, angles and monuments either set or found at each corner; (c) a statement of the total acreage contained in the Premises and specifically identifying the portion of the Premises and the acreage thereof in any public highway, right-of-way or dedicated street; (d) identification of all streets adjacent to the Premises, and further identification of all right-of-way lines, including for both their respective distance from the nearest intersection streets; (e) identification of all curb cuts, driveways and fences; (f) the location of all structures and improvements on the Premises; (g) identification of all utility lines servicing the Premises (including sewer, gas, electric and telephone), together with the recording information of all easements over private property through which such lines pass between the Premises and a properly dedicated and accepted street; (h) identification of all easements and rights-of-way either of record or visible on the ground which either benefit or burden the Premises, indicating for each recording information as to the volume and page of recording and date of recording, or stating that the easement is unrecorded; (i) identification of all front, rear and side building set-back lines; 21 (j) identification of all encroachments of the Premises onto adjoining land and all encroachments onto the Premises by improvements on adjoining land, or a positive statement that no encroachment exists; (k) the point of beginning of the legal description and the true point of beginning of the Premises and all calls of the legal description between them; and (l) a statement that no portion of the Premises is located within a flood plain or flood way area as designated by the U.S. Department of Interior, or indicating which portions are located within such flood plain or flood way. In the event the Survey discloses any encroachments, overlaps, boundary line disputes or any other matter affecting title to the Premises or which violates any law, rule, or regulation, such matter(s) shall be considered to be a Defect(s) and the relative rights and obligations of the parties with respect thereto shall be governed by the provisions of Section 11(b) hereof. 13. Environmental Matters. a. Purchaser shall cause a reputable environmental evaluation and/or consulting firm (the "Consultant") selected by Purchaser to conduct an environmental inspection and audit of the Premises (the "Audit"). The cost and expense of such Audit shall be borne by Purchaser. Purchaser and Seller shall cooperate to insure that the Audit is performed as soon as practicable and is completed no later than thirty-five (35) days from execution of this Agreement, and shall assist the Consultant in designing the 22 parameters of the Audit which shall include without limitation a view of the Premises, inquiry into present and past uses of the Premises, review of records of the United States Environmental Protection Agency, the Ohio Environmental Protection Agency, or other governmental entity having jurisdiction relating to environmental matters, field observations, determination of the integrity of any above-ground and underground storage or process tanks, and such additional investigation and testing as Purchaser and the Consultant shall agree are appropriate to determine if the Premises has been contaminated by, or contains any pollutant, industrial or other waste, or toxic or hazardous waste, substance or material, including but not limited to those defined, registered or listed as such pursuant to the Ohio Revised Code, Comprehensive Environmental Response Compensation and Liability Act or the Toxic Substances Control Act and any lead paint, asbestos or asbestos-containing material ("environmental condition"). In addition to providing any information reasonably requested by the Consultant, Seller shall cooperate with Purchaser and the Consultant throughout the course of the Audit and shall cooperate in any other way reasonably requested by Purchaser or the Consultant. Promptly upon completion of the Audit, the Consultant shall deliver a copy of the Audit to Purchaser. The report shall certify that an appropriate inquiry was made into the previous ownership and uses of the Premises 23 consistent with good commercial and customary practices, in an effort to minimize possible liability of Purchaser for an environmental condition. b. Purchaser shall have until 5:00 p.m. on the forty-fifth (45th) day from execution of this Agreement to accept or reject said Audit. If Purchaser rejects said Audit, Purchaser shall have the right to terminate this Agreement by giving Seller notice of such termination on or before 5:00 p.m. on such date. Thereafter, neither of the parties hereto shall be liable to the other hereunder and this Agreement shall be null and void except for Purchaser's obligations, if any, under Section 3(a). If Purchaser fails to terminate this Agreement within such forty-five (45) days or fails to complete or have the Audit completed within forty-five (45) days after the date hereof, then Purchaser shall be deemed to have accepted the environmental status of the Premises and this transaction shall proceed to Close in accordance with the terms and conditions contained herein. c. If required by Purchaser or its mortgagee, such Audit shall be updated (the "Update") by the Consultant at or prior to the Closing. If an adverse change has occurred between the date of the Audit and the completion of the Update, Purchaser shall have the rights afforded to it pursuant to Section 13(b) hereinabove. 