-----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, P+AeqpV1I0tOZ/hhfufwbBiEvRFLzLGIANNIJkR+iaQq7d2HIW4BY+9F5mstHlTV JnIWNJwQI/If418aIdoj/A== 0001047469-04-016506.txt : 20040510 0001047469-04-016506.hdr.sgml : 20040510 20040507192158 ACCESSION NUMBER: 0001047469-04-016506 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10653 FILM NUMBER: 04790695 BUSINESS ADDRESS: STREET 1: 2200 E GOLF RD CITY: DES PLAINES STATE: IL ZIP: 60016-1267 BUSINESS PHONE: 8476995000 MAIL ADDRESS: STREET 1: 2200 E GOLF ROAD CITY: DES PLAINES STATE: IL ZIP: 600161267 10-Q 1 a2136021z10-q.htm FORM 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 0-10653

UNITED STATIONERS INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		36-3141189 (I.R.S. Employer Identification No.)
2200 East Golf Road Des Plaines, Illinois 60016-1267 (847) 699-5000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

On May 6, 2004, the registrant had outstanding 33,853,969 shares of common stock, par value $0.10 per share.

UNITED STATIONERS INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2004

TABLE OF CONTENTS

		Page No.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
	Independent Accountants' Review Report	2
	Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003	3
	Condensed Consolidated Statements of Income for the Three Months ended March 31, 2004 and 2003	4
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2004 and 2003	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		30
Item 4. Controls and Procedures.		30
PART II—OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.		31
Item 6. Exhibits and Reports on Form 8-K.		32
SIGNATURES		33

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors
United Stationers Inc.

We have reviewed the accompanying condensed consolidated balance sheet of United Stationers Inc. and Subsidiaries as of March 31, 2004, and the related condensed consolidated statements of income for the three month periods ended March 31, 2004 and 2003, and the condensed consolidated statements of cash flows for the three month periods ended March 31, 2004 and 2003. These financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of United Stationers Inc. as of December 31, 2003, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 26, 2004, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph related to a change in accounting principle for manufacturers' allowances. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

	/s/ ERNST & YOUNG LLP
Chicago, Illinois April 27, 2004

UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

				(Unaudited) As of March 31, 2004			(Audited) As of December 31, 2003
ASSETS
	Current assets:
		Cash and cash equivalents		$	16,723		$	10,307
		Retained interest in receivables sold, less allowance for doubtful accounts of $3,229 in 2004 and $3,758 in 2003			229,059			153,722
		Accounts receivable, less allowance for doubtful accounts of $12,030 in 2004 and $11,811 in 2003			154,568			195,433
		Inventories			495,689			539,919
		Other current assets			25,708			25,943

			Total current assets		921,747			925,324
	Property, plant and equipment, at cost				335,259			334,333
		Less—accumulated depreciation and amortization			181,931			176,617

	Net property, plant and equipment				153,328			157,716
	Goodwill, net				182,327			182,474
	Other				25,454			29,496

			Total assets	$	1,282,856		$	1,295,010

LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Accounts payable		$	349,674		$	357,961
		Accrued liabilities			125,238			135,604
		Deferred credits			28,342			44,867
		Current maturities of long-term debt			—			24

			Total current liabilities		503,254			538,456
	Deferred income taxes				21,465			21,624
	Long-term debt				19,800			17,300
	Other long-term liabilities				44,755			44,652

			Total liabilities		589,274			622,032
	Stockholders' equity:
		Common stock, $0.10 par value; authorized—100,000,000 shares, issued—37,217,814 in 2004 and 2003			3,722			3,722
		Additional paid-in capital			330,142			329,787
		Treasury stock, at cost—3,369,659 shares in 2004 and 3,314,347 shares in 2003			(85,515	)		(82,863	)
		Retained earnings			454,016			430,637
		Accumulated other comprehensive loss			(8,783	)		(8,305	)

			Total stockholders' equity		693,582			672,978

			Total liabilities and stockholders' equity	$	1,282,856		$	1,295,010

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)

		For the Three Months Ended March 31,
		2004		2003
Net sales		$	987,866	$	970,220
Cost of goods sold			840,283		831,593

Gross profit			147,583		138,627
Operating expenses:
	Warehousing, marketing and administrative expenses		108,245		103,529

Income from operations			39,338		35,098
Interest expense, net			629		3,226
Loss on early retirement of debt			—		808
Other expense, net			465		765

Income before income taxes and cumulative effect of a change in accounting principle			38,244		30,299
Income tax expense			14,865		11,515

Income before cumulative effect of a change in accounting principle			23,379		18,784
Cumulative effect of a change in accounting principle, net of tax benefit of $3,696			—		(6,108	)

Net income		$	23,379	$	12,676

Net income per share—basic:
	Income before cumulative effect of a change in accounting principle	$	0.69	$	0.58
	Cumulative effect of a change in accounting principle		—		(0.19	)

	Net income per share—basic	$	0.69	$	0.39

	Average number of common shares outstanding—basic		33,905		32,545
Net income per share—diluted:
	Income before cumulative effect of a change in accounting principle	$	0.68	$	0.57
	Cumulative effect of a change in accounting principle		—		(0.18	)

	Net income per share—diluted	$	0.68	$	0.39

	Average number of common shares outstanding—diluted		34,461		32,740

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

					For the Three Months Ended March 31,
					2004			2003
Cash Flows From Operating Activities:
	Net income				$	23,379		$	12,676
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				6,973			7,916
		(Gain) loss on the disposition of plant, property and equipment				(528	)		16
		Amortization of capitalized financing costs				180			1,038
		Cumulative effect of a change in accounting principle, net of tax				—			6,108
		Write down of assets held for sale				300			—
		Changes in operating assets and liabilities:
			Decrease in accounts receivable, net			40,760			39,193
			(Increase) decrease in retained interest in receivables sold, net			(75,337	)		9,986
			Decrease in inventory			44,074			52,573
			Increase in other assets			(636	)		(240	)
			(Decrease) increase in accounts payable			(8,268	)		13,719
			Decrease in accrued liabilities			(10,240	)		(2,610	)
			Decrease in deferred credits			(16,525	)		(16,575	)
			(Decrease) increase in deferred taxes			(159	)		682
			Increase (decrease) in other liabilities			104			(568	)

				Net cash provided by operating activities		4,077			123,914
Cash Flows From Investing Activities:
	Capital expenditures					(2,358	)		(1,087	)
	Proceeds from the disposition of property, plant and equipment					4,702			26

				Net cash provided by (used in) investing activities		2,344			(1,061	)
Cash Flows From Financing Activities:
	Retirements and principal payments of debt					—			(104,390	)
	Net borrowings under revolver					2,500			—
	Issuance of treasury stock					595			1,579
	Acquisition of treasury stock, at cost					(2,926	)		—
	Payment of employee withholding tax related to stock option exercises					(86	)		(497	)

				Net cash provided by (used in) financing activities		83			(103,308	)
Effect of exchange rate changes on cash and cash equivalents						(88	)		89

Net change in cash and cash equivalents						6,416			19,634
Cash and cash equivalents, beginning of period						10,307			17,426

Cash and cash equivalents, end of period					$	16,723		$	37,060

Other Cash Flow Information:
	Income taxes paid, net				$	(572	)	$	1,464
	Interest paid					356			1,418
	Discount on the sale of accounts receivable					644			643

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Consolidated Balance Sheet as of December 31, 2003, which was derived from the December 31, 2003 audited financial statements. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 for further information.

In the opinion of the Company's management, the Condensed Consolidated Financial Statements for the interim periods presented include all adjustments necessary to fairly present the results of such interim periods and the financial position as of the end of said periods. Certain interim estimates of a normal, recurring nature are recognized throughout the year, relating to accounts receivable, manufacturers' allowances, inventory, customer rebates, price changes and product mix. The Company periodically reevaluates these estimates and makes adjustments where facts and circumstances dictate. In addition, certain amounts from prior periods have been reclassified to conform to the 2004 presentation.

The accompanying Condensed Consolidated Financial Statements represent United Stationers Inc. ("United") with its wholly owned subsidiary, United Stationers Supply Co. ("USSC"), and its subsidiaries (collectively, the "Company"). The Company is the largest broad line wholesale distributor of business products and a provider of marketing and logistics services to resellers, with annual net sales of approximately $3.8 billion. The Company operates in a single reportable segment as a national wholesale distributor of business products. The Company offers approximately 40,000 items from more than 400 manufacturers. These items include a broad spectrum of traditional office products, computer consumables, office furniture, business machines and presentation products, and janitorial and sanitation supplies. The Company primarily serves commercial and contract office products dealers. The Company sells its products through a national distribution network to more than 15,000 resellers, who in turn sell directly to end users. These products are distributed through a computer-linked network of 35 USSC regional distribution centers, 24 distribution centers that serve the janitorial and sanitation industry and two distribution centers in each of Mexico and Canada that primarily serve computer supply resellers.

Common Stock Repurchase

As of March 31, 2004, the Company had authority to repurchase approximately $24 million of its common stock. All common stock repurchases are executed under authorization given by the Company's Board of Directors on July 1, 2002. In addition, the 2003 Credit Agreement (described in Note 6) limits the Company's stock repurchases to the greater of $50 million or $50 million plus 25% of the Company's net income (or minus 25% of any loss) in each fiscal quarter, beginning with the fiscal quarter ended June 30, 2003. During the three months ended March 31, 2004, the Company repurchased 75,000 shares of its common stock at a cost of $2.9 million. The Company did not

repurchase any stock during the first three months of 2003. A summary of total shares repurchased and the remaining authorization is as follows (amounts in millions, except share data):

		Share Repurchases History
		Cost		Shares
2004 repurchases		$	2.9	75,000
2002 repurchases			23.1	858,964

	Total repurchases	$	26.0	933,964

		Remaining Authorization
Total amount remaining under authorization:
	Authorized amount	$	50.0
	Less: total repurchases		(26.0	)

	Remaining authorization	$	24.0

Purchases may be made from time to time in the open market or in privately negotiated transactions. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice.

Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During the three months ended March 31, 2004 and 2003, the Company reissued 19,688 and 128,381 shares, respectively, of treasury stock, primarily to fulfill its obligations under its equity incentive plans.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from these estimates.

Various assumptions and other factors underlie the determination of significant accounting estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. The Company periodically reevaluates these significant factors and makes adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described below.

Revenue Recognition

Revenue is recognized when a service is rendered or when title to the product has transferred to the customer. Management records an estimate for future product returns related to revenue

recognized in the current period. This estimate is based on historical product return trends and the gross margin associated with those returns. Management also records an estimate for customer rebates which is primarily based on estimated annual sales volume to the Company's customers. This estimate is used to determine the projected annual rebates earned by customers for growth components, volume hurdle components, and advertising allowances.

Shipping and handling costs billed to customers are treated as revenues and recognized at the time title to the product has transferred to the customer. Shipping and handling costs are included in the Company's financial statements as a component of cost of goods sold and not netted against shipping and handling revenues.

Customer Rebates

Customer rebates and discounts are common practice in the business products industry and have a significant impact on the Company's overall sales and gross margin. Such rebates are reported in the Condensed Consolidated Financial Statements as a reduction of sales.

Customer rebates include volume rebates, sales growth incentives, advertising allowances, participation in promotions and other miscellaneous discount programs. These rebates are paid to customers monthly, quarterly and/or annually. Estimates for volume rebates and growth incentives are based on estimated annual sales volume to the Company's customers. The aggregate amount of customer rebates depends on product sales mix and customer mix changes. Reported results reflect management's best current estimate of such rebates. Changes in estimates of sales volumes, product mix, customer mix or sales patterns, or actual results that vary from such estimates, may impact future results.

Manufacturers' Allowances and Cumulative Effect of a Change in Accounting Principle

Manufacturers' allowances (fixed and variable) are common practice in the business products industry and have a significant impact on the Company's overall gross margin. Gross margin includes, among other items, file margin (determined by reference to invoiced price), as reduced by estimated customer discounts and rebates as discussed above, and increased by estimated manufacturers' allowances and promotional incentives. These allowances and incentives are estimated on an on going basis and the potential variation between the actual amount of these margin contribution elements and the Company's estimates of them could be material to its financial results. Reported results reflect management's best current estimate of such allowances and incentives.

Approximately 40% to 45% of the Company's estimated annual manufacturers' allowances and incentives are fixed based on vendor participation in various Company advertising and marketing publications. Fixed allowances and incentives are initially capitalized on the balance sheet as a reduction in inventory and subsequently recorded to income through lower cost of goods sold as inventory is sold.

The remaining 55% to 60% of the Company's estimated annual manufacturers' allowances and incentives are variable, based on the volume of the Company's product purchases from manufacturers. These variable allowances are recorded based on the Company's estimated annual inventory purchase volume and are initially capitalized on the balance sheet as a reduction in inventory and subsequently recorded to income through lower cost of goods sold as inventory is sold. The potential amount of variable manufacturers' allowances often differs based on purchase volume by manufacturer and product category. As a result, lower Company purchase volume and product sales mix changes can make it difficult to reach some manufacturers' allowance growth hurdles.

Effective January 1, 2003, the Company adopted EITF Issue No. 02-16. As a result, during the first quarter of 2003 the Company recorded a non-cash, cumulative after-tax charge of $6.1 million, or $0.18

per diluted share, related to the capitalization into inventory of a portion of fixed promotional allowances received from vendors for participation in the Company's advertising publications. Adoption of EITF Issue No. 02-16 had no impact on the Company's accounting for variable promotional allowances and incentives that are described above.

Cash Equivalents

All highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value.

Valuation of Accounts Receivable

The Company makes judgments as to the collectibility of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which represents the collectability of trade accounts receivable. This allowance adjusts gross trade accounts receivable down to estimated net realizable value. To determine the allowance for doubtful accounts, management reviews the risk related to specific customers, including accounts receivable concentrations, and the Company's overall accounts receivable aging.

Inventories

Inventory constituting approximately 90% of total inventory at both March 31, 2004 and December 31, 2003 has been valued under the last-in, first-out ("LIFO") accounting method and the remaining inventory is valued under the first-in, first-out ("FIFO") accounting method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the lower of FIFO cost or market had been used by the Company for its entire inventory, inventory would have been $23.1 million and $22.9 million higher than reported at March 31, 2004 and December 31, 2003, respectively. In addition, inventory reserves are recorded for shrinkage and for obsolete, damaged, defective, and slow-moving inventory. These reserve estimates are determined using historical trends and are adjusted, if necessary, as new information becomes available.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation and amortization are determined by using the straight-line method over the estimated useful lives of the assets. The estimated useful life assigned to fixtures and equipment is from two to 10 years; the estimated useful life assigned to buildings does not exceed 40 years; leasehold improvements are amortized over the lesser of their useful lives or the term of the applicable lease.

Software Capitalization

The Company capitalizes internal use software development costs in accordance with the American Institute of Certified Public Accountants' Statement of Position No. 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use. Amortization is recorded on a straight-line basis over the estimated useful life of the software, generally not to exceed seven years.

Insured Loss Liability Estimates

As a result of relatively high deductible amounts under insurance coverage, the Company is primarily responsible for retained liabilities related to workers' compensation, vehicle and general liability and certain employee health benefits. The Company records an expense for paid and open claims and for claims incurred but not yet reported based on historical trends and on certain assumptions about future events. The Company has an annual per person maximum cap on certain employee medical benefits provided by a third-party insurance company. In addition, the Company has

both a per-occurrence maximum loss and an annual aggregate maximum cap on workers' compensation claims.