24 14. Environmental Representations. As an inducement to Purchaser to purchase the Premises, Seller hereby represents to Purchaser that, to the best of Seller's knowledge: (a) Seller has not caused and will not cause, and there never has occurred during the time Seller has occupied the Premises, the release of any "hazardous substance" on the Premises as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; (b) Seller has not caused any lead paint, asbestos or asbestos- containing material to be placed on or under the Premises; (c) There are no underground storage tanks on or under the Premises; (d) The Premises are not subject to any federal, state, or local "Superfund" lien, proceeding claim, liability or action, or the threat or likelihood thereof, for the cleanup, removal, or remediation of any such "hazardous substance" from the Premises; (e) Seller has at all times complied with all applicable federal, state, and local environmental laws and regulations applicable to the Premises and the operations conducted thereon. 25 15. Additional Seller's Warranties and Representations. a. Seller hereby represents and warrants to Purchaser that, on the date hereof: (i) Seller is a Illinois corporation, duly organized and validly existing under the laws of the State of Illinois. (ii) Seller has full power and authority to enter into this Agreement and to perform its obligations hereunder, and this Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. The Board of Directors of Seller has approved this Agreement and the transactions contemplated herein. (iii) To the best of Seller's knowledge, there are no outstanding written or oral leases covering or in any way affecting the Premises that will survive the Closing, and no person or entity has any right to acquire the Premises (whether by option to purchase, contract, or otherwise). (iv) Neither the execution of this Agreement nor the consummation of the transaction contemplated hereby will constitute a violation of or be in conflict with or constitute a default under any term or provision of any agreement or instrument to which Seller is a party or by which the Premises or any part thereof is bound. (v) To the best of Seller's knowledge, there are no service or maintenance contracts or other agreements of any type whatsoever affecting the Premises, which cannot be terminated by Purchaser on thirty (30) days notice. (vi) Seller has received no notices nor to Seller's best knowledge are there any legal or administrative proceedings or other legal or governmental actions with respect to the 26 Premises which have been commenced or threatened. (vii) Seller has not requested, given its consent for or otherwise received notice of any pending zoning variance or change with respect to the Premises. (viii) The Premises are free from mechanics' liens or the possibility of the rightful filing thereof. (ix) Any information with respect to the Property that Seller has delivered to Purchaser is true and complete in all material respects. b. Seller shall notify Purchaser of facts of which it hereafter may receive notice which would cause any of the warranties and representations contained in this Agreement to be untrue on the Closing Date. All of the foregoing representations and warranties shall survive the Closing and shall not be merged into the Deed. 16. Purchaser's Warranties and Representations. a. Purchaser hereby represents and warrants to Seller that, on the date hereof: (i) Purchaser is an Ohio limited liability company organized and duly formed under the laws of the State of Ohio. (ii) Purchaser has full power and authority to enter into this Agreement and to perform its obligations hereunder, and this Agreement constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms. (iii) Neither the execution of this Agreement nor the consummation of the transaction 27 contemplated hereby will constitute a violation of or be in conflict with or constitute a default under any term or provision of any agreement or instrument to which Purchaser is a party or by which the Premises or any part thereof are bound. 17. Assignment. Neither this Agreement nor any rights arising under it may be assigned or mortgaged by either party without the prior written consent of the other party, and any attempt to transfer this Agreement or any rights or interests arising hereunder, by operation of law or otherwise, without such consent shall be void and of no force or effect, 18. Modification Waivers. No part of this Agreement may be amended or modified without the express written consent of both parties. Neither party shall be held to have waived any of its rights hereunder except by delivery of a written instrument expressing a clear and specific intent to waive such right. 19. Notices. Any notice or demand required or permitted to be given under the terms of this Agreement shall be deemed to be effective and to have been duly given or made if given by any of the following methods: (a) On first attempted delivery, if deposited in the United States mail, in a sealed envelope, postage prepaid, by registered or certified mail, return receipt requested, or hand delivered, respectively addressed as follows: 28 To Purchaser: Seid Street, Ltd. 320 Wood Ridge Aurora, Ohio 44202 Attn: Roger Seid, Member Telephone number: (216) 562-7343 with copy to: Kenneth B. Liffman, Esq. McCarthy, Lebit, Crystal & Haiman Co., L.P.A. 1800 Midland Building 101 Prospect Avenue, West Cleveland, Ohio 44ll5 Telephone Number: (216) 696-1422 Telecopy Number: (216) 696-1210 To Seller: United Stationers Supply Co. 2200 East Golf Road Des Plaines, IL 60016-1267 Attention: Exec. Vice President and CFO Telecopy number (708)* 699-4716 Telephone number (708)* 699-5000, Ext. 2135 with copy to: Otis H. Halleen General Counsel 2200 East Golf Road Des Plaines, IL 60016-1267 Telecopy number (708)* 699-3193 Telephone number (708)* 699-5000, Ext. 2309 *effective January 20, 1996, area code will be (847) (b) Sent to the above address via an established national overnight delivery service (such as Federal Express), charges prepaid, or 29 (c) Sent via any electronic communications method, provided the sender obtains written confirmation of receipt of the communication by the electronic communication equipment at the office of the addressee listed above, provided, if this method is used, the party shall immediately follow such notice with a second notice in the method set forth in (a) or (b) above. 20. Enforcement and Attorneys' Fees. In the event suit or other action is instituted to enforce or interpret any of the terms or obligations under this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees from the other party as determined by the court. 21. Integration. This Agreement contains the entire agreement of the parties concerning the subject hereof, including all oral understandings or agreements, and there are no collateral understandings or agreements or representations or warranties not expressly included herein. 22. Survival. All representations and warranties made herein shall be true and correct as of Closing and shall survive Closing. All obligations of either party to hold harmless, indemnify, or defend the other party shall survive Closing. 23. Time. Time is of the essence of this Agreement. 24. Tax Reporting. The parties hereby designate the Escrow Agent to serve as "Real Estate Broker", as defined in Section 6045 30 of the Internal Revenue Code as amended, for the purpose of making such reports and filing such returns as shall be required thereunder from time to time. 25. Title Company. It is hereby agreed that Continental Title Agency Corp., 605 Bond Court Building, Cleveland, Ohio 44ll4, shall act as Title Company and Escrow Agent in regard to this transaction, and this Agreement shall constitute instructions to said Title Company both as to Title Company and Escrow Agent subject to the terms and conditions of its regular and usual printed form of acceptance, insofar as such terms and conditions are applicable to and are consistent with this Agreement. In the event of any inconsistency between such acceptance and this Agreement, this Agreement shall control. In addition, the Title Company agrees to assume full responsibility for compliance with subsection (e) of Section 6045 of the Internal Revenue Code of 1986 ("I.R.C."), by filing a return in accordance with subsection (a) of Section 6045 I.R.C., and a statement under subsection (b) of Section 6045 I.R.C., with respect to this transaction. After receipt of a copy of this Agreement and acceptance of these terms by the Title Company, the Title Company shall acknowledge its acceptance of these terms and its agreement with this Section 24 by delivering to the Seller and the Purchaser, forthwith, a signed and dated copy of the document attached hereto and referred to as "Acknowledgment of Title Company". 31 26. Further Assurances. Provided it does not enlarge the liabilities of the parties hereunder, the Seller and Purchaser both agree that each one, at any time and from time to time upon request of the other, will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances, and assurances as may be required for the conveyance of the Premises by the Seller, its successors and assigns to the Purchaser, its successors and assigns. 27. Section Headings. All section headings and other titles and captions herein are for convenience only, do not form any substantive part of this Agreement, and shall not restrict or enlarge any substantive provisions hereof or thereof. 28. Applicable Law. This Agreement shall be governed by the laws of the State of Ohio. 29. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of the parties hereto and their respective successors, personal representatives and assigns; provided, however, that nothing contained herein shall be construed as waiving the restriction against assignment set forth in Section 16 hereinabove. IN WITNESS WHEREOF, the parties have executed multiple counterparts of this Agreement, each of which shall be deemed an original thereof, as of the date first above written. 32 SELLER: PURCHASER: UNITED STATIONERS SUPPLY CO. SEID STREET, LTD., an Ohio Limited Liability Company By: By: ------------------------ --------------------------- Daniel H. Bushell Roger Seid, Member Executive Vice President and CFO ACKNOWLEDGMENT -------------- OF -- TITLE COMPANY ------------- The undersigned hereby acknowledges receipt of that certain Agreement between United Stationers Supply Co. and Seid Street, Ltd. and agrees to be bound by the terms of said Agreement as they pertain to the responsibilities and obligations of the Title Company set forth in said Agreement. CONTINENTAL TITLE AGENCY CORP. Dated: _____________, 1996 By ____________________________ 33 EX-10.98 16 REAL ESTATE AGREEMENT EXHIBIT 10.98 REAL ESTATE AGREEMENT --------------------- BY THIS AGREEMENT, made and entered into this 19th day of October, 1995, UNITED STATIONERS, INC. ("Seller") and BOISE CASCADE OFFICE PRODUCTS CORPORATION ("Purchaser") do hereby agree as follows: 1. Premises. Seller shall sell to Purchaser and Purchaser shall purchase from Seller, at the price and on the terms and conditions set forth herein, the real property and all appurtenances and improvements thereto which are located in Cobb County, Georgia, and are more particularly described in Exhibit A, attached hereto and by this reference made a part hereof ("Premises"). 2. Personal Property. The personal property described in Exhibit C, attached hereto and by this reference made a part hereof, is included in the sale of the Premises ("Personal Property"). At Closing, Seller shall deliver to Purchaser a bill of sale substantially in the form of Exhibit C. Seller represents and warrants that it has or at Closing will have good and marketable title to such Personal Property, free and clear of all liens, claims, and encumbrances. 