Stock Based Compensation

The Company's stock based compensation includes employee stock options. As allowed under Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the Company accounts for its stock options using the "intrinsic value" method permitted by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. APB No. 25 requires calculation of an intrinsic value of the stock options issued in order to determine compensation expense, if any.

In conformity with SFAS No. 123 and SFAS No. 148 supplemental disclosures are provided below. Several valuation models are available for determining fair value. For purposes of these supplemental disclosures, the Company uses the Black-Scholes option-pricing model to determine the fair value of its stock options. Had compensation cost been determined on the fair value basis of SFAS No. 123, net income and earnings per share would have been adjusted as follows (dollars in thousands, except per share data):

		For the Three Months Ended March 31,
		2004			2003
Net income, as reported		$	23,379		$	12,676
	Add: Stock-based employee compensation expense included in reported net income, net of tax		11			12
	Less: Total stock-based employee compensation determined if the fair value method had been used, net of tax		(2,106	)		(1,365	)

Pro forma net income		$	21,284		$	11,323

Net income per share—basic:
	As reported	$	0.69		$	0.39
	Pro forma		0.63			0.35
Net income per share—diluted:
	As reported	$	0.68		$	0.39
	Pro forma		0.62			0.35

Income Taxes

Income taxes are accounted for using the liability method, under which deferred income taxes are recognized for the estimated tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A provision has not been made for deferred U.S. income taxes on the undistributed earnings of the Company's foreign subsidiaries because these earnings are intended to be permanently invested.

Foreign Currency Translation

The functional currency for the Company's foreign operations is the local currency. Assets and liabilities of these operations are translated into U.S. currency at the rates of exchange at the balance sheet date. The resulting translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders' equity. Income and expense items are translated at average monthly rates of exchange. Realized gains and losses from foreign currency transactions were not material.

3. Restructuring and Other Charges

2001 Restructuring Plan

The Company's Board of Directors approved a restructuring plan in the third quarter of 2001 (the "2001 Restructuring Plan") that included an organizational restructuring, a consolidation of certain distribution facilities and USSC's call center operations, an information technology platform consolidation, divestiture of The Order People's ("TOP") call center operations and certain other assets, and a significant reduction of TOP's cost structure. The restructuring plan included workforce reductions of approximately 1,375 associates through voluntary and involuntary separation programs. All initiatives under the 2001 Restructuring Plan are complete. However, certain cash payments will continue for accrued exit costs that relate to long-term lease obligations that expire at various times over the next six years. The Company continues to actively pursue opportunities to sublet unused facilities.

2002 Restructuring Plan

The Company's Board of Directors approved a restructuring plan in the fourth quarter of 2002 (the "2002 Restructuring Plan") that included additional charges related to revised real estate sub-lease assumptions used in the 2001 Restructuring Plan (described below), further downsizing of TOP operations, including severance and anticipated exit costs related to a portion of the Company's Memphis distribution center, closure of the Milwaukee, Wisconsin distribution center and the write-down of certain e-commerce-related investments. The 2002 Restructuring Plan included workforce reductions of 105 associates through involuntary separation programs. All initiatives under the 2002 Restructuring Plan are complete. However, certain cash payments will continue for accrued exit costs that relate to long-term lease obligations that expire at various times over the next seven years. The Company continues to actively pursue opportunities to sublet unused facilities. Implementation costs associated with this restructuring plan were not material.

The remaining accrual balances related to the 2002 and 2001 Restructuring Plans as of March 31, 2004, are as follows (in thousands):

		Employment Termination and Severance Costs			Accrued Exit Costs			Total Accrued Restructuring Charge			Non-Cash Asset Write-Downs			Total Restructuring Charge
Restructuring and other charges		$	19,637		$	18,973		$	38,610		$	17,928		$	56,538
Amounts reversed into income in 2002			(503	)		(197	)		(700	)		(1,725	)		(2,425	)
Amounts utilized:
	2001		(3,023	)		(1,226	)		(4,249	)		(15,925	)		(20,174	)
	2002		(13,273	)		(2,627	)		(15,900	)		(278	)		(16,178	)
	2003		(2,838	)		(2,605	)		(5,443	)		—			(5,443	)
	Year-to-date March 31, 2004		—			(512	)		(512	)		—			(512	)

Total amounts utilized			(19,134	)		(6,970	)		(26,104	)		(16,203	)		(42,307	)

Accrued restructuring costs—as of March 31, 2004		$	—		$	11,806		$	11,806		$	—		$	11,806

4. Comprehensive Income

The following table sets forth the computation of comprehensive income:

	For the Three Months Ended March 31,
(dollars in thousands)	For the Three Months Ended March 31,
(dollars in thousands)	2004			2003
Net income	$	23,379		$	12,676
Unrealized currency translation adjustment		(478	)		1,223

Total comprehensive income	$	22,901		$	13,899

5. Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options and deferred stock units are considered dilutive securities. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

			For the Three Months Ended March 31,
			2004		2003
Numerator:
	Net income		$	23,379	$	12,676
Denominator:
	Denominator for basic earnings per share—weighted average shares			33,905		32,545
	Effect of dilutive securities:
		Employee stock options		556		195

	Denominator for diluted earnings per share—Adjusted weighted average shares and the effect of dilutive securities			34,461		32,740

	Net income per share:
		Net income per share—basic	$	0.69	$	0.39
		Net income per share—diluted	$	0.68	$	0.39

6. Long-Term Debt

United is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its operating subsidiary, USSC, and from borrowings by USSC. The 2003 Credit Agreement (as defined below) contains restrictions on the ability of USSC to transfer cash to United.

Long-term debt consisted of the following amounts (dollars in thousands):

		As of March 31, 2004		As of December 31, 2003
Revolver		$	13,000	$	10,500
Industrial development bond, maturing in 2011			6,800		6,800
Other long-term debt			—		24

	Subtotal		19,800		17,324
	Less—current maturities		—		(24	)

Total		$	19,800	$	17,300

At March 31, 2004 and December 31, 2003, all of the Company's outstanding debt and receivables sold under the Company's Receivables Securitization Program is priced at variable interest rates. The Company's variable rate debt is based primarily on the applicable prime rate or London InterBank Offered Rate ("LIBOR"). The prevailing prime rate was 4.0% at both March 31, 2004 and December 31, 2003. The LIBOR rate as of March 31, 2004 was approximately 1.3%, compared to 1.5% at December 31, 2003.

2003 Credit Agreement

In March 2003, the Company replaced its then existing senior secured credit facility (the "Prior Credit Agreement") by entering into a new Five-Year Revolving Credit Agreement (the "2003 Credit Agreement") dated as of March 21, 2003 by and among USSC, as borrower, United, as guarantor, the various lenders and Bank One, NA, as administrative agent. The 2003 Credit Agreement provides for a revolving credit facility (the "Revolver") with an aggregate committed principal amount of $275 million. USSC may, upon the terms and conditions of the 2003 Credit Agreement, seek additional commitments from its current or new lenders to increase the aggregate committed principal amount under the facility to a total amount of up to $325 million. As a result of the replacement of the Prior Credit Agreement, the Company recorded pre-tax charges of $0.8 million in the first quarter of 2003.

The 2003 Credit Agreement provides for the issuance of letters of credit for amounts totaling up to a sublimit of $90 million. It also provides a sublimit for swingline loans in an aggregate principal amount not to exceed $25 million at any one time outstanding. These amounts, as sublimits, do not increase the aggregate committed principal amount, and any undrawn issued letters of credit and all outstanding swingline loans under the facility reduce the remaining availability. The revolving credit facility matures on March 21, 2008.

Obligations of USSC under the 2003 Credit Agreement are guaranteed by United and certain of USSC's domestic subsidiaries. USSC's obligations under the 2003 Credit Agreement and the guarantors' obligations under the guaranty are secured by liens on substantially all assets, including accounts receivable, chattel paper, commercial tort claims, documents, equipment, fixtures, instruments, inventory, investment property, pledged deposits and all other tangible and intangible personal property (including proceeds) and certain real property, but excluding accounts receivable (and related credit support) subject to any accounts receivable securitization program permitted under the 2003 Credit Agreement. Also securing these obligations are first priority pledges of all of the capital stock of USSC and the domestic subsidiaries of USSC, other than TOP.

are determined by reference to a pricing matrix based on the total leverage of United and its consolidated subsidiaries. Initial applicable margins were 0.50% and 2.00%, respectively.

The 2003 Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type.

Debt maturities under the 2003 Credit Agreement as of March 31, 2004, are as follows (dollars in thousands):

Year	Amount
2004 - 2007	$	—
2008		13,000
Later years		—

Total	$	13,000

8.375% Senior Subordinated Notes, Other Debt and Letters of Credit

On April 28, 2003, the Company redeemed the entire $100 million outstanding principal amount of its 8.375% Senior Subordinated Notes ("8.375% Notes" or the "Notes") at the redemption price of 104.188% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. The 8.375% Notes were issued on April 15, 1998, pursuant to the 8.375% Notes Indenture and were to mature on April 15, 2008, and bore interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year. In connection with the redemption of the Notes, the Company recorded a pre-tax cash charge of $4.2 million and $1.7 million relating to the write-off of associated deferred financing costs in the second quarter of 2003.

As of March 31, 2004, the Company had an industrial development bond outstanding with a balance of $6.8 million. This bond is scheduled to mature in 2011 and carries market-based interest rates.

As of both March 31, 2004 and December 31, 2003, the Company had outstanding letters of credit of $15.1 million.

7. Receivables Securitization Program

General

On March 28, 2003, USSC replaced its then existing $160 million Receivables Securitization Program with a new third-party receivables securitization program with JP Morgan Chase Bank, as trustee (the "2003 Receivables Securitization Program"). Under this $225 million program, USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable of Lagasse, Canada and foreign subsidiaries) to the Receivables Company. The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trustee then sells investment certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of Bank One and PNC Bank act as funding agents. The funding agents provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The 2003 Receivables Securitization Program provides for the possibility of other liquidity facilities that may be provided by other commercial banks rated at least A-1/P-1. Fifth Third Bank was added as an additional funding agent at March 26, 2004.

March 26, 2004. The program contains certain covenants and requirements, including criteria relating to the quality of receivables within the pool of receivables. If the covenants or requirements were compromised, funding from the program could be restricted or suspended, or its costs could increase. In such a circumstance, or if the standby liquidity funding were not renewed, the Company could require replacement liquidity. As discussed above, the Company's 2003 Credit Agreement is an existing alternate liquidity source. The Company believes that, if so required, it also could access other liquidity sources to replace funding from the program.

Financial Statement Presentation

The Receivables Securitization Program is accounted for as a sale in accordance with FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Trade accounts receivable sold under this Program are excluded from accounts receivable in the Condensed Consolidated Financial Statements. At March 31, 2004, the Company sold $100 million of interests in trade accounts receivable, compared with $150 million at December 31, 2003. Accordingly, trade accounts receivable of $100 million as of March 31, 2004 and $150 million as of December 31, 2003 are excluded from the Condensed Consolidated Financial Statements. As discussed further below, the Company retains an interest in the master trust based on funding levels determined by the Receivables Company. The Company's retained interest in the master trust is included in the Condensed Consolidated Financial Statements under the caption, "Retained interest in receivables sold, net." For further information on the Company's retained interest in the master trust, see the caption "Retained Interest" below.

The Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to this program vary on a daily basis and generally are related to certain short-term interest rates. The annual interest rate on the certificates issued under the Receivables Securitization Program during the first quarter of 2004 was 1.1%. In addition to the interest on the certificates, the Company pays certain bank fees related to the program. Losses recognized on the sale of accounts receivable, which represent the financial cost of funding under the program, totaled approximately $0.7 million for the first quarter of 2004, compared with $0.8 million for the first quarter of 2003. Proceeds from the collections under this revolving agreement for the quarters ended March 31, 2004 and 2003 were $859.0 million and $838.2 million, respectively. All costs and/or losses related to the Receivables Securitization Program are included in the Condensed Consolidated Financial Statements of Income under the caption "Other Expense, net."

The Company has maintained the responsibility for servicing the sold trade accounts receivable and those transferred to the master trust. No servicing asset or liability has been recorded because the fees the Company receives for servicing the receivables approximate the related costs.

Retained Interest

The Receivables Company determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount. It retains a residual interest in the eligible receivables transferred to the trust, such that amounts payable in respect of such residual interest will be distributed to the Receivables Company upon payment in full of all amounts owed by the Receivables Company to the trust (and by the trust to its investors). The Company's net retained interest on $329.1 million and $303.7 million of trade receivables in the master trust as of March 31, 2004 and December 31, 2003 was $229.1 million and $153.7 million, respectively. The Company's retained interest in the master trust is included in the Condensed Consolidated Financial Statements under the caption, "Retained interest in receivables sold, net."

The Company measures the fair value of its retained interest throughout the term of the Receivables Securitization Program using a present value model incorporating the following two key

economic assumptions: (1) an average collection cycle of approximately 40 days; and (2) an assumed discount rate of 5% per annum. In addition, the Company estimates and records an allowance for doubtful accounts related to the Company's retained interest. Considering the above noted economic factors and estimates of doubtful accounts, the book value of the Company's retained interest approximates fair value. A 10% and 20% adverse change in the assumed discount rate or average collection cycle would not have a material impact on the Company's financial position or results of operations. Accounts receivable sold to the master trust and written off during the first quarter of 2004 were not material.

8. Retirement Plans

Pension and Postretirement Health Benefit Plans

The Company maintains pension plans covering a majority of its employees. In addition, the Company has a postretirement health benefit plan covering substantially all retired non-union employees and their dependents. For more information on the Company's retirement plans, see Notes 10 and 11 to the Company's Consolidated Financial Statements for the year ended December 31, 2003. A summary of net periodic benefit cost related to the Company's pension and postretirement health benefit plan for the three months ended March 31, 2004 and 2003 is as follows (amounts in thousands):

	Pension Benefits						Postretirement Health Benefits
	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2004			2003			2004		2003
Service cost—benefit earned during the period	$	1,231		$	1,073		$	179	$	155
Interest cost on projected benefit obligation		1,253			1,116			126		112
Expected return on plan assets		(1,070	)		(870	)		—		—
Amortization of prior service cost		51			31			—		—
Amortization of actuarial loss		287			269			—		—

Net periodic pension or postretirement cost	$	1,752		$	1,619		$	305	$	267

During the first quarter of 2004, the Company made contributions of $1.0 million to its pension plans, compared with $0.6 million in the same quarterly period in 2003.

Defined Contribution Plan

The Company has a defined contribution plan covering certain salaried employees and non-union hourly paid employees. The plan permits employees to have contributions made as 401(k) salary deferrals on their behalf, or as voluntary after-tax contributions, and provides for Company contributions, or contributions matching employees' salary deferral contributions, at the discretion of the Board of Directors. Company contributions to match employees' contributions were $0.9 million in the first quarter of 2004, compared with $0.7 million in first quarter of 2003.