3. Purchase Price. Purchaser shall pay Seller the sum of $4,000,000 for the Premises and $220,000 for the Personal Property, ("Purchase Price"). The Purchase Price shall be paid at Closing as hereinafter defined). 4. Conditions Precedent to Closing. Purchaser's obligations hereunder are subject to the satisfaction of the following conditions: (a) Purchaser shall have had sufficient opportunity to have completed an examination of the Premises and conducted such engineering, environmental, and feasibility studies, including soil tests and borings on the Premises as are necessary to determine the physical and economical suitability of the Premises for Purchaser's proposed use, in order for Purchaser to have determined, in its reasonable discretion, that the Premises are suitable for Purchaser's proposed use and that its proposed use is economically feasible. Such studies shall be conducted by Purchaser at its sole cost and expense. Seller agrees to allow Purchaser reasonable access to the Premises to conduct such studies. Purchaser shall save, defend, indemnify, and hold Seller harmless from and against all claims, lawsuits, judgments, losses, liabilities, or expenses of any kind or nature which may be incurred by Seller as the result of Purchaser's negligence or misconduct with respect to any examination, test, or study on the Premises, excluding the discovery of any preexisting condition on the Premises. The obligations of Purchaser imposed by the preceding sentence shall survive any termination of this Agreement and shall survive Closing; (b) Purchaser shall have received an executed original of Seller's certification of nonforeign status made pursuant to Section 1445(b)(2) of the Internal Revenue Code and in a form substantially similar to Exhibit B attached hereto and incorporated by this reference; (c) Purchaser shall have determined to its satisfaction that utilities, including water, sanitary sewer, storm sewer, natural gas, and electricity are available to the Premises in a location and capacity adequate to accommodate Purchaser's intended use of the Premises; (d) Purchaser shall have determined to its satisfaction that the zoning of the Premises will permit Purchaser's proposed use of the Premises; (e) The conditions of the title to the Premises and survey matters shall have been approved by Purchaser in accordance with the procedure set forth in Sections 13 and 14. Within ten days of full execution of this Agreement, Seller shall deliver to Purchaser a copy of each existing survey, plat map, environmental or soils study, and the like in Seller's possession which further describes the Premises in order to assist Purchaser in its investigation of the Premises. Purchaser shall have 45 days from date hereof in which to determine whether the conditions set forth in this Section 4 are satisfied and, in the case of the condition of title and survey matters, the periods set forth in Sections 13 and 14. If any of such 2 conditions are not satisfied, in the sole judgment of Purchaser, Purchaser may terminate this Agreement upon written notice to Seller within 60 days. Absent such written notice to Seller, Purchaser shall be deemed to have waived all unsatisfied conditions. If Purchaser terminates this Agreement pursuant to the foregoing option, neither party shall have any further rights or obligations under this Agreement, except as provided in Section 22. 5. Risk of Condemnation. (a) If any governmental entity or any other entity with the power of condemnation gives Seller notice that it intends to commence condemnation of or commences condemnation for all or any portion of or interest in the Premises or improvements thereto, Seller shall immediately notify Purchaser of such event. Purchaser may, at its option, terminate this Agreement and neither party shall have any further rights or obligations under this Agreement, except as provided in Section 22. Should Purchaser elect not to exercise the foregoing option to terminate this Agreement, Seller shall appoint Purchaser as its agent to conduct all negotiations with the condemning party and, at Closing, shall assign to Purchaser all of its rights against the condemning party or proceeds received from the condemning party. In such case, the sale provided for herein shall be closed without reduction in or adjustment to the Purchase Price. (b) If all or any material portion of the improvements to the Premises are destroyed at any time prior to Closing, Seller shall promptly provide Purchaser with a written report describing the damage. Purchaser may within 15 days thereafter and prior to Closing terminate this Agreement. If this Agreement is so terminated, neither party shall have any further obligation to the other hereunder, except as provided in Section 22. If Purchaser elects not to terminate this Agreement or if the damages are not material, the sale provided for herein shall be Closed without reduction or other adjustment in the Purchase Price except that the Purchaser shall be entitled to the proceeds of any property damage insurance carried on the damaged or destroyed improvements (other than proceeds of insurance on any of Seller's property not intended to be transferred hereunder). In such event, 3 Seller shall permit and authorize Purchaser to conduct all negotiations with claims adjusters representing the carriers of such coverage and shall assist in Purchaser's efforts to collect such proceeds. 