9. Recent Accounting Pronouncements

In January 2004, the FASB issued FASB Staff Position ("FSP") No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). FSP No. 106-1 provides preliminary accounting guidance on how to account for the effects of the Act on postretirement benefit plans. As permitted by FSP No. 106-1, the Company has elected to defer accounting for the impact of the Act until the FASB issues final accounting guidance later in 2004. As a result, amounts related to the Company's postretirement benefit plan recognized in the Company's Condensed Consolidated Financial Statements and accompanying Note 8, do not reflect the effects of the Act. Specific authoritative guidance on the accounting for the Act is pending and that guidance, when issued, could require the Company to change previously reported information. The Company is currently evaluating the impact of the Act on its postretirement benefit plan.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management's current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, but are not limited to:

•: the Company's ability to effectively manage its operations and to implement general cost-reduction initiatives;
•: the Company's reliance on key suppliers and the impact of fluctuations in their pricing;
•: variability in supplier allowances and promotional incentives payable to the Company based on inventory purchase volumes, attainment of supplier-established growth hurdles, and supplier participation in the Company's annual and quarterly catalogs and other marketing programs;
•: the impact of supplier allowances and promotional incentives on the Company's gross margin;
•: the Company's ability to anticipate and respond to changes in end-user demand;
•: the impact of variability in customer demand on the Company's product offerings and sales mix and, in turn, on customer rebates payable, and supplier allowances earned, by the Company and on the Company's gross margin;
•: competitive activity and pricing pressures;
•: reliance on key management personnel;
•: acts of terrorism or war;
•: uncertainties surrounding the Sarbanes-Oxley Act of 2002, including new rulemaking by the Securities and Exchange Commission;
•: and prevailing economic conditions and changes affecting the business products industry and the general economy.

Readers should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

The following is a summary of selected trends that are known, or expected, to have a significant impact on the Company's performance.

•: While some positive employment data was seen in the latter part of the first quarter of 2004, unemployment in the quarter was high relative to recent years and has made sales growth challenging for the Company, particularly unemployment among the white-collar workers who comprise a significant part of the market served by the Company's reseller customers. To avoid or delay hiring additional employees, many companies were asking existing workers to become more productive, contributing to the "jobless recovery." Some companies were also using

temporary workers or delaying hiring until they are certain an economic recovery will be sustained.

•: Computer consumables and audio/visual continue to be the Company's largest product category by sales volume. This category grew by nearly 2% in the first quarter of 2004 versus the same period in 2003. The growth in this category is primarily attributable to office workers' increasing reliance on office technology. Computer consumables generally have lower gross margins than the Company's other product categories, although the associated operating costs are typically lower than operating costs for the other product categories distributed by the Company.
•: Budget constraints are limiting some companies' purchases to products that are critical to operating their businesses while deferring high-margin discretionary purchases such as office furniture. This has put downward pressure on the Company's gross margin as a result of the shift in product mix. Furniture sales in the first quarter of 2004 rose 2.8% versus the same period last year. This is the first quarter of growth in nine quarters.
•: Independent dealers account for a significant percentage of the Company's net sales. Their continued viability and success are important to future sales and earnings growth. Independent dealers face significant challenges, including weak end-consumer demand as a result of macroeconomic pressures and increasing competition from existing national resellers. National resellers may have competitive advantages over independent dealers, such as greater economies of scales, bigger marketing and advertising budgets and larger retail and online presence and scope. Independent dealers typically compete with national resellers by providing value-added services.
•: The Company's gross margin has declined over the past several years. The annual gross margin percentage was essentially flat between 2003 and 2002. The Company experienced a slightly higher gross margin rate during the first quarter of 2004 versus the same period in 2003 and the exit rate at the end of 2003. This increase resulted primarily from increased vendor allowances achieved through enhanced supplier programs, initiatives to reduce the resulting loss on damaged merchandise and initiatives to reduce net delivery expense. Gross margin pressures are expected to continue if sales volume continues to shift toward lower-margin technology products.

Recent Results

Sales for the second quarter to date (as of this filing) are up slightly. Recent economic reports are encouraging for the expansion of white-collar employment, which is closely tied to sales in the business products industry. The Company's recent sales results in janitorial and sanitation products and furniture are favorable signs of a better operating environment for the Company.

Critical Accounting Estimates

The Company considers an accounting estimate to be critical if: (1) the estimate requires management to make assumptions about matters that were highly uncertain at the time the accounting estimate is made, and 2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that management reasonably could have used in the current period, which could have a material impact on the Company's financial condition or results of operations.

As described in Note 2 of the Notes to the Company's Condensed Consolidated Financial Statements, preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Each of these required estimates varies in regard to the level of judgment involved and its potential impact on the Company's reported financial

results. Historically, actual results have not significantly deviated from those determined using the estimates described below.

Revenue Recognition

Revenue is recognized when a service is rendered or when title to the product has transferred to the customer. Management records an estimate for future product returns related to revenue recognized in the current period. This estimate requires management to make certain estimates and judgments, including estimating the amount of future returns of products sold in the current period. This estimate is based on historical product-return trends and the gross margin associated with those returns. The risk in the methodology used is the dependence on historical information for product returns and gross margins to record an estimate of future product returns. If actual product returns on current period sales differ from historical trends, the amounts estimated for product returns (which reduce net sales) for the period may be overstated or understated, causing actual results of operation or financial condition to differ from those expected.

Valuation of Accounts Receivable

The Company makes judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which represents the collectability of trade accounts receivable. This allowance adjusts gross trade accounts receivable downward to its estimated net realizable value. To determine the appropriate allowance for doubtful accounts, management undertakes a two-step process. First, a general allowance percentage is applied to accounts receivables generated as a result of sales. This percentage is based on historical trends for customer write-offs. Periodically, management reviews this allowance percentage, based on current information and trends. Second, management reviews specific customers accounts receivable balances and specific customer circumstances to determine whether further allowance is necessary. As part of this specific customer analysis, management will consider items such as bankruptcy filings, historical charge-off patterns, accounts receivable concentrations and the current level of receivables compared with historical balances.

The primary risk in the methodology used to estimate the allowance for doubtful accounts is its dependence on historical information to predict the collectability of accounts receivable and the availability of current financial information from customers. In addition, to the extent actual collections of accounts receivable differ from historical trends, the allowance for doubtful accounts and related expense for the current period may be overstated or understated.

Manufacturers' Allowances and Cumulative Effect of a Change in Accounting Principle

Manufacturers' allowances (fixed and variable) are common practice in the business products industry and have a significant impact on the Company's overall gross margin. Gross margin includes, among other items, file margin (determined by reference to invoiced price), as reduced by estimated customer discounts and rebates as discussed in Note 2 to the Condensed Consolidated Financial Statements, and increased by estimated manufacturers' allowances and promotional incentives. These allowances and incentives are estimated on an on going basis and the potential variation between the actual amount of these margin contribution elements and the Company's estimates of them could be material to its financial results. Reported results reflect management's best current estimate of such allowances and incentives.

reduction in inventory and subsequently recorded to income through lower cost of goods sold as inventory is sold.

Customer Rebates

Insured Loss Liability Estimates

As a result of relatively high deductible amounts under insurance coverage, the Company is primarily responsible for retained liabilities related to workers' compensation, vehicle and general liability and certain employee health benefits. The Company records expense for paid and open claims and an expense for claims incurred but not reported based on historical trends and on certain assumptions about future events. The Company has an annual per person maximum cap on certain employee medical benefits provided by a third-party insurance company. In addition, the Company has both a per-occurrence maximum loss and an annual aggregate maximum cap on workers' compensation claims.

Income taxes

The Company accounts for income taxes in accordance with FASB Statement No. 109, "Accounting for Income Taxes." The Company estimates actual current tax expense and assesses temporary differences that exist due to differing treatments of items for tax and financial statement purposes. These differences result in the recognition of deferred tax assets and liabilities. The tax balances and income tax expense recognized by the Company are based on management's interpretation of the tax laws of multiple jurisdictions. Income tax expense also reflects the Company's best estimates and assumptions regarding, among other things, the level of future taxable income, interpretation of the tax laws, and tax planning. Future changes in tax laws, changes in projected levels of taxable income, and tax planning could affect the effective tax rate and tax balances recorded by the Company. Management's estimates as of the date of the financial statements reflect its best judgment giving consideration to all currently available facts and circumstances. As such, these estimates may require adjustment in the future, as additional facts become known or as circumstances change.

Inventories

Selected Comparative Results for the Three Months Ended March 31, 2004 and 2003

The following table presents the Condensed Consolidated Statements of Income as a percentage of net sales:

		Three Months Ended March 31,
		2004		2003
Net sales		100.0	%	100.0	%
Cost of goods sold		85.1		85.7

Gross margin		14.9		14.3
Operating expenses
	Warehousing, marketing and administrative expenses	10.9		10.7

Income from operations		4.0		3.6
Interest expense, net		0.1		0.3
Loss on early retirement of debt		—		0.1
Other expense, net		—		0.1

Income before income taxes and cumulative effect of a change in accounting principle		3.9		3.1
Income tax expense		1.5		1.2

Income before cumulative effect of a change in accounting principle		2.4		1.9
Cumulative effect of a change in accounting principle		—		(0.6	)

Net income		2.4	%	1.3	%

Results of Operations—Three Months Ended March 31, 2004 Compared with the Three Months Ended March 31, 2003

Net Sales. Net sales for the first quarter of 2004 were $987.9 million, up 1.8% compared with sales of $970.2 million for the first quarter of 2003. The Company benefited from one additional selling day during the first quarter of 2004 versus the same period in 2003. However, on a comparative basis to the first quarter of 2003, net sales for the first quarter of 2004 were negatively impacted by a

$25 million loss of volume from a customer at the Company's Canadian division. The following table summarizes net sales by product category for quarters ended March 31, 2004 and 2003:

	Three Months Ended March 31,
	2004		2003
Computer consumables	$	393	$	387
Traditional office products		256		259
Janitorial and sanitation supplies		115		104
Office furniture		109		106
Audio/visual		94		92
Other		21		22

Total net sales	$	988	$	970

Sales in the computer consumables and audio/visual categories grew 1.7% in the first quarter of 2004 compared to the prior year period. These categories represent the largest percentage of the Company's consolidated net sales. The majority of the above referenced $25 million loss of volume at the Company's Canadian division was concentrated in the computer consumables category. To further increase the growth in these categories, the Company is now the only wholesale distributor for these products where orders can be electronically transmitted, picked, packed, shipped and invoiced with 20,000 other office products. This allows our customers to eliminate costs and time they had previously incurred to separately order, track and coordinate multiple shipments, which may be delivered to different consumer locations.

Sales rose 10.6% in the janitorial and sanitation product category compared to the prior year quarter and accounted for nearly 12% of the Company's sales. Growth in this sector was primarily due to continued growth at large distributors the Company serves. In addition, the Company is building new programs and launching new initiatives to help drive continued growth in this category. One initiative is to become the single source supplier for office products dealers for purchases of janitorial and sanitation supplies and office products.

Office furniture sales in the first quarter of 2004 increased 2.8% compared to the same quarterly period in 2003. Office furniture accounts for 11% of the Company's net sales. This is the first quarter of growth in this product category in the last nine quarters.

Traditional office products represented approximately 26% percent of the Company's sales in the first quarter of 2004. Sales of traditional office products experienced a decline of 1.2% versus the prior year quarter. Sales in this category continue to be under pressure, as end-user demand for discretionary office products remains weak.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the three months ended March 31, 2004 was $147.6 million, compared to $138.6 million in the prior year quarter.

The gross margin rate (gross profit as a percentage of net sales) in the first quarter of 2004 was 14.9%, compared with 14.3% in the same period last year. The Company's gross margin rate was positively impacted by a 0.3 percentage point reduction in net delivery expense and a 0.2 percentage point reduction in losses from damaged merchandise primarily as a result of internal initiatives. In addition, the gross margin rate benefited by 0.2 percentage points from increased manufacturers' allowances due to supplier program enhancements.

Operating Expenses. Operating expenses for the first quarter of 2004 were $108.2 million, or 10.9% of sales, compared with $103.5 million, or 10.7% of sales, in the same three-month period last year. During the first quarter of 2004, the Company incurred an incremental $1.0 million for expenses related to building its category management and operational teams. Approximately $2.5 million for

higher employee benefit costs including healthcare claims and workers' compensation also negatively impacted operating expenses. The Company is experiencing higher per claim cost for healthcare and workers' compensation due to the continued double-digit growth in medical care costs.

Interest Expense, net. Net interest expense for the first quarter of 2004 totaled $0.6 million, compared with $3.2 million in the same period last year. This decline reflects savings due to the redemption of the 8.375% Notes financed primarily through the Company's lower-cost Receivables Securitization Program.

Loss on Early Retirement of Debt. During the first quarter of 2003, the Company recorded a loss on early retirement of debt totaling $0.8 million associated with the write-off of deferred financing costs related to replacement of its Prior Credit Agreement with the 2003 Credit Agreement (see Note 6 to the Condensed Consolidated Financial Statements). No such loss was recognized in the first quarter of 2004.

Other Expense, net. Net other expense for the three months ended March 31, 2004 totaled $0.5 million compared with $0.8 million for the same three-month period last year. Net other expense for the three months ended March 31, 2004 included $0.3 million related to the write-down of certain assets held for sale, $0.7 million associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (described below), offset by a gain of $0.5 million from the disposition of property, plant and equipment.

Cumulative Effect of a Change in Accounting Principle. During the first quarter of 2003, the Company recorded a cumulative effect of a change in accounting principle of $6.1 million, representing a one-time, non-cash, cumulative after-tax charge related to the adoption of EITF Issue No. 02-16 (see Note 2 to the Condensed Consolidated Financial Statements). No such charge was recorded in the first quarter of 2004.

Income Taxes. Income tax expense totaled $14.9 million in the first quarter of 2004, compared with $11.5 million during the first quarter of 2003. The Company's effective tax rate for the first quarter of 2004 was 38.9%, compared with 38.0% in the first quarter of 2003. This increase is a result of the projected annual pre-tax earnings mix between states and legal entities as well as changes to state tax rates.

Net Income. For the three months ended March 31, 2004, the Company recorded net income of $23.4 million, or $0.68 per diluted share, compared with net income of $12.7 million, or $0.39 per diluted share for the same period in 2003. Net income and diluted earnings per share for the first quarter of 2003 include charges related to the cumulative effect of a change in accounting principle related to the adoption of EITF Issue No. 02-16 of $6.1 million after tax, or $0.18 per diluted share and for the early retirement of debt of $0.8 million ($0.5 million after tax), or $0.02 per diluted share. For further information on EITF Issue No. 02-16 or the early retirement of debt, see Notes 2 and 6, respectively, to the Condensed Consolidated Financial Statements.

Liquidity and Capital Resources

General

United is a holding company and, as a result, its primary sources of funds are cash generated from the operating activities of its operating subsidiary, USSC, including the sale of certain accounts receivable, and cash from borrowings by USSC. Restrictive covenants in USSC's debt agreements restrict USSC's ability to pay cash dividends and make other distributions to United. In addition, the right of United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors, including trade creditors, of USSC. The Company's outstanding debt under

GAAP, together with funds generated from the sale of receivables under the Company's off-balance sheet Receivables Securitization Program consisted of the following amounts (in thousands):

	As of March 31, 2004			As of December 31, 2003
Revolver	$	13,000		$	10,500
Industrial development bonds, at market-based interest rates, maturing in 2011		6,800			6,800
Other long-term debt		—			24

Debt under GAAP		19,800			17,324
Accounts receivable sold(1)		100,000			150,000

Adjusted debt		119,800			167,324
Stockholders' equity		693,582			672,978

Total capitalization	$	813,382		$	840,302

Adjusted debt-to-total capitalization ratio		14.7	%		19.9	%

(1): See discussion under Receivables Securitization Program

The most directly comparable financial measure to adjusted debt that is calculated and presented in accordance with GAAP is total debt (as provided in the above table as "Debt under GAAP"). Under GAAP, accounts receivable sold under the Company's Receivables Securitization Program are required to be reflected as a reduction in accounts receivable and not reported as debt. Internally, the Company considers accounts receivables sold to be a financing mechanism. The Company believes it is helpful to provide readers of its financial statements with a measure that adds accounts receivable sold to debt.