6. Taxes and Assessments: Closing Costs. Real estate taxes (and personal property taxes, utilities, and other similar items, if any) shall be prorated between the parties as of the date of Closing. Seller shall not assign any policies of liability or property damage insurance covering the Premises. No insurance premiums shall be prorated. Purchaser shall be entitled to a credit against the Purchase Price for the amount of any unpaid special assessments. Purchaser shall pay for recording fees and for one-half of any Closing fees, including escrow fees. Transfer taxes and assessments, deed stamps and one-half of any Closing fees, including escrow fees, shall be paid by Seller. Each party shall pay its own attorneys' fees and all expenses incurred by it other than expenses specifically enumerated in this Section 6. 7. Deed. Seller shall convey the Premises to Purchaser by general warranty deed conveying marketable title to the Premises subject only to the following exceptions: A. Building and zoning laws, ordinances, state and federal regulations; B. Current real estate taxes; C. Rights-of-way, easements, restrictions, reservations and mineral rights of record (which are approved by Purchaser pursuant to Section 13 hereof; D. Acts done or suffered or judgments against Purchaser or any person claiming by, through or under Purchaser. Such deed shall contain a legal description of the Premises which is based upon and consistent with the survey of the Premises provided for in Section 14. 8. Possession. Purchaser shall be entitled to possession of the Premises at Closing. The Premises shall be delivered in the same condition of repair and working order as at the date of signing this Agreement, free of debris and in broom-clean condition. If the 4 Premises are not so delivered to Purchaser, Seller agrees to reimburse Purchaser for the cost of making such repairs and cleaning as necessary to achieve such condition of the Premises. In the event Seller cannot deliver possession of the Premises to Purchaser on January 15, 1996, Purchaser shall be entitled to a refund of $220,000. In the event such delay extends beyond February 15, 1996, Purchaser may, at its option, terminate this Agreement and obtain a full refund of the Purchase Price. The foregoing remedy shall be in addition to any other remedy Purchaser may have at law or in equity, including but not limited to the right of specific performance. Prior to Closing, Seller shall have removed from the Premises all personal property (to include product inventory, leased equipment and personal effects of employees) stored or in use thereon which belongs to Seller or others that is not to be conveyed to Purchaser pursuant to Paragraph 2 of this Agreement. If Seller fails to remove such personal property prior to Closing, Purchaser may remove and dispose of such personal property as it sees fit, and it may recover its costs of doing so, net of any salvage value of the personal property, from the Seller. 9. Warranty of Title. Seller warrants that it has or will have at Closing good and marketable title to the Premises, free and clear of all liens, claims, and encumbrances except for restrictions, reservations, easements, and mineral interests of record shown in the Commitment (as hereinafter defined). 10. Closing. The term "Closing" as used in this Agreement means the payment by Purchaser to Seller of the Purchase Price at Closing and the delivery by Seller to Purchaser of the general warranty deed. Unless otherwise agreed by the parties, Closing shall take place on January 15, 1996. This transaction shall be closed through an escrow that is to be held by a local office of First American Title Insurance Company. Each party shall execute and deliver on a timely basis all escrow instructions, deeds, funds, and other documents reasonably necessary to accomplish Closing. 11. Brokers. Purchaser warrants to Seller that no person or other entity of any sort is entitled to any commission, broker's fee, finder's fee, or other payment by reason of the action of Purchaser 5 in connection with this transaction. Seller warrants to Purchaser that no person or other entity of any sort is entitled to any commission, broker's fee, finder's fee, or any other payment by reason of the action of Seller in connection with this transaction. Each party shall hold harmless, indemnify, and defend the other from and against all claims by third parties for such commissions or other fees which arise from or are based upon the actions of the indemnifying party and which constitute a violation of the indemnifying party's warranty contained in this Section 11. 12. Default. If Purchaser fails to close this transaction when and as required hereby, Seller may terminate this Agreement, in which case Purchaser shall have no further rights or interest in the Premises. The foregoing remedy shall be in addition to any other remedy Seller may have at law or in equity. If Seller fails to close this transaction in accordance with its terms, Purchaser may terminate this Agreement. The foregoing remedy shall be in addition to any other remedy Purchaser may have at law or in equity, including but not limited to the right of specific performance. 13. Title Approval. Seller shall deliver to Purchaser, within 20 days from the date hereof, at Seller's expense,a commitment for title insurance (the "Commitment") from First American Title Insurance Company for title insurance in the amount of the purchase price, and legible copies of all recorded instruments affecting the Premises and recited as exceptions in the Commitment. If Purchaser has an objection to items disclosed in such Commitment, Purchaser shall have 10 days after receipt of such instrument and the property survey described in Section 14 to make written objections to Seller. If Purchaser makes such objections, Seller shall have 15 days from the date such objections are disclosed to cure the same, and the Closing date shall be extended if necessary. If the objections are not satisfied within such time period, Purchaser may (i) terminate this Agreement and neither party shall have any further rights or obligations under this Agreement, except as provided in Section 22, or (ii) waive the unsatisfied objections and close the transaction in accordance with this Agreement, except that the amount of all 6 monetary encumbrances shall be credited against the Purchase Price. If Purchaser does not notify Seller in writing of objections to the condition of title within the time period provided for above, Purchaser shall be deemed to have agreed to accept title to the Premises in the condition shown in the Commitment. Seller shall bear the cost of the title insurance. 14. Property Survey. Within 30 days from date hereof, Seller, at Seller's sole cost and expense, shall cause to be delivered to Purchaser a current survey of the Premises prepared by a surveyor acceptable to the parties and the title company closing this transaction. The survey shall certify to the Purchaser and the title company that: (i) the survey was made and staked on the ground; (ii) the survey shows the location of all improvements, highways, streets, roads, railroads, rivers, creeks or other waterways, fences, easements and rights-of- way on or adjacent to the Premises, if any; (iii) there are no visible discrepancies, conflicts or encroachments except as shown on the survey; (iv) the survey is a true, correct and accurate representation of the Premises; (v) the survey sets forth the number of total acres/square feet comprising the Premises, together with a metes and bounds description thereof; (vi) the current zoning; and (vii) the Premises do not lie within a designated flood plain area. All easements and rights-of-way shall be referenced to the recording information applicable to the documents creating such easements or rights-of-way which have been recorded with the county clerk of the county in which the Premises are located. The survey shall locate and mark all corners and angles of the Premises perimeter on the ground with permanent, buried iron surveyor's stakes. If the survey discloses any condition or defect in the legal description or physical condition of the Premises (including, without limitation, encroachments, failure to close any legal descriptions, discrepancies between the legal description in Seller's chain of title and the surveyed legal description, or the existence of easements) which, in the sole discretion of Purchaser, are unacceptable or will interfere with its intended use of the Premises, Purchaser may by notice given to Seller within 10 days of Purchaser's 7 receipt of such survey, object to such defect. If the Seller fails to effect a cure of the defect complained of within 15 days thereafter, Purchaser may at its option exercised by delivery of written notice either: (i) terminate this Agreement or (ii) elect to Close without cure of the defect complained of. If the Purchaser elects to terminate this Agreement, neither party shall have any further obligation hereunder, except as provided in Section 22. If the Purchaser fails to notify Seller of any objection to survey defects within the timeframe provided for above, Purchaser shall be deemed to have agreed to accept the Premises subject to all of the survey defects disclosed by the survey. 15. Environmental Representations and Warranties. As an inducement to Purchaser to purchase the Premises, Seller hereby covenants, represents, and warrants to Purchaser the following: (a) Seller has not caused and will not cause, and there never has occurred during the time Seller has occupied the Premises, the release of any "hazardous substance" on the Premises as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; (b) Seller has not caused any asbestos or asbestos-containing material to be placed on or under the Premises; (c) There are currently no underground storage tanks on or under the Premises and there have not been any underground storage tanks on or under the Premises at any time in the past; (d) To the best of Seller's knowledge, the Premises are not subject to any federal, state, or local "Superfund" lien, proceeding, claim, liability or action, or the threat or likelihood thereof, for the cleanup, removal, or remediation of any such "hazardous substance" from the Premises; (e) Seller has at all times complied with all applicable federal, state, and local environmental laws and regulations applicable to the Premises and the operations conducted thereon; (f) As of the date of Closing, Seller will possess and be in full compliance with all environmental permits, licenses, and other governmental approvals that are required with respect to the Premises and the activities conducted thereon; and 8 (g) Seller agrees, to the maximum extent permitted by law, to indemnify, defend and save Boise Cascade and its successors in interest in the Premises harmless from and against any and all claims, demands, causes of action, proceedings and/or suits, damages (actual and punitive), including the cost of correcting or compensating for injuries (to persons, property, the environment, or natural resources), and for fines, interest, penalties, losses, and other costs (including engineering costs and attorneys fees), and liabilities (hereinafter referred to as "Indemnifiable Damages") which are asserted against or are incurred by Boise Cascade, its agents, licensees, invitees, contractors, or assigns, or its successors in interest in the Premises ("Indemnified Parties"), as a result (direct or indirect) of, the untruth or