During the three months ended March 31, 2004, the Company utilized cash flow to reduce adjusted debt. Under GAAP, total debt outstanding during the first quarter of 2004 increased by $2.5 million as a result of additional borrowings under the Company's Revolver. Considered in conjunction with accounts receivable sold under the Company's Receivables Securitization Program, adjusted debt declined by $47.5 million during the first three months of 2004. At March 31, 2004, the Company's adjusted debt-to-total capitalization ratio (adjusted from the debt under GAAP amount to add the receivables then sold under the Company's Receivables Securitization Program as debt) was 14.7%, compared to 19.9% at December 31, 2003.

The adjusted debt-to-total capitalization ratio is provided as an additional liquidity measure. GAAP requires that accounts receivable sold under the Company's Receivables Securitization Program be reflected as a reduction in accounts receivable and not reported as debt. Internally, the Company considers accounts receivables sold to be a financing mechanism. The Company believes it is helpful to provide readers of its financial statements with a measure that adds accounts receivable sold to debt, and calculates debt-to-total capitalization on the same basis. A reconciliation of this non-GAAP measure is provided in the table above.

Operating cash requirements and capital expenditures are funded from operating cash flow and available financing. Financing available from debt and the sale of accounts receivable at March 31, 2004, is summarized below:

Availability ($in millions)
Funded debt		$	19.8
Accounts receivable sold			100.0

	Total utilized financing			$	119.8
Revolving Credit Facility availability			246.9
Availability under the Receivables Securitization Program			125.0

	Total unutilized				371.9

	Total available financing, before restrictions				491.7
Restrictive covenant limitation					—

	Total available financing at March 31, 2004			$	491.7

Restrictive covenants under the 2003 Credit Agreement (as defined below) separately limit total available financing at points in time, as further discussed below. At March 31, 2004, the leverage ratio covenant in the Company's 2003 Credit Agreement did not impact the Company's $492 million of available total funding from debt and the sale of accounts receivable (as shown above).

The Company believes that its operating cash flow and financing capacity, as described, provide adequate liquidity for operating the business for the foreseeable future.

2003 Credit Agreement

Loans outstanding under the 2003 Credit Agreement bear interest at a floating rate (based on the higher of either the prime rate or the federal funds rate plus 0.50%) plus a margin of 0% to 0.75% per annum, or at USSC's option, LIBOR (as it may be adjusted for reserves) plus a margin of 1.25% to 2.25% per annum, or a combination thereof. The margins applicable to floating rate and LIBOR loans are determined by reference to a pricing matrix based on the total leverage of United and its consolidated subsidiaries. Initial applicable margins were 0.50% and 2.00%, respectively.

The 2003 Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type.

Debt maturities under the 2003 Credit Agreement as of March 31, 2004, are as follows (dollars in thousands):

Year	Amount
2004	$	—
2005		—
2006		—
2007		—
2008		13,000
Later years		—

Total	$	13,000

Off-Balance Sheet Arrangements—Receivables Securitization Program

General

The Company utilizes this program to fund its cash requirements more cost effectively than under the 2003 Credit Agreement. Standby liquidity funding is committed for only 364 days and must be renewed before maturity in order for the program to continue. The program liquidity was renewed on March 26, 2004. The program contains certain covenants and requirements, including criteria relating to the quality of receivables within the pool of receivables. If the covenants or requirements were compromised, funding from the program could be restricted or suspended, or its costs could increase. In such a circumstance, or if the standby liquidity funding were not renewed, the Company could require replacement liquidity. As discussed above, the Company's 2003 Credit Agreement is an existing alternate liquidity source. The Company believes that, if so required, it also could access other liquidity sources to replace funding from the program.

Financial Statement Presentation

The Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to this program vary on a daily basis and generally are related to certain short-term interest rates. The annual interest rate on the certificates issued under the Receivables Securitization Program during the first quarter of 2004 was 1.1%. In addition to the interest on the certificates, the Company pays certain bank fees related to the program. Losses recognized on the sale of accounts receivable, which represent the financial cost of funding under the program, totaled approximately $0.7 million for the first quarter of 2004, compared with $0.8 million in the first quarter of 2003. Proceeds from the collections under this revolving agreement for the quarters ended March 31, 2004 and 2003 were $859.0 million and $838.2 million, respectively. All costs and/or losses related to the Receivables Securitization Program are included in the Condensed Consolidated Financial Statements of Income under the caption "Other Expense, net."

Retained Interest

The Company measures the fair value of its retained interest throughout the term of the Receivables Securitization Program using a present value model incorporating the following two key economic assumptions: (1) an average collection cycle of approximately 40 days; and (2) an assumed discount rate of 5% per annum. In addition, the Company estimates and records an allowance for doubtful accounts related to the Company's retained interest. Considering the above noted economic factors and estimates of doubtful accounts, the book value of the Company's retained interest approximates fair value. A 10% and 20% adverse change in the assumed discount rate or average collection cycle would not have a material impact on the Company's financial position or results of operations. Accounts receivable sold to the master trust and written off during the first quarter of 2004 were not material.

Cash Flow

Cash flows for the Company for the three months ended March 31, 2004 and 2003 are summarized below (in thousands):

	For the Three Months Ended March 31,
	2004		2003
Net cash provided by operating activities	$	4,077	$	123,914
Net cash provided by (used in) investing activities		2,344		(1,061	)
Net cash provided by (used in) financing activities		83		(103,308	)

Cash Flow From Operations

A key strength of our business is our ability to consistently generate strong cash from operations. The Company's cash from operations is generated primarily from net income and improvements in working capital. Net cash provided by operating activities for the quarter ended March 31, 2004 reached $4.1 million, compared with $123.9 million in the same quarter of 2003. Higher net income and improved working capital management, including a $44.1 million reduction in inventories as a result of better inventory management, positively impacted net cash provided by operating activities in the first quarter of 2004.

Internally, the Company considers accounts receivable sold under the Receivables Securitization Program (as defined) as a financing mechanism and not, as required under GAAP, a source of cash flow from operations. Since the Company's retirement of its 8.375% Notes and replacement of the Prior Credit Agreement (see Note 6 to the Condensed Consolidated Financial Statements for a discussion of these events), the Receivables Securitization Program is the Company's primary financing mechanism. The Company believes it is useful to provide the readers of its financial statements with net cash provided by operating activities and net cash used in financing activities adjusted for the effects of changes in accounts receivable sold. Net cash provided by operating activities excluding the effects of receivables sold and net cash used in financing activities including the effects of receivables sold for the three months ended March 31, 2004 and 2003 is provided below as an additional liquidity measure (in millions):

		For the Three Months Ended March 31,
		2004			2003
Cash Flows From Operating Activities:
	Net cash provided by operating activities	$	4.1		$	123.9
	Excluding the change in accounts receivable sold		50.0			(55.0	)

	Net cash provided by operating activities excluding the effects of receivables sold	$	54.1		$	68.9

Cash Flows From Financing Activities:
	Net cash used in financing activities	$	0.1		$	(103.3	)
	Including the change in accounts receivable sold		(50.0	)		55.0

	Net cash used in financing activities including the effects of receivables sold	$	(49.9	)	$	(48.3	)

Cash Flow From Investing Activities

Net cash provided by investing activities for the quarter ended March 31, 2004 was $2.3 million, compared with a net use of cash for investing activities of $1.1 million in the first quarter of 2003. For

both the three months ended March 31, 2004 and 2003, the Company's cash from or used for investing activities related exclusively to net capital expenditures for ongoing operations and proceeds from the disposition of plant property, and equipment.

Funding for gross capital expenditures for the quarter ended March 31, 2004 and 2003 totaled $2.4 million and $1.1 million, respectively. Proceeds from the disposition of property, plant and equipment totaled $4.7 million for the first quarter of 2004, compared with less than $0.1 million in the same quarter of 2003. Proceeds from the disposition of plant, property and equipment for the first quarter of 2004 include $4.4 million for the sale of the Company's Detroit distribution center. As a result of the proceeds from the disposition of property, plant and equipment and low capital spending, net capital expenditures (gross capital expenditures minus net proceeds from property, plant and equipment dispositions) were negative during the first quarter of 2004. Net capital expenditures in the first three months of 2004 were ($2.3) million, compared with $1.1 million in the comparable three month period in 2003. Capitalized software costs for the periods ended March 31, 2004 and 2003 were $0.7 million and $0.4 million, respectively. As a result, net capital spending totaled ($1.6) million in the first quarter of 2004, compared to $1.5 million in the first quarter of 2003. The Company expects net capital spending for the remainder of 2004 to be approximately $15 million.

Net capital spending is provided as an additional measure of investing activities. The most directly comparable financial measure calculated and presented in accordance with GAAP is capital expenditures (as defined). Under GAAP, capital expenditures are required to be included on the cash flow statement under the caption "Net Cash Used in Investing Activities." The Company's accounting policy is to include capitalized software (system costs) in "Other Assets." GAAP requires that "Other Assets" be included on the cash flow statements under the caption "Net Cash Provided by Operating Activities." Internally, the Company measures cash used in investing activities including capitalized software. A reconciliation of net capital spending to capital expenditures is provided as follows (in millions):

	For the Three Months Ended March 31,
	For the Three Months Ended March 31,					Forecast Year Ending 2004
	2004			2003		Forecast Year Ending 2004
Net Capital Spending
Capital expenditures	$	2.4		$	1.1	$	20.0
Proceeds from the disposition of property, plant and equipment		(4.7	)		—		(10.0	)

Net cash (provided by) used in investing activities		(2.3	)		1.1		10.0
Capitalized software		0.7			0.4		5.0

Net capital spending	$	(1.6	)	$	1.5	$	15.0

Cash Flow From Financing Activities

In the first quarter of 2004, financing activities were a nominal source of cash for the Company, compared to a use of cash in the prior year period as a result of the Company's continued debt reduction efforts in that period. Net cash provided by financing activities was $0.1 million in the first quarter of 2004, compared to a use of cash totaling $103.3 million in the first three months of 2003. Cash flow provided by financing activities during the first quarter of 2004 resulted primarily from additional borrowings under the Company's Revolver of $2.5 million, offset by $2.9 million the Company expended to repurchase its common stock during the quarter (see "Common Stock Repurchase" caption in Note 1 to the Condensed Consolidated Financial Statements). Net cash used in financing activities during the first quarter of 2003 included $104.4 million in repayments and

retirement of long-term debt, partially offset by $1.6 million in proceeds from the issuance of treasury stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

The Company's exposure to interest rate risks is principally limited to the Company's outstanding long-term debt at March 31, 2004 of $19.8 million, $100 million of receivables sold under the Receivables Securitization Program and the Company's $229.1 million retained interest in the master trust (as defined above).

The Company has historically used both fixed-rate and variable or short-term rate debt. At March 31, 2004, all of the Company's outstanding debt is priced at variable interest rates. The Company's variable rate debt is based primarily on the applicable prime or London InterBank Offered Rate ("LIBOR"). The prevailing prime interest rate was 4.0% at March 31, 2004 and the LIBOR rate as of March 31, 2004 was approximately 1.3%. A 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $1.0 million in interest expense, loss on the sale of certain accounts receivable and cash flows from operations.

The Company's retained interest in the master trust (defined above) is also subject to interest rate risk. The Company measures the fair value of its retained interest throughout the term of the securitization program using a present value model that includes an assumed discount rate of 5% per annum and an average collection cycle of approximately 40 days. Based on the assumed discount rate and short average collection cycle, the retained interest is recorded at book value, which approximates fair value. Accordingly, a 50 basis point movement in interest rates would not result in a material impact on the Company's results of operations.

Foreign Currency Exchange Rate Risk

The Company's foreign currency exchange rate risk is limited principally to the Mexican Peso and the Canadian Dollar, as well as product purchases from Asian countries valued in the local currency and paid in U.S. dollars. Many of the products the Company sells in Mexico and Canada are purchased in U.S. dollars, while the sale is invoiced in the local currency. The Company's foreign currency exchange rate risk is not material to its financial position, results of operations or cash flows. The Company has not previously hedged these transactions, but it may enter into such transactions in the future.

ITEM 4. CONTROLS AND PROCEDURES.

(a): As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's management performed an evaluation, with the participation of the Company's its President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the Company's management, including its President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective.
(b): There were no changes in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Common Stock Purchase

The following table summarizes purchases of the Company's common stock during the first quarter of 2004:

Period		Total Number of Shares Purchased		Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
March 2004		75,000	(2)	$	39.01		75,000		$	23,944,620

(1): The Company announced on July 1, 2002 that its Board of Directors authorized the purchase of up to $50 million of the Company's common stock.
(2): All share purchases were executed under the Company's stock purchase authorization.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a): Exhibits

Exhibit No.		Description
3.1		Second Restated Certificate of Incorporation of United, dated as of March 19, 2002 (Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 1, 2002 (the "2001 Form 10-K"))
3.2		Amended and Restated Bylaws of United, dated as of January 28, 2003. (Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed on March 31, 2003 (the "2002 Form 10-K"))
4.1		Rights Agreement, dated as of July 27, 1999, by and between the Company and BankBoston, N.A., as Rights Agent (Exhibit 4.1 to the Company's 2001 Form 10-K)
4.2		Amendment to Rights Agreement, effective as of April 2, 2002, by and among United, Fleet National Bank (f/k/a BankBoston, N.A.) and EquiServe Trust Company, N.A. (Exhibit 4.1 to the Company's Form 10-Q for the Quarter ended March 31, 2002, filed on May 15, 2002)
4.3		Credit Agreement, dated as of March 21, 2003, among USSC as borrower, United as a credit party, the lenders from time to time thereunder (the "Lenders") and Bank One, = NA, as administrative agent (Exhibit 4.8 to the 2002 Form 10-K)
4.4		Pledge and Security Agreement, dated as of March 21, 2003, by and between USSC as borrower, United, Azerty Incorporated, Lagasse, Inc., USFS, United Stationers Technology Services LLC (collectively, the "Initial Guarantors"), and Bank One, NA as agent for the Lenders (Exhibit 4.9 to the 2002 Form 10-K)
4.5		Guaranty, dated as of March 21, 2003, by the Initial Guarantors in favor of Bank One, NA as administrative agent (Exhibit 4.10 to the 2002 Form 10-K)
10.1*		Series 2004-1 Supplement, dated as of March 26, 2004 to the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003 by and among USS Receivables Company, Ltd. ("USSR"), United Stationers Financial Services LLC ("USFS"), Fifth Third Bank (Chicago) and JPMorgan Chase Bank.
10.2*		Omnibus Amendment, dated as of March 26, 2004, by and among the Company, USSR, USFS, Falcon Asset Securitization Corporation, PNC Bank, National Association, Market Street Funding Corporation, Bank One, NA (Main Office Chicago) and JPMorgan Chase Bank.
15.1*		Letter regarding unaudited interim financial information.
15.2*		Letter regarding unaudited interim financial information.
31.1*		Certification of Chief Executive Officer, dated as of May 7, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer, dated as of May 7, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer and Chief Financial Officer, dated as of May 7, 2004, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Filed herewith.