inaccuracy of any of the foregoing matters represented and warranted by Seller to Boise Cascade or the breach of any of the foregoing covenants and warranties of Seller, whether discovered prior to or after Closing. The foregoing indemnification shall include all attorneys' fees incurred by the Indemnified Party in resolving issues that constitute breaches of the foregoing warranties. This indemnity does not extend to contamination of the Premises occurring after the Closing, nor does it extend to contamination caused solely by the negligent or willful act of any of the Indemnified Parties, nor does it extend to any matter covered by that certain Environmental Indemnity Agreement dated January 31, 1992 among Boise Cascade Office Products Corporation and Boise Cascade Corporation as Indemnifying Parties and Associated Stationers, Inc., which agreement, and the obligations set forth therein, remain in full force and effect for the benefit of Seller as successor-in-interest to Associated Stationers, Inc. and shall survive the Closing forever. The obligations imposed upon Seller by this environmental indemnity provision shall not be offset by any claims which may be made by Seller against any of the Indemnified Parties, except under the Environmental Indemnity Agreement dated January 31, 1992, and shall survive the Closing forever. The foregoing indemnification obligations shall apply regardless of whether such Indemnifiable Damages are founded upon municipal, 9 state, or federal, statutory or common law, rules or principles or this Agreement. All Indemnified Damages shall be paid by Seller to the Indemnified Party making the claim within 30 days of presentment for payment by any of the Indemnified Parties. Any Indemnified Party making a claim under this Section 15 shall give prompt notice to the Seller of the assertion of any claim, or the commencement of any suit, action or proceeding in respect to which indemnification may be sought hereunder, specifying, if known, the facts pertaining thereto and the amount or an estimate of the amount of the liability arising therefrom. Any Indemnified Party's failure to give such notice shall not relieve the Seller of any liability hereunder (except to the extent that the Seller has suffered actual prejudice thereby). The Seller shall assume the defense of any such suit, action or proceeding at its own expense, and the Indemnified Parties shall have the right (but not the duty) to participate in the defense thereof. The Seller and the Indemnified Parties shall cooperate in the defense of prosecution thereof and shall take all such actions as may be reasonably requested by the other in connection therewith. No investigation by any of the Indemnified Parties at or prior to the Closing shall relieve the Seller of any liability hereunder. This Section 15 shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that regardless of any such succession or assignment, the parties hereto shall continue to be liable for their respective obligations contained herein. 16. Access to Premises. Upon execution of this Agreement, Purchaser and its consultants or invitees shall be entitled to reasonable access to the Premises during normal business hours upon reasonable notice to Seller for the purpose of designing changes to the Premises. 17. Assignment. Neither this Agreement nor any rights arising under it may be assigned or mortgaged by either party without the prior written consent of the other party, and any attempt to transfer this Agreement or any rights or interests arising hereunder, by 10 operation of law or otherwise, without such consent shall be void and of no force or effect. 18. Modification; Waivers. No part of this Agreement may be amended or modified without the express written consent of both parties. Neither party shall be held to have waived any of its rights hereunder except by delivery of a written instrument expressing a clear and specific intent to waive such right. 19. Notices. Any notice or demand required or permitted to be given under the terms of this Agreement shall be deemed to have been duly given or made if given by any of the following methods: (a) Deposited in the United States mail, in a sealed envelope, postage prepaid, by registered or certified mail, return receipt requested, or hand delivered, respectively addressed as follows: To Boise Cascade: Boise Cascade Office Products Corporation Attention: General Counsel One Jefferson Square P.O. Box 50 Boise, ID 83728 Telecopy number (208) 394-4934 Telephone number (208) 384-7696 with a copy to: Boise Cascade Office Products Corporation Attention: Vice President & General Manager 800 W. Bryn Mawr Ave. Itasca, IL 60143 To Seller: United Stationers Supply Co. 2200 East Golf Road Des Plaines, IL 60016 Attention: President Telecopy number (708) 699-0891 Telephone number (708) 699-5000 With a copy to: Otis H. Halleen 800 East Northwest Highway Suite 700 Palatine, IL 60067 Telecopy number (708) 705-9608 Telephone number (708) 705-3886 (b) Sent to the above address via an established national overnight delivery service (such as Federal Express), charges prepaid, or 11 (c) Sent via any electronic communications method, provided the sender obtains written confirmation of receipt of the communication by the electronic communication equipment at the office of the addressee listed above; provided, if this method is used, the party shall immediately follow such notice with a second notice in the method set forth in (a) or (b) above. Notices shall be effective when sent or when hand delivered. 20. Enforcement and Attorneys' Fees. In the event suit or other action is instituted to enforce or interpret any of the terms or obligations under this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees from the other party as determined by the court. 21. Integration. This Agreement contains the entire agreement of the parties concerning the subject hereof, including all oral understandings or agreements, and there are no collateral understandings or agreements or representations or warranties not expressly included herein. 22. Survival. All representations and warranties made herein shall be true and correct as of Closing and shall survive Closing. All obligations of either party to hold harmless, indemnify, or defend the other party shall survive Closing, including but not limited to Seller's obligations set forth in Section 15. 23. Time. Time is of the essence to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. SELLER: UNITED STATIONERS SUPPLY CO. By Daniel H. Bushell ------------------ Title EVP & CFO --------------- PURCHASER: BOISE CASCADE OFFICE PRODUCTS CORPORATION By __________________________ Title CEO/PRES -------- EXHIBIT A --------- REAL PROPERTY DESCRIPTION ------------------------- 12 The property located at 4800 Highlands Parkway, Smyrna, Georgia, legally described as follows: 13 TRANSFEROR'S CERTIFICATION OF NONFOREIGN STATUS ----------------------------------------------- To inform Boise Cascade Office Products Corporation, a Delaware corporation ("Transferee"), that withholding of tax under Section 1445 of the Internal Revenue Code of 1954, as amended ("Code"), will not be required upon the transfer of certain real property to the Transferee by United Stationers Supply Co., an Illinois corporation ("Transferor"), the undersigned hereby certifies the following on behalf of the Transferor: 1. The Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated hereunder), 2. The Transferor's U.S. employer identification number is 36-2431718, and 3. The Transferor's office address is 2200 East Golf Road, Des Plaines, Illinois 60016. The Transferor understands that this Certification may be disclosed to the Internal Revenue Service by the Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. The Transferor understands that the Transferee is relying on this Certification in determining whether withholding is required upon said transfer. Under penalty of perjury, I declare that I have examined this Certificate and, to the best of my knowledge and belief, it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of the Transferor. Date of this _______ day of _________________, 19___. TRANSFEROR: United Stationers Supply Co. By _______________________________ Its _______________________________ 14 BILL OF SALE ------------ For valuable consideration, the receipt of which is acknowledged, UNITED STATIONERS SUPPLY CO. ("United"), an Illinois corporation, having its principal place of business at 2200 East Golf Road, Des Plaines, Illinois 60016, hereby sells, transfers, assigns and conveys to BOISE CASCADE OFFICE PRODUCTS CORPORATION ("Boise Cascade"), all of United's rights, title, and interest in the following personal property: Personal Property: All warehouse and office property located at 4800 Highlands Parkway, Smyrna, Georgia, (excluding United's product inventory, any leased equipment, and personal effects of employees) and including, but not limited to, all pallet racking, all conveyor systems, all bin shelving, all mobile equipment, both powered and non-powered and all associated batteries and chargers, all owned security systems, all office furniture, wall fixtures, cafeteria equipment, and telephone and voice mail systems. United hereby represents and warrants to Boise Cascade that United is the absolute owner of the Personal Property, that the Personal Property is free and clear of all liens, charges, and encumbrances, and that United has full right, power, and authority to sell the Personal Property and to execute this Bill of Sale. ALL WARRANTIES OF QUALITY, FITNESS AND MERCHANTABILITY ARE EXPRESSLY EXCLUDED. - ----------------------------------------------------------------------------- IN WITNESS WHEREOF, this Bill of Sale has been executed by the undersigned effective as of _____________________, 1996. UNITED STATIONERS SUPPLY CO. By ______________________________ Title ___________________________ 15 EX-21 17 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF UNITED STATIONERS INC. -------------------------------------- United Stationers Supply Co., an Illinois corporation United Stationers Hong Kong Limited, a corporation organized under the laws of Hong Kong United Worldwide Limited, a corporation organized under the laws of Hong Kong United Business Computers, Inc., a Delaware corporation EX-23.2 18 CONSENT OF CONSENT OF EARNST & YOUNG EXHIBIT 23.2 CONSENT We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated June 27, 1995 and January 29, 1996 with respect to the consolidated financial statements of United Stationers Inc. as of and for the seven months ended March 30, 1995 and the year ended December 31, 1995 included in the Registration Statement on Form S-2 and related Prospectus of United Stationers Inc. dated February 20, 1996. /s/ Ernst & Young LLP Chicago, Illlinois February 20, 1996 EX-23.3 19 CONSENT OF ARTHUR ANDERSEN 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, 1994 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 February 16, 1996 EX-23.4 20 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.4 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 February 16, 1996 EX-27 21 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 11,660 0 273,142 7,315 381,618 690,008 231,095 31,114 1,001,383 334,543 0 1,153 18,041 0 28,871 1,001,383 1,751,462 1,751,462 1,370,522 1,370,522 323,383 5,169 46,186 11,371 5,128 6,243 0 1,449 0 4,794 0.22 0.22
-----END PRIVACY-ENHANCED MESSAGE-----