(b): Reports on Form 8-K

The Company filed the following Current Reports on Form 8-K during the first quarter of 2004:

•: The Company filed a Current Report on Form 8-K on January 30, 2004, reporting under Item 12 the Company's financial results for the fourth quarter of 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNITED STATIONERS INC. (Registrant)

Date: May 7, 2004	/s/ KATHLEEN S. DVORAK Kathleen S. Dvorak Senior Vice President and Chief Financial Officer (Duly authorized signatory and principal financial officer)

QuickLinks

PART II—OTHER INFORMATION
EX-10.1 2 a2136021zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 EXECUTION COPY USS RECEIVABLES COMPANY, LTD. UNITED STATIONERS FINANCIAL SERVICES LLC, as Servicer, FIFTH THIRD BANK, as Administrator and Committed Purchaser, and JPMORGAN CHASE BANK, as Trustee ---------- SERIES 2004-1 SUPPLEMENT Dated as of March 26, 2004 to SECOND AMENDED AND RESTATED POOLING AGREEMENT Dated as of March 28, 2003 ---------- UNITED STATIONERS RECEIVABLES MASTER TRUST TABLE OF CONTENTS

-i- TABLE OF CONTENTS (continued)

-ii- EXHIBITS Exhibit A VFC Certificate, Series 2004-1 Exhibit B Form of [Assignment] [Participation] Certification Exhibit C Form of Notice of Increase Exhibit D Form of Monthly Settlement Statement Exhibit E Form of Commitment Transfer Supplement SCHEDULES Schedule 1 Commitments SERIES 2004-1 SUPPLEMENT, dated as of March 26, 2004 (as amended, supplemented or otherwise modified from time to time, this ("SUPPLEMENT"), among USS Receivables Company, Ltd., a Cayman Islands limited liability company (the "COMPANY"), United Stationers Financial Services LLC ("USFS"), as servicer (except where otherwise noted) (in such capacity, the "SERVICER"), Fifth Third Bank (Chicago), a national banking association ("FIFTH THIRD" and, including its successors and assigns, the "COMMITTED PURCHASER" and, in its capacity as administrator for the Fifth Third Conduit Program, the "ADMINISTRATOR"), and JPMorgan Chase Bank, in its capacity as Trustee (the "TRUSTEE") under the Agreement (as defined below). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company, the Servicer and the Trustee (formerly known as Bank One, NA) have entered into a Second Amended and Restated Pooling Agreement, dated as of March 28, 2003 (as amended, supplemented or otherwise modified from time to time, the "AGREEMENT"; capitalized terms used herein and not otherwise defined are used as defined in the Agreement); WHEREAS, the Agreement provides, among other things, that the Company, the Servicer and the Trustee may at any time and from time to time enter into supplements to the Agreement for the purpose of authorizing the issuance on behalf of the Trust by the Company for execution and redelivery to the Trustee for authentication of one or more Series of Investor Certificates; and WHEREAS, the Company, the Servicer, the Trustee, the Committed Purchaser and the Administrator wish to supplement the Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. (a) The following words and phrases shall have the following meanings with respect to Series 2004-1 and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "ACCRUAL PERIOD" shall mean the period from and including a Distribution Date, or, in the case of the initial Accrual Period, the Issuance Date, to but excluding the succeeding Distribution Date. "ACCRUED EXPENSE AMOUNT" shall mean, for each Business Day during an Accrual Period, the sum of (i) the Daily Interest Deposit for such Business Day, (ii) the Daily Commitment Fee Deposit for such Business Day, (iii) the Daily Utilization Fee Deposit for such Business Day, (iv) the Daily Servicing Fee Deposit for such Business Day and (v) all Program Costs which have accrued since the preceding Business Day. "ADDITIONAL INTEREST" shall have the meaning assigned in subsection 3A.4(c). "ADMINISTRATOR" shall have the meaning specified in the introductory paragraph hereto. "AFFECTED PARTY" means any of the Committed Purchaser, any Liquidity Purchaser, the Administrator, any other Program Support Provider and their respective Affiliates. "AGENT" shall mean, for purposes of this Supplement and the Agreement, the Administrator. "AGGREGATE COMMITMENT AMOUNT" for purposes of any calculation under any Transaction Document referring to the "Commitment" amount under this Supplement, shall mean the Purchase Limit. "ALLOCATED RECEIVABLES AMOUNT" shall mean the Series 2004-1 Allocated Receivables Amount. "ALTERNATE RATE" shall mean, for any Rate Period for any Funding Tranche, an interest rate PER ANNUM equal to: (a) the Applicable Margin PER ANNUM plus the Euro-Rate for such Rate Period, or, in the sole discretion of the Administrator (b) the Base Rate for such Rate Period as determined each day in such Rate Period; PROVIDED, HOWEVER, that the "Alternate Rate" for any day while an Early Amortization Event exists shall be an interest rate equal to 2.00% per annum above the Base Rate in effect on such day. "APPLICABLE MARGIN" shall mean on any date of determination, for each Eurodollar Tranche, the sum of (i) the "Applicable Margin" (as defined in the Credit Agreement) then in effect for "Eurodollar Advances" (as defined in the Credit Agreement), plus (ii) .25% per annum. "ASSIGNMENT/PARTICIPATION CERTIFICATION" shall mean an assignment or participation certification, as the case may be, in substantially the form of Exhibit B hereto. "BASE RATE" shall mean, for any day, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the higher: (a) the rate of interest in effect for such day as publicly announced from time to time by Fifth Third in Cincinnati, Ohio as its "prime rate." Such "prime rate" is set by Fifth Third based upon various factors, including Fifth Third's costs and desired return, general 2 economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate, and (b) 0.50% per annum above the latest Federal Funds Rate. "BOARD" shall mean the Board of Governors of the Federal Reserve System of the United States. "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CHANGE IN LAW" shall mean (a) the adoption of any law, rule or regulation after the Issuance Date, (b) any change in law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Issuance Date, (c) compliance by any Person with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Issuance Date or (d) any adoption of any generally accepted accounting standard or any change therein or in the interpretation or application thereof. "CLAIM" shall have the meaning assigned in subsection 2.10(a). "COMMERCIAL PAPER" shall mean the promissory notes issued or to be issued by the Fifth Third Conduit Program in the commercial paper market. "COMMITMENT EXPIRY DATE" shall mean March 25, 2005 (as may be extended for an additional 364 days from time to time in writing by the Committed Purchaser and the Administrator in their sole discretion). "COMMITMENT FEE" shall have the meaning assigned in subsection 2.9(b). "COMMITMENT FEE RATE" shall have the meaning assigned in the Fee Letter. "COMMITMENT PERIOD" shall mean the period commencing on the Issuance Date and terminating on the Commitment Termination Date. "COMMITMENT TERMINATION DATE" shall mean the earlier to occur of (i) the date on which the Purchase Limit has been reduced to zero pursuant to Section 2.8 of this Supplement, and (ii) the Commitment Expiry Date. "COMMITMENT TRANSFER SUPPLEMENT" shall have the meaning assigned in subsection 11.11(b). "COMPANY" shall have the meaning specified in the introductory paragraph hereto. 3 "COMMITTED PURCHASER" shall have the meaning specified in the introductory paragraph hereto. "CONSOLIDATED CAPITAL EXPENDITURES" shall mean for USI and its Subsidiaries (other than TOPCO), with reference to any period, calculated on a consolidated basis for such period and without duplication, any expenditures for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of USI and its Subsidiaries prepared in accordance with GAAP, excluding (i) expenditures of insurance proceeds to rebuild or replace any asset after a casualty loss, (ii) leasehold improvement expenditures for which USI or a Subsidiary is reimbursed by the lessor, sublessor or sublessee, (iii) expenditures of Net Cash Proceeds of any asset sale permitted under Section 6.12 of the Credit Agreement, and (iv) with respect to any Permitted Acquisition, (a) the Purchase Price thereof and (b) any Capital Expenditures expended by the seller or entity to be acquired in any Permitted Acquisition prior to the date of such Permitted Acquisition and not in contemplation of such Permitted Acquisition. "CONSOLIDATED EBITDA" means, with respect to any period, Consolidated Net Income for such period plus, to the extent deducted from revenues in determining Consolidated Net Income for such period, (i) Consolidated Interest Expense, (ii) expense for taxes paid or accrued, (iii) depreciation, (iv) amortization, (v) losses attributable to equity in Affiliates, (vi) non-cash charges related to employee compensation and (vii) any extraordinary non-cash or nonrecurring non-cash charges or losses incurred other than in the ordinary course of business, minus, to the extent included in Consolidated Net Income for such period, any extraordinary non-cash or nonrecurring non-cash gains realized other than in the ordinary course of business, all calculated for USI and its Subsidiaries (other than TOPCO) on a consolidated basis. "CONSOLIDATED FUNDED INDEBTEDNESS" means, at any time, with respect to any Person, without duplication, the sum of (i) the aggregate dollar amount of Consolidated Indebtedness for borrowed money owing by such Person or for which such Person is liable which has actually been funded and is outstanding at such time, whether or not such amount is due or payable at such time, plus (ii) the aggregate undrawn amount of all standby letters of credit at such time for which such Person or any of its Subsidiaries is the account party or is otherwise liable (other than standby letters of credit in an amount up to $10,000,000 issued to support worker's compensation obligations of the Credit Parties (as defined in the Credit Agreement) and other than letters of credit supporting any other component of this definition), plus (iii) the aggregate principal component of Capitalized Lease Obligations owing by such Person and its Subsidiaries on a consolidated basis or for which such Person or any of its Subsidiaries is otherwise liable, plus (iv) all Off-Balance Sheet Liabilities of such Person and its Subsidiaries on a consolidated basis, plus (v) all Disqualified Stock of such Person and its Subsidiaries on a consolidated basis. "CONSOLIDATED INDEBTEDNESS" means at any time, with respect to any Person, the Indebtedness of such Person and its Subsidiaries calculated on a consolidated basis as of such time. 4 "CONSOLIDATED INTEREST EXPENSE" means, with reference to any period, the interest expense of USI and its Subsidiaries calculated on a consolidated basis for such period (net of interest income), including, without limitation, yield or any other financing costs resembling interest which are payable under any Receivables Purchase Facility. "CONSOLIDATED NET INCOME" means, with reference to any period, the net income (or loss) of USI and its Subsidiaries (other than TOPCO) calculated on a consolidated basis for such period and on a FIFO basis of inventory valuation. "CONSOLIDATED NET WORTH" means at any time, with respect to any Person, the consolidated stockholders' equity of such Person and its Subsidiaries calculated on a consolidated basis and on a FIFO basis of inventory valuation as of such time. "CONSOLIDATED RENTALS" means, with reference to any period, the rental expense (net of rental income) of USI and its Subsidiaries in respect of Operating Leases, but excluding rental expense for any extension thereof for a period shorter than twelve months, calculated on a consolidated basis for such period; provided that rental expense in respect of all non-real property rentals shall be the amount as set forth on the compliance certificate most recently delivered to the Administrator under the Credit Agreement pursuant to Section 6.1.3 of the Credit Agreement in connection with the most recent annual financial statements of USI delivered pursuant to Section 6.1.1 of the Credit Agreement (and for the period prior to the delivery of the first such compliance certificate, the amount set forth on the compliance certificate delivered pursuant to Section 4.1.5 of the Credit Agreement). "CONTROLLED GROUP" shall mean all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with USI or any of its Subsidiaries, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code. "CP RATE" for any Rate Period for any Funding Tranche means a rate calculated in good faith by the Administrator equal to: (a) the rate (or if more than one rate, the weighted average of the rates) at which Commercial Paper of the Fifth Third Conduit Program on each day during the related Accrual Period have been outstanding; PROVIDED, that if such rate(s) is (are) a discount rate(s), then the CP Rate shall be the rate (or if more than one rate, the weighted average of the rates) resulting from converting such discount rate(s) to an interest-bearing equivalent rate plus (b) the commissions and charges charged by such placement agent or commercial paper dealer with respect to such Commercial Paper, expressed as a percentage of the face amount of such Commercial Paper and converted to an interest-bearing equivalent rate per annum. Notwithstanding the foregoing, the "CP Rate" for any day while an Early Amortization Event exists shall be an interest rate equal to 2% above the Base Rate in effect on such day. In lieu of the foregoing, if the Company shall request any Increase (i) during any period of time determined by the Administrator in its sole discretion to result in an incrementally higher CP Rate applicable to such Increase or (ii) for which the Company requests a specific maturity of Commercial Paper, and as to which Rate Period the Administrator approves in its sole discretion, 5 that shall result in a CP Rate related solely to such Commercial Paper, the Series 2004-1 Invested Amount associated with any such Increase shall, during such period, be deemed to be funded by the Fifth Third Conduit Program in a special Funding Tranche (which may include capital associated with other receivable purchase facilities) for purposes of determining such CP Rate applicable only to such special pool and charged each day during such period against such Series 2004-1 Invested Amount, provided that, during the term of this Supplement, there may be only one special Funding Tranche outstanding at any one time. "CP TRANCHE" shall mean a Funding Tranche that accrues interest at the CP Rate. "DAILY COMMITMENT FEE DEPOSIT" shall mean, for any Business Day, an amount equal to (i) the amount of Daily Commitment Fee Expense for each day since the preceding Business Day plus (ii) the aggregate amount of all previously accrued Daily Commitment Fee Expense that has not yet been deposited in the Series 2004-1 Collection Sub-account. "DAILY COMMITMENT FEE EXPENSE" shall mean, (i) during the Series 2004-1 Revolving Period, for any day in any Accrual Period, the product of (A) the excess of 102% of the Purchase Limit over the Series 2004-1 Purchaser Invested Amount of the Committed Purchaser on such day multiplied by (B) the Commitment Fee Rate divided by 360. "DAILY INTEREST DEPOSIT" shall mean, for any Business Day, an amount equal to (i) the amount of Daily Interest Expense for each day since the preceding Business Day PLUS (ii) the aggregate amount of a previously accrued Daily Interest Expense that has not yet been deposited in the Series 2004-1 Collection Sub-account PLUS (iii) the aggregate amount of all Additional Interest for each day since the preceding Business Day. "DAILY INTEREST EXPENSE" shall mean for each day in an Accrual Period, the sum of: (i) for each CP Tranche outstanding on such day, the product of (A) the portion of the Series 2004-1 Funded Amount allocated to such Funding Tranche on such day and (B) the "estimated CP Rate" (which shall be the CP Rate in effect for the preceding Accrual Period (or, in the case of the initial Accrual Period, the CP Rate specified by the Administrator by notice to the Servicer on or prior to the Closing Date)/360) PLUS (ii) for each Floating Tranche outstanding on such day, the product of (A) the portion of the Series 2004-1 Funded Amount allocated to such Floating Tranche on such day and (B) the Base Rate in effect on such day (or, if such day is after the delivery of the calculation of Series 2004-1 Monthly Interest to the Servicer for any Accrual Period, the Base Rate in effect on the date of such delivery)/365 or 366, as applicable, PLUS (iii) for each Eurodollar Tranche outstanding on such day, the product of (A) the portion of the Series 2004-1 Funded Amount allocable to such Eurodollar Tranche on such day and (y) the Euro-Rate in effect for such Accrual Period/360. "DAILY SERVICING FEE DEPOSIT" shall mean, for any Business Day, an amount equal to (i) the amount of Daily Servicing Fee Expense for each day since the preceding Business Day PLUS (ii) the aggregate amount of all previously accrued Daily Servicing Fee Expense that has not yet been deposited in the Series 2004-1 Collection Sub-account. 6 "DAILY SERVICING FEE EXPENSE" shall mean, for any day in any Accrual Period the Series 2004-1 Interests' PRO RATA portion (determined in accordance with Section 6.1) of the Servicing Fee accruing for such day. "DAILY UTILIZATION FEE DEPOSIT" shall mean, for any day in an Accrual Period, an amount equal to (i) the amount of Daily Utilization Fee Expense for each day since the preceding Business Day PLUS (ii) the aggregate amount of all previously accrued Daily Utilization Fee Expense that has not yet been deposited in the Series 2004-1 Collection Sub-account. "DAILY UTILIZATION FEE EXPENSE" shall mean for any day in any Accrual Period, the product of (A) the Series 2004-1 Funded Amount on such day multiplied by (B) the Utilization Fee Rate divided by 360 and (ii) for any day thereafter, zero. "DECREASE" shall have the meaning assigned in subsection 2.7(a). "DEFAULT FEE" shall mean, for any day occurring after the occurrence of an Early Amortization Event described in Section 5.1(a) (after giving effect to any grace period set forth in such Section)to but excluding the day on which such Early Amortization Event is cured or waived in accordance with the terms hereof, an amount equal to the product of (x) the Base Rate plus 2%, multiplied by (y) the aggregate of all amounts outstanding hereunder and payable by the Company or the Servicer, divided by (z) 365 (or 366, as the case may be). "DEFAULT RATIO" shall mean, as of the last day of any Accrual Period, a ratio (expressed as a percentage) equal to the quotient of (a) the sum of, without duplication, (i) the aggregate outstanding Principal Amount of all Receivables which are unpaid in whole or in part for more than 60 days but less than 91 days after their respective due dates on such day and (ii) the aggregate amount of Receivables that became Charged-Off Receivables during such Accrual Period; and (b) the aggregate sales of the Sellers during the Accrual Period that ended three months prior to such Accrual Period. "DELINQUENCY RATIO" shall mean, as of the last day of any Accrual Period, a ratio (expressed as a percentage) equal to the quotient of (a) the sum of (i) the aggregate outstanding Principal Amount of all Receivables which are unpaid in whole or in part for more than 60 days after their respective due dates on such day and (ii) the aggregate outstanding Principal Amount of all Disputed Receivables on such day, divided by (b) the aggregate outstanding Principal Amount of all Receivables on such day. "DILUTION HORIZON RATIO" shall mean, as of the last day of any calendar month, a ratio equal to (i) the aggregate gross sales of the Sellers during the calendar month then most recently ended divided by (ii) the Aggregate Receivables Amount plus the Aggregate Overconcentration Amount. "DILUTION PERCENTAGE" shall mean as of the last day of any calendar month, a percentage equal to: 7 [[2.0 x ED] + [(DS - ED) x DS DIVIDED BY ED]] x DHR where: ED = the Expected Dilution Ratio at such time DS = the Dilution Spike Ratio at such time DHR = the Dilution Horizon Ratio at such time "DILUTION SPIKE RATIO" shall mean, as of the last day of any calendar month, the highest monthly Dilution Ratio calculated as of the last day of each of the twelve calendar months then most recently ended. "DILUTION RATIO" shall mean, as of the last day of each Accrual Period, an amount (expressed as a percentage) equal to (i) the aggregate amount of Dilution Adjustments (excluding the sum of all VCD rebates related to any Receivable) made during such Accrual Period, divided by (ii) the aggregate gross sales of the Sellers during such Accrual Period. "DILUTION RESERVE" shall mean, on any date, an amount equal to the Dilution Percentage multiplied by the Aggregate Receivables Amount as of the close of business of the Servicer on such date. "DISCOUNT" shall mean for each Rate Period and each Funding Tranche: (a) for any Funding Tranche for any Rate Period to the extent the Committed Purchaser will be funding such Funding Tranche during such Rate Period through the issuance of Commercial Paper: CPR x C x ED/360 (b) for any Funding Tranche for any Rate Period to the extent the Committed Purchaser will not be funding such Funding Tranche during such Rate Period through the issuance of Commercial Paper: AR x C x ED/Year where: AR = the Alternate Rate for the Funding Tranche for such Rate Period, C = the Series 2004-1 Funded Amount allocated to the Funding Tranche during such Rate Period, CPR = the weighted average CP Rate for the Funding Tranche for such Rate Period, 8 ED = the actual number of days on which such Funding Tranche remained outstanding during such Rate Period, and Year = if such Funding Tranche is funded based upon: (i) the Euro-Rate, 360 days, and (ii) the Base Rate, 365 or 366 days, as applicable; PROVIDED, that no provision of this Supplement shall require the payment or permit the collection of Discount in excess of the maximum permitted by applicable law; and PROVIDED FURTHER, that Discount for the Funding Tranche shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "EARLY AMORTIZATION EVENT" shall have the meanings assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "EARLY AMORTIZATION PERIOD" shall have the meaning assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "EFFECTIVE DATE" shall have the meaning assigned in Section 9.1. "EURO-RATE" shall mean with respect to any Rate Period, the interest rate per annum determined by the Administrator by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Administrator in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank market offered rates for U.S. dollars quoted by the British Bankers' Association ("BBA") as set forth on Dow Jones Markets Service (formerly known as Telerate) (or appropriate successor or, if BBA or its successor ceases to provide display page 3750 (or such other display page on the Dow Jones Markets Service system as may replace display page 3750) at or about 11:00 a.m. (London time) on the Business Day which is two (2) Business Days prior to the first day of such Rate Period for an amount comparable to the Funding Tranche to be funded at the Alternate Rate and based upon the Euro-Rate during such Rate Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Average of London interbank offered rates quoted by BBA as shown on Dow Jones Markets Service display page 3750 or appropriate successor Euro-Rate = ---------------------------------------------------------- 1.00 - Euro-Rate Reserve Percentage where "Euro-Rate Reserve Percentage" means, the maximum effective percentage in effect on such day as prescribed by the Board (or any successor) for determining the reserve requirements (including without limitation, supplemental, marginal, and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities"). The Euro- 9 Rate shall be adjusted with respect to any Funding Tranche funded at the Alternate Rate and based upon the Euro-Rate that is outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Administrator shall give prompt notice to the Servicer of the Euro-Rate as determined or adjusted in accordance herewith (which determination shall be conclusive absent manifest error). "EURODOLLAR TRANCHE" shall mean each Funding Tranche that accrues interest at the Euro-Rate. "EXCLUDED TAXES" shall mean, with respect to the Administrator, any Purchaser or any other recipient of any payment to be made by or on account of any increased obligation of the Company hereunder, (a) income or franchise taxes imposed on (or measured by) its net income (i) by the United States of America, or (ii) by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located, managed or controlled, or, in the case of any Alternate Investor, in which its applicable lending office is located, or (iii) by reason of any connection between the jurisdiction imposing such tax and the Administrator, such recipient or such office other than a connection arising solely from this Supplement or any other Transaction Document or any transaction hereunder or thereunder, and (b) any branch profits imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Company is located. "EXPECTED DILUTION RATIO" shall mean, as of the last day of any calendar month, the average Dilution Ratio in respect of the twelve months then most recently ended. "FACILITY TERMINATION DATE" shall mean the earliest to occur of: (a) the Commitment Termination Date, (b) the date on which the Early Amortization Period is declared to commence or automatically commences, (c) the Optional Termination Date, (d) the date on which the commitment of the Liquidity Purchasers terminates under the Liquidity Agreement and (e) the Company's failure to cause the amendment or modification of any Transaction Document or related opinion as required by Moody's or Standard & Poor's, which failure shall continue for 30 days after such amendment is initially proposed. "FEDERAL FUNDS RATE" shall mean, for any day, the per annum rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)." If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate." If on any relevant day the appropriate rate is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day will be the arithmetic mean as determined by the Administrator of the rates for the last transaction in overnight Federal funds arranged before 9:00 a.m. (New York time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrator. 10 "FEE LETTER" shall mean, the Fee Letter, dated as of the date hereof, among the Company, the Administrator and the Committed Purchaser. "FIFTH THIRD CONDUIT PROGRAM" shall mean Fountain Square Commercial Funding Corp. or any successor conduit program administered by the Committed Purchaser. "FINANCING" shall mean, with respect to any Person, the issuance, assumption, incurrence or sale by such Person of any Indebtedness (other than Indebtedness described in Section 6.14.1 through 6.14.10 of the Credit Agreement, any Indebtedness incurred under Section 6.14.11 of the Credit Agreement and described in clauses (a) or (b) of the first parenthetical thereof, and any Indebtedness incurred under Section 6.14.12 of the Credit Agreement and described in the first parenthetical thereof). "FIXED CHARGE COVERAGE RATIO" shall mean, with respect to any fiscal quarter of USI for the then most recently ended four fiscal quarters, the ratio of (i) Consolidated EBITDA during such period plus Consolidated Rentals during such period minus Consolidated Capital Expenditures during such period (provided that Capitalized Lease Obligations shall be deducted only to the extent of payments actually made during such period) to (ii) Consolidated Interest Expense paid in cash during such period plus scheduled amortization of the principal portion of Consolidated Indebtedness during such period (other than (i) amounts owing in connection with Receivables Purchase Facilities permitted under the Credit Agreement and (ii) scheduled term loan payments under the Existing Credit Agreement and scheduled principal payments in respect of any industrial development/revenue bonds of USI or any of its Subsidiaries in each case paid prior to March 21, 2003) plus Consolidated Rentals for such period plus income taxes paid in cash during such period plus all dividends and distributions paid by USI during such period (other than the "Permitted Share Repurchase Amount" for such period), all calculated for USI and its Subsidiaries (other than TOPCO) on a consolidated basis; provided that the Fixed Charge Coverage Ratio shall be calculated, with respect to Permitted Acquisitions, on a pro forma basis reasonably satisfactory to the Administrator under the Credit Agreement, broken down by fiscal quarter in USI's reasonable judgment. "FLOATING TRANCHE" shall mean, a Funding Tranche that accrues interest at the Base Rate. "FUNDING TRANCHE" shall have the meaning assigned in subsection 3A.4(a). "INCREASE" shall have the meaning assigned in subsection 2.5(a). "INCREASE AMOUNT" shall have the meaning assigned in subsection 2.5(a). "INCREASE DATE" shall have the meaning assigned in subsection 2.5(a). "INDEMNIFIED TAXES" shall mean Taxes other than Excluded Taxes. 11 "INITIAL SERIES 2004-1 INVESTED AMOUNT" shall have the meaning assigned in subsection 2.5(a). "INTEREST SHORTFALL" shall have the meaning assigned in subsection 3A.4(c). "INVESTED PERCENTAGE" shall mean, with respect to any Business Day (i) during the Series 2004-1 Revolving Period, the percentage equivalent of a fraction, the numerator of which is the Series 2004-1 Invested Amount as of the end of the immediately preceding Business Day and the denominator of which is the difference between (x) the Aggregate Receivables Amount with respect to such Business Day and (y) the Aggregate Target Receivables Amount with respect to such Business Day and (ii) during the Series 2004-1 Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Series 2004-1 Invested Amount as of the end of the last Business Day of the Series 2004-1 Revolving Period and the denominator of which is the difference between (x) the Aggregate Receivables Amount with respect to such Business Day and (y) Aggregate Target Receivables Amount with respect to such Business Day. "ISSUANCE DATE" shall have the meaning assigned in subsection 2.5(a). "LEVERAGE RATIO" shall mean, the ratio of (i) Consolidated Funded Indebtedness to (ii) Consolidated EBITDA for the then most-recently ended four fiscal quarters. The Leverage Ratio shall be calculated as of the last day of each fiscal quarter of USI based upon (a) for Consolidated Funded Indebtedness, Consolidated Funded Indebtedness as of the last day of each such fiscal quarter and (b) for Consolidated EBITDA, the actual amount as of the last day of each fiscal quarter for the most recently ended four consecutive fiscal quarters; provided that the Leverage Ratio shall be calculated, with respect to Permitted Acquisitions, on a pro forma basis reasonably satisfactory to the administrative agent under the Credit Agreement, broken down by fiscal quarter in USI's reasonable judgment. "LIQUIDITY AGREEMENT" shall mean a liquidity agreement, if any, entered into after the date hereof between the Liquidity Purchasers from time to time party thereto, the Committed Purchaser and Fifth Third, as Administrator and liquidity agent for the Liquidity Purchasers, as the same may be amended, supplemented or otherwise modified from time to time. "LIQUIDITY PURCHASER" shall mean each bank or other institutions party to the Liquidity Agreement, if any. "LOSS HORIZON RATIO" shall mean, as of any date, a ratio equal to (i) the aggregate gross sales of the Sellers during the three most recently ended calendar months divided by (ii) the Aggregate Receivables Amount as of such date, plus the Aggregate Overconcentration Amount as of such date. "LOSS PERCENTAGE" shall mean, at any time, a percentage equal to the greater of (i) 2.00 multiplied by the Loss Ratio multiplied by the Loss Horizon Ratio and (ii) the Loss Reserve Floor. 12 "LOSS RATIO" shall mean, on any date, the greatest three-month average Default Ratio as calculated for each of the twelve most recently ended calendar months. "LOSS RESERVE" shall mean, on any date, an amount equal to the Loss Percentage multiplied by the Aggregate Receivables Amount as of the close of business of the Servicer on such date. "LOSS RESERVE FLOOR" shall mean 10%. "MONTHLY INTEREST PAYMENT" shall have the meaning assigned in subsection 3A.6(a). "MULTIEMPLOYER PLAN" shall mean a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is covered by Title IV of ERISA and to which USI or any member of the Controlled Group is obligated to make contributions. "NET CASH PROCEEDS" means, with respect to any sale of property or any Financing by any Person, (a) cash (freely convertible into Dollars) received by such Person or any Subsidiary of such Person from such sale of property or Financing, after (i) provision for all income or other taxes measured by or resulting from such sale of property, (ii) payment of all reasonable brokerage commissions and other fees and expenses related to such sale of property or Financing, and (iii) all amounts used to repay Indebtedness secured by a Lien on any asset disposed of in such sale of property which is or may be required (by the express terms of the instrument governing such Indebtedness or by the purchaser of such property) to be repaid in connection with such sale of property (including payments made to obtain or avoid the need for the consent of any holder of such Indebtedness). "OFF-BALANCE SHEET LIABILITY" of a Person means, without duplication, the principal component of (i) any Receivables Purchase Facility or any other repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person (other than the sale or disposition in the ordinary course of business of accounts or notes receivable in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale or financing of receivables)) or (ii) any liability under any so-called "synthetic lease" or "tax ownership operating lease" transaction entered into by such Person; provided that "Off-Balance Sheet Liabilities" shall not include the principal component of the foregoing if such principal component (a) is otherwise reflected as a liability on such Person's consolidated balance sheet or (b) is deducted from revenues in determining such Person's consolidated net income but is not thereafter added back in calculating such Person's Consolidated EBITDA. "OPERATING LEASE" of a Person means any lease of property (other than a Capitalized Lease) by such Person as lessee which has an original term (including any required renewals and any renewals effective at the option of the lessor) of one year or more. 13 "OPTIONAL TERMINATION DATE" shall have the meaning assigned in subsection 2.7(d). "OPTIONAL TERMINATION NOTICE" shall have the meaning assigned in subsection 2.7(d). "ORIGINAL SUPPLEMENT" shall have the meaning assigned in the preamble hereto. "OTHER TAXES" shall mean any and all current or future stamp or documentary taxes or other excise or property taxes, charges or similar levies arising from any payment made under the Transaction Documents or from the execution, delivery or enforcement of, or otherwise with respect to, any Transaction Document. "PAYMENT TERMS FACTOR" shall mean 1.017. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PERMITTED ACQUISITION" shall mean an Acquisition permitted by Section 6.13.5 of the Credit Agreement. "PERMITTED SHARE REPURCHASE AMOUNT" shall mean the aggregate amount of all distributions made by USSC to USI and the aggregate amount of all capital stock of USI redeemed, repurchased, acquired or retired by USI, from and after March 21, 2003, calculated as of the date such distribution is made, up to the greater of (a) $50,000,000 and (b) an amount equal to (x) $50,000,000, plus (y) 25% of Consolidated Net Income (or minus 25% of any loss) in each fiscal quarter beginning with the fiscal quarter ending June 30, 2003. "PLAN" means an employee pension benefit plan, excluding any Multiemployer Plan, which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which USI or any member of the Controlled Group may have any liability. "PROGRAM COSTS" shall mean, for any Business Day, the sum of (i) all expenses, indemnities and other amounts due and payable to any Affected Party under the Agreement or this Supplement (including, without limitation, any Article VII costs) and (ii) the product of (A) all unpaid fees and expenses due and payable to counsel to, and independent auditors of, the Company (other than fees and expenses payable on or in connection with the closing of the issuance of the Series 2004-1 Interests) and (B) a fraction, the numerator of which is the Purchase Limit on such Business Day and the denominator of which is the sum of (x) the Aggregate Invested Amounts on such Business Day (other than the Series 2004-1 Invested Amount and the Invested Amount in respect of any variable funding certificate of any other Outstanding Series) and (y) the Aggregate Commitment Amount on such Business Day plus the Aggregate Commitment Amount for any variable funding certificate of any other Outstanding 14 Series; PROVIDED, HOWEVER, that the amount of Program Costs payable pursuant to subsection 3A.6(b)(iv) shall not exceed $75,000 in the aggregate in any fiscal year of the Servicer. "PROGRAM SUPPORT AGREEMENT" shall mean and include the Liquidity Agreement and any other agreement entered into by any Program Support Provider providing for: (a) the issuance of one or more letters of credit for the account of the Committed Purchaser, (b) the issuance of one or more surety bonds for which the Committed Purchaser is obligated to reimburse the applicable Program Support Provider for any drawings thereunder, (c) the sale by the Committed Purchaser to any Program Support Provider of its Series 2004-1 Purchaser Invested Amount (or portions thereof or participations therein) and/or (d) the making of loans and/or other extensions of credit to the Committed Purchaser in connection with the Committed Purchaser's commercial paper program, together with any letter of credit, surety bond or other instrument issued thereunder but excluding any discretionary advance facility provided by the Administrator. "PROGRAM SUPPORT PROVIDER" shall mean and include any Liquidity Purchaser and any other Person (other than any customer of the Committed Purchaser) now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, the Committed Purchaser or issuing a letter of credit, surety bond or other instrument to support any obligations arising under or in connection with the Committed Purchaser's commercial paper program. "PURCHASE LIMIT" shall mean $25,000,000 as such amount may be reduced in accordance with Section 2.8. "PURCHASE LIMIT REDUCTION" shall have the meaning assigned in subsection 2.7(a). "RATE PERIOD" shall mean, unless otherwise mutually agreed by the Administrator and the Company, with respect to any Funding Tranche, (i) initially the period commencing on (and including) the date of the initial purchase or funding of such Funding Tranche and ending on (but excluding) the next following Distribution Date, and (ii) thereafter, each period commencing on (and including) a Distribution Date and ending on (but excluding) the next following Distribution Date; PROVIDED, that: (A) any Rate Period with respect to any Funding Tranche not funded at the CP Rate which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; PROVIDED, HOWEVER, if Yield in respect of such Rate Period is computed by reference to the Euro-Rate, and such Rate Period would otherwise end on a day which is not a Business Day, and there is no subsequent Business Day in the same calendar month as such day, such Rate Period shall end on the next preceding Business Day; (B) in the case of any Rate Period for any Funding Tranche which commences before the occurrence of an Early Amortization Event and would otherwise end on a date occurring after the occurrence of an Early Amortization Event, such 15 Rate Period shall end on the date of the occurrence of an Early Amortization Event and the duration of each Rate Period which commences on or after the occurrence of an Early Amortization Event shall be of such duration as shall be selected by the Administrator; and (C) any Rate Period in respect of which Yield is computed by reference to the CP Rate may be terminated at the election of, and upon notice thereof to the Company and the Servicer by, the Administrator any time, in which case the Funding Tranche allocated to such terminated Rate Period shall be allocated to a new Rate Period commencing on (and including) the date of such termination and ending on (but excluding) the next following Distribution Date, and shall accrue Yield at the Alternate Rate. "RATE TYPE" shall mean the Euro-Rate, the Base Rate or the CP Rate. "RATING AGENCY" and "RATING AGENCIES" shall mean Moody's, S&P and/or any other nationally recognized statistical rating organization from which a rating for the Commercial Paper was requested by the Fifth Third Conduit Program and is currently in effect. "RATING AGENCY CONDITION" shall mean, with respect to any action, that the Administrator and the Fifth Third Conduit Program shall have given their prior written consent to such action. "RECORD DATE" shall mean the first Business Day prior to each Distribution Date. "RECOURSE OBLIGATIONS" shall have the meaning set forth in Section 11.16. "REPORTED PERIOD" shall mean, with respect to Series 2004-1, each Business Day. "REQUIRED DOWNGRADE ASSIGNMENT PERIOD" is defined in Section 2.12(a). "REQUIRED NOTICE PERIOD" means two Business Days. "SCHEDULED REVOLVING TERMINATION DATE" shall mean the last day of the Accrual Period ending on or immediately before the Commitment Expiry Date. "SERIES 2004-1" shall mean Series 2004-1, the Principal Terms of which are set forth in this Supplement. "SERIES 2004-1 ADJUSTED INVESTED AMOUNT" shall mean, as of any date of determination, (i) the Series 2004-1 Invested Amount on such date, MINUS (ii) the amount on deposit in the Series 2004-1 Collection Sub-account on such date. "SERIES 2004-1 ALLOCATED RECEIVABLES AMOUNT" shall mean, on any date of determination, the product of (x) the Aggregate Receivables Amount on such day and (y) the 16 percentage equivalent of a fraction the numerator of which is the Series 2004-1 Target Receivables Amount on such day and the denominator of which is the Aggregate Target Receivables Amount on such day. "SERIES 2004-1 AMORTIZATION PERIOD" shall mean the period commencing on the Business Day following the earliest to occur of (i) the date on which an Early Amortization Period is declared to commence or automatically commences, (ii) the Optional Termination Date and (iii) the Scheduled Revolving Termination Date and ending on the earlier of (i) the date when the Series 2004-1 Invested Amount shall have been reduced to zero and all accrued interest and other amounts owing on the VFC Certificates and to the Administrator and the Committed Purchaser hereunder shall have been paid in full and (ii) the Series 2004-1 Termination Date. "SERIES 2004-1 COLLECTION SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 2004-1 FUNDED AMOUNT" shall mean, as of any date of determination, the Series 2004-1 Purchaser Invested Amount of the Committed Purchaser on such date. "SERIES 2004-1 INTERESTS" shall mean, collectively, the VFC Certificates and the Series 2004-1 Subordinated Interest. "SERIES 2004-1 INVESTED AMOUNT" shall mean, as of any date of determination, the Series 2004-1 Purchaser Invested Amount of the Committed Purchaser on such date. "SERIES 2004-1 MONTHLY INTEREST" shall mean, for each Distribution Date, the summation of the Discount that accrued during the related Rate Period on each Funding Tranche outstanding during all or a portion of such Accrual Period. "SERIES 2004-1 MONTHLY PRINCIPAL PAYMENT" shall have the meaning assigned in Section 3A.5. "SERIES 2004-1 PERIODIC SERVICING FEE" shall have the meaning assigned in Section 6.1. "SERIES 2004-1 PURCHASER INVESTED AMOUNT" shall mean, with respect to the Committed Purchaser, in each case on any date of determination, an amount equal to, without duplication, (a) the aggregate initial amount paid by the Committed Purchaser for its interest in the VFC Certificate pursuant to Section 2.3, plus (b) the amount of any Increases funded by the Committed Purchaser, pursuant to Section 2.5, minus (c) the aggregate amount of any Collections and other distributions to the Committed Purchaser which are applied to reduce the amounts funded by the Committed Purchaser under the foregoing clauses (a) and (b). "SERIES 2004-1 RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, the sum of the Loss 17 Percentage, the Dilution Percentage, the Servicing and Discount Reserve Ratio, in each case, then in effect. "SERIES 2004-1 REQUIRED RESERVES" shall mean, as of any date of determination, an amount equal to the product of (i) the Series 2004-1 Ratio, multiplied by (ii) the Aggregate Receivables Amount at such time. "SERIES 2004-1 REVOLVING PERIOD" shall mean the period commencing on the Issuance Date and terminating on the Facility Termination Date. "SERIES 2004-1 SUBORDINATED INTEREST" shall have the meaning assigned in subsection 2.2(b). "SERIES 2004-1 SUBORDINATED INTEREST AMOUNT" shall mean, for any date of determination, an amount equal to (i) the Series 2004-1 Allocated Receivables Amount MINUS (ii) the Series 2004-1 Adjusted Invested Amount. "SERIES 2004-1 SUBORDINATED INTEREST REDUCTION AMOUNT" shall have the meaning assigned in subsection 2.7(b). "SERIES 2004-1 TARGET RECEIVABLES AMOUNT" shall mean, on any date of determination, the sum of (A) the Series 2004-1 Adjusted Invested Amount on such day and (B) the Series 2004-1 Required Reserves for such day. "SERIES 2004-1 TERMINATION DATE" shall mean the Distribution Date that occurs in March, 2005. "SERIES 2004-1 TRANSACTION DOCUMENTS" shall mean this Supplement, the Receivables Sale Agreements, the Intercreditor Agreement, the Agreement and the Servicing Agreement. "SERVICER" shall have the meaning specified in the introductory paragraph hereto. "SERVICING AND DISCOUNT RESERVE RATIO" shall mean 2%. "SUPPLEMENT" shall have the meaning specified in the introductory paragraph hereto. "TAXES" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TOPCO" means The Order People Company, a Delaware corporation. "TRANSACTION PARTIES" shall have the meaning assigned in subsection 2.6(d). 18 "TRANSFER ISSUANCE DATE" shall mean the date on which a Commitment Transfer Supplement becomes effective pursuant to the terms of such Commitment Transfer Supplement. "TRUSTEE" shall have the meaning specified in the introductory paragraph hereto. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. "UNALLOCATED BALANCE" shall mean, as of any Business Day, (i) the portion of the Series 2004-1 Funded Amount allocated to any CP Tranche and (ii) the sum of (A) the portion of the Series 2004-1 Funded Amount for which interest is then being calculated by reference to the Base Rate and (B) the portion of the Series 2004-1 Funded Amount allocated to any Eurodollar Tranche the Rate Period in respect of which expires on such Business Day. "USI" shall mean United Stationers, Inc., a Delaware corporation. "USSC" shall mean United Stationers Supply Co., an Illinois corporation. "USSC CHANGE IN CONTROL" shall mean USI shall cease to own, directly or indirectly, 100% of the outstanding capital stock of USSC. "UTILIZATION FEE" shall have the meaning assigned in subsection 2.9(c). "UTILIZATION FEE RATE" shall have the meaning assigned in the Fee Letter. "VFC CERTIFICATE" shall mean a VFC Certificate, Series 2004-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "VFC CERTIFICATEHOLDER' shall mean the Committed Purchaser. "VFC CERTIFICATEHOLDERS' INTEREST" shall have the meaning assigned in subsection 2.2(a). (b) If any term or provision contained herein conflicts with or is inconsistent with any term, definition or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. All Article, Section or subsection references herein shall mean Article, Section or subsections of this Supplement, except as otherwise provided herein. Unless otherwise stated herein, the context otherwise requires or such term is otherwise defined in the Agreement, each capitalized term used or defined herein shall relate only to the Series 2004-1 Interests and no other Series of Investor Certificates issued by the Trust. All capitalized terms used herein and not otherwise defined have the meanings assigned to such terms in Section 1.1 of the Agreement. 19 ARTICLE II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE VFC CERTIFICATES SECTION 2.1 DESIGNATION. The Certificates and interests created and authorized pursuant to the Agreement and this Supplement shall be divided into two Classes, which shall be designated respectively as (i) the "VFC Certificates, Series 2004-1" and (ii) an interest designated as the "Series 2004-1 Subordinated Interest." SECTION 2.2 THE SERIES 2004-1 INTERESTS. (a) The VFC Certificates shall represent fractional undivided interests in the Trust, including, without limitation, the right to receive (i) the Invested Percentage (expressed as a decimal) of Collections received with respect to the Receivables and all other funds on deposit in the Collection Account and (ii) all other funds on deposit in the Series 2004-1 Collection Subaccounts and any subaccounts thereof (collectively, the "VFC CERTIFICATEHOLDERS' INTEREST"). (b) The "SERIES 2004-1 SUBORDINATED INTEREST" shall be a fractional undivided interest in the Trust retained by the Company, consisting of the right to receive Collections with respect to the Receivables allocated to the VFC Certificateholders' Interest and not required to be distributed to or for the benefit of the Committed Purchaser. The Exchangeable Company Interest and any other Series of Investor Certificates outstanding shall represent the ownership interest in the remainder of the Trust not allocated pursuant hereto to the VFC Certificateholders' Interest or the Series 2004-1 Subordinated Interest. (c) The VFC Certificates shall be substantially in the form of Exhibit A and shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 2.4 hereof and Section 5.2 of the Agreement. SECTION 2.3 PURCHASES OF INTERESTS IN THE VFC CERTIFICATES. (a) INITIAL PURCHASE. Subject to the terms and conditions of this Supplement, including delivery of notice in accordance with Section 2.4 and 2.5, (i) on the Issuance Date, the Committed Purchaser hereby agrees to purchase on the Issuance Date a VFC Certificate in an amount equal to the Initial Series 2004-1 Invested Amount and (ii) thereafter, the Committed Purchaser hereby agrees to maintain its VFC Certificate, subject to increase or decrease during the Series 2004-1 Revolving Period, in accordance with the provisions of this Supplement. The Company hereby agrees to maintain ownership of the Series 2004-1 Subordinated Interest, subject to increase or decrease during the Series 2004-1 Revolving Period, in accordance with the provisions of this Supplement. Payments by the Committed Purchaser in respect of the VFC Certificates shall be made in immediately available funds on the Issuance Date to the Administrator for payment to the Company. 20 (b) MAXIMUM SERIES 2004-1 FUNDED AMOUNT. Notwithstanding anything to the contrary contained in this Supplement, at no time shall the Series 2004-1 Funded Amount exceed the Purchase Limit at such time. SECTION 2.4 DELIVERY. On the Issuance Date, the Company shall sign, on behalf of the Trust, and shall direct the Trustee in writing pursuant to Section 5.2 of the Agreement to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate a VFC Certificate in such name and such denomination and deliver such VFC Certificate to the Administrator, on behalf of the Committed Purchaser, in accordance with such written directions. The VFC Certificate shall be issued in a minimum denominations of $1,000,000 and in integral multiples of $100,000 in excess thereof. The Trustee shall mark on its books the actual Series 2004-1 Invested Amount and Series 2004-1 Subordinated Interest Amount outstanding on any date of determination, which, absent manifest error, shall constitute PRIMA FACIE evidence of the outstanding Series 2004-1 Invested Amount and Series 2004-1 Subordinated Interest Amount from time to time. SECTION 2.5 PROCEDURE FOR INITIAL ISSUANCE AND FOR INCREASING THE SERIES 2004-1 INVESTED AMOUNT. (a) Subject to subsection 2.5(c) of this Supplement, (i) on the date designated in writing as provided herein (the "ISSUANCE DATE"), the Committed Purchaser hereby agrees to purchase a VFC Certificate in accordance with Section 2.3 and (ii) on any Business Day during the Commitment Period up to eight times per calendar month, the Committed Purchaser hereby agrees that the Series 2004-1 Invested Amount may be increased by increasing its Series 2004-1 Purchaser Invested Amount (an "INCREASE"), upon the request of the Servicer or the Company on behalf of the Trust (each date on which an increase in the Series 2004-1 Invested Amount occurs hereunder being herein referred to as the "INCREASE DATE" applicable to such Increase); PROVIDED, HOWEVER, that the Servicer or the Company, as the case may be, shall have given the Administrator (with a copy to the Trustee) irrevocable written notice (effective upon receipt), substantially in the form of Exhibit C hereto, of such request no later than (i) 2:00 p.m., Cincinnati time, two Business Days prior to the Issuance Date or such Increase Date, as the case may be, in the case of any Increase Date if the Initial Series 2004-1 Invested Amount or Increase Amount is to be priced solely with reference to the CP Rate or (ii) (x) if the Initial Series 2004-1 Invested Amount or Increase Amount is to be priced solely with reference to the Base Rate, on or prior to 12:00 noon, Cincinnati time, on the Issuance Date or such Increase Date, as the case may be and (y) if all or a portion of the Initial Series 2004-1 Invested Amount or Increase Amount is to be allocated to a Eurodollar Tranche, 1:00 p.m., Cincinnati time, three Business Days prior to the Issuance Date or such Increase Date, as the case may be; PROVIDED, FURTHER, that the provisions of this subsection shall not restrict the allocations of Collections pursuant to Article III. Such notice shall state (x) the Issuance Date or the Increase Date, as the case may be, and (y) the initial invested amount (the "INITIAL SERIES 2004-1 INVESTED AMOUNT") or, the proposed amount of such Increase (the "INCREASE AMOUNT"), as the case may be. (b) [Reserved]. 21 (c) The Committed Purchaser shall not be required to make the initial purchase of VFC Certificates on the Issuance Date or to increase its Series 2004-1 Purchaser Invested Amount on any Increase Date hereunder unless: (i) the related aggregate initial purchase amount or Increase Amount is equal to $1,000,000 or an integral multiple of $100,000 in excess thereof; (ii) after giving effect to the initial purchase amount or Increase Amount, (A) the Series 2004-1 Funded Amount would not exceed the Purchase Limit on the Issuance Date or such Increase Date, as the case may be, and (B) the Series 2004-1 Allocated Receivables Amount would not be less than the Series 2004-1 Target Receivables Amount on the Issuance Date or such Increase Date, as the case may be; (iii) at the time of and after giving effect to the initial purchase amount or the Increase Amount, no Early Amortization Event or Potential Early Amortization Event shall have occurred and be continuing; a (iv) all of the representations and warranties made by each of the Company, the Servicer, USFS and each Seller in each Transaction Document to which it is a party are true and correct in all material respects on and as of the Issuance Date or such Increase Date, as the case may be, as if made on and as of such date (except to the extent such representations and warranties are expressly made as of another date); (v) the Servicer shall have delivered to the Administrator on or prior to such Increase Date, in form and substance satisfactory to the Administrator, all Monthly Settlement Statements as and when due under Section 4.2 of the Servicing Agreement, and upon the Administrator's request, the Servicer shall have delivered to the Administrator at least three days prior to such Increase, an interim Monthly Settlement Statement showing the amount of Eligible Receivables; (vi) the Commitment Termination Date shall not have occurred; and (vii) the Administrator shall have received such other approvals, opinions or documents as it may reasonably request as a result of changes in circumstances or new credit information. The Company's acceptance of funds in connection with (x) the initial purchase of VFC Certificates on the Issuance Date and (y) each Increase occurring on any Increase Date shall constitute a representation and warranty by the Company to the Committed Purchaser as of the Issuance Date or such Increase Date (except to the extent such representations and warranties are expressly made as of another date), as the case may be, that all of the conditions contained in this subsection 2.5(c) have been satisfied. (d) After receipt by the Administrator of the notice required by subsection 2.5(a) from the Servicer or the Company on behalf of the Trust, the Administrator shall, so long as the 22 conditions set forth in subsections 2.5(a) and (c) are satisfied, promptly provide telephonic notice to the Committed Purchaser of the Increase Date and of the Increase Amount. The Committed Purchaser agrees to pay in immediately available funds the amount of such Increase on the related Increase Date to the Administrator for payment to the Trust for deposit in the Series 2004-1 Collection Subaccount. SECTION 2.6 [Reserved] SECTION 2.7 PROCEDURE FOR DECREASING THE SERIES 2004-1 INVESTED AMOUNT; OPTIONAL TERMINATION. (a) On any Business Day during the Series 2004-1 Revolving Period or the Series 2004-1 Amortization Period, upon the written request of the Servicer or the Company on behalf of the Trust to the Administrator, the Series 2004-1 Invested Amount may be reduced (a "DECREASE") by the distribution by the Servicer to the Administrator for the benefit of the Committed Purchaser in accordance with its Series 2004-1 Purchaser Invested Amount of funds on deposit in the Series 2004-1 Collection Subaccount on such day in an amount not to exceed the amount of such funds on deposit on such day; PROVIDED that the Servicer shall have given the Administrator (with a copy to the Trustee) irrevocable written notice (effective upon receipt), prior to 1:00 p.m., Cincinnati time, in accordance with the Required Notice Period, and which notice shall state the amount of such Decrease; provided, further, that such Decrease shall be in an amount equal to $1,000,000 and integral multiples of $100,000 in excess thereof. (b) Simultaneously with any such Decrease during the Series 2004-1 Revolving Period, the Series 2004-1 Subordinated Interest Amount shall be reduced by an amount (the "SERIES 2004-1 SUBORDINATED INTEREST REDUCTION AMOUNT") such that the Series 2004-1 Subordinated Interest Amount shall equal the Series 2004-1 Required Reserves after giving effect to such Decrease. During the Series 2004-1 Revolving Period, after the distribution described in subsection (a) above has been made, and the Series 2004-1 Subordinated Interest Amount shall have been reduced by the Series 2004-1 Subordinated Interest Reduction Amount, a distribution shall be made to the owner of the Series 2004-1 Subordinated Interest out of remaining funds on deposit in the Series 2004-1 Collection Subaccount in an amount equal to the lesser of (x) the Series 2004-1 Subordinated Interest Reduction Amount and (y) the amount of such remaining funds on deposit in the Series 2004-1 Collection Subaccount. (c) Any reduction in the Series 2004-1 Invested Amount on any Business Day shall be allocated first to reduce the Unallocated Balance and then to reduce the portion of the Series 2004-1 Invested Amount allocated to Eurodollar Tranches in such order as the Company may select in order to minimize costs payable pursuant to Section 7.4. (d) (i) On any Business Day unless the Scheduled Revolving Termination Date or an Early Amortization Event shall have occurred and be continuing, the Company shall have the right to deliver an irrevocable written notice (an "OPTIONAL TERMINATION NOTICE") to the Trustee, the Servicer and the Administrator in which the Company declares that the Series 2004-1 Revolving Period shall terminate on the date (the "OPTIONAL TERMINATION DATE") set forth in such notice (which date, in any event, shall be 23 the last day of a Accrual Period which is not less than 10 Business Days from the date on which such notice is delivered). (ii) From and after the Optional Termination Date, the Series 2004-1 Amortization Period shall commence for all purposes under this Supplement and the other Transaction Documents. The Trustee shall give prompt written notice of its receipt of an Optional Termination Notice to the Committed Purchaser. SECTION 2.8 REDUCTION OF THE PURCHASE LIMIT. (a) On any Business Day during the Series 2004-1 Revolving Period, the Company, on behalf of the Trust, may, upon three Business Days' prior written notice to the Administrator (effective upon receipt) (with copies to the Servicer and the Trustee) reduce or terminate the Purchase Limit (a "PURCHASE LIMIT REDUCTION") in a minimum aggregate amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof; PROVIDED that no such termination or reduction shall be permitted if, after giving effect thereto and to any reduction in the Series 2004-1 Invested Amount on such date, the Series 2004-1 Invested Amount would exceed the Purchase Limit then in effect. (b) [Reserved] (c) Once reduced, the Purchase Limit may not be subsequently reinstated. The Administrator shall provide written notice of the reduced Purchaser Limit to the Company, the Servicer and the Trustee. SECTION 2.9 INTEREST, FEES. (a) Interest shall be payable on the VFC Certificates on each Distribution Date pursuant to subsection 3A.6(a). (b) The Servicer shall distribute pursuant to subsection 3A.6(b), from amounts on deposit in the Series 2004-1 Collection Sub-account, to the Administrator, for the account of the Committed Purchaser, on each Distribution Date, a commitment fee with respect to each Accrual Period ending on such date (the "COMMITMENT FEE") at the Commitment Fee Rate of the average daily excess of 102% of the Purchase Limit OVER the average Series 2004-1 Purchaser Invested Amount during such Accrual Period for the actual number of days in such Accrual Period. The Commitment Fee shall be payable (i) monthly in arrears on each Distribution Date and (ii) on the Facility Termination Date. To the extent that funds on deposit in the Series 2004-1 Collection Sub-account at any such date are insufficient to pay the Commitment Fee due on such date, the Servicer shall so notify the Company and the Company shall immediately pay the Administrator the amount of any such deficiency. (c) The Servicer shall distribute pursuant to subsection 3A.6(b), from amounts on deposit in the Series 2004-1 Collection Sub-account, to the Administrator, for the account of the Committed Purchaser, on each Distribution Date, a utilization fee (the "UTILIZATION FEE") with respect to each Accrual Period ending on such date at the Utilization Fee Rate of the average daily Series 2004-1 Purchaser Invested Amount during such period for the actual number of days in such Accrual Period. The Utilization Fee shall be payable (i) monthly in arrears on each Distribution Date and (ii) on the Facility Termination Date. To the extent that funds on deposit in the Series 2004-1 Collection Sub-account at any such date are insufficient to pay the Utilization Fee due on such date, the Servicer shall so notify the Company and the Company shall immediately pay the Administrator the amount of any such deficiency. 24 (d) Calculations of per annum rates and fees under this Supplement shall be made on the basis of a 360- (or 365-/366-, in the case of interest on the Floating Tranche based on the Base Rate) day year with respect to Commitment Fees, Utilization Fees and interest rates. Each determination of the Euro-Rate by the Administrator shall be conclusive and binding upon each of the parties hereto in the absence of manifest error. SECTION 2.10 Indemnification by the Company and the Servicer. Without limiting any other rights that any Affected Party may have hereunder or under applicable law, (A) the Company hereby agrees to indemnify (and pay upon demand to) each Affected Party and their respective assigns, officers, directors, agents and employees (each, an "INDEMNIFIED PARTY") from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys' fees (which attorneys may be employees of the Indemnified Party, provided that such fees of attorneys that are employees of any Indemnified Party shall not be duplicative of the fees of any third-party attorneys retained by such Indemnified Party) and disbursements (all of the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or as a result of any Pooling and Servicing Agreement or any other Transaction Document or the acquisition, either directly or indirectly, by the Committed Purchaser of an interest in the Trust or Trust Assets, and (B) the Servicer hereby agrees to indemnify (and pay upon demand to) each Indemnified Party for Indemnified Amounts awarded against or incurred by any of them arising out of the Servicer's activities as Servicer hereunder excluding, however, in all of the foregoing instances under the preceding clauses (A) and (B): (i) Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification; (ii) Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or (iii) Excluded Taxes to the extent that the computation of such taxes is consistent with the intended characterization for income tax purposes of the acquisition by the Committed Purchaser of the VFC Certificates (or any interest therein) as a loan or loans by the Committed Purchaser to the Company secured by the Receivables, and other Trust Assets; provided, however, that nothing contained in this sentence shall limit the liability of the Company or the Servicer or limit the recourse of the Administrator or the Committed 25 Purchaser to the Company or the Servicer for amounts otherwise specifically provided to be paid by the Company or the Servicer, as applicable, under the terms of any Pooling and Servicing Agreement. Without limiting the generality of the foregoing indemnification, the Company shall indemnify each Indemnified Party for Indemnified Amounts (including, without limitation, losses in respect of uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse to the Company or the Servicer) relating to or resulting from: (i) any representation or warranty made by the Company, the Servicer, the Support Provider or any Seller (or any officers of any such Person) under or in connection with any Pooling and Servicing Agreement or any other Transaction Document or any other information or report delivered by any such Person pursuant hereto or thereto, which shall have been false or incorrect when made or deemed made; (ii) the failure by the Company, the Servicer, the Support Provider or any Seller to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation or any failure of any Seller to keep or perform any of its obligations, express or implied, with respect to any Contract; (iii) any failure of the Company, the Servicer, the Support Provider or any Seller to perform its duties, covenants or other obligations in accordance with the provisions of any Pooling and Servicing Agreement or any other Transaction Document; (iv) any products liability, personal injury or damage suit, or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or service related to such Receivable or the furnishing or failure to furnish such merchandise or services; (vi) the commingling of Collections of Receivables at any time with other funds; (vii) any investigation, litigation or proceeding related to or arising from any Pooling and Servicing Agreement or any other Transaction Document, the transactions contemplated hereby, the use of the proceeds of an Increase, the ownership of the VFC Certificates (or any interest therein) or any other investigation, litigation or proceeding relating to the Company, the Servicer, the Support Provider or any Seller in which any Affected Party becomes involved as a result of any of the transactions contemplated hereby; 26 (viii) any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding; (ix) any Bankruptcy Event relating to the Company, the Servicer, the Support Provider, any Seller or any of their respective Subsidiaries; (x) any failure of the Company to acquire and maintain legal and equitable title to, and ownership of any Receivable and the Related Property and Collections with respect thereto from USFS, free and clear of any Lien (other than as created hereunder); or any failure of the Company to give reasonably equivalent value to USFS under the USFS Receivables Sale Agreement in consideration of the transfer by USFS of any Receivable, or any attempt by any Person to void such transfer under statutory provisions or common law or equitable action; (xi) any failure of USFS to acquire and maintain legal and equitable title to, and ownership of any Receivable and the Related Property and Collections with respect thereto from any Seller, free and clear of any Lien (other than as created hereunder); or any failure USFS to give reasonably equivalent value to any Seller under the USSC Receivables Sale Agreement in consideration of the transfer by such Seller of any Receivable, or any attempt by any Person to void such transfer under statutory provisions or common law or equitable action; (xii) any failure to vest and maintain vested in the Trustee for the benefit of the Trust and the Committed Purchaser, or to transfer to the Trustee for the benefit of the Trust and the Committed Purchaser, legal and equitable title to, and ownership of, a first priority perfected undivided percentage ownership interest (to the extent of the Invested Percentage contemplated hereunder) or security interest in the Receivables, the Related Property and the Collections, free and clear of any Lien (except as created by the Transaction Documents); (xiii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivable, the Related Property and Collections with respect thereto, and the proceeds of any thereof, whether at the time of any Increase or at any subsequent time; (xiv) any action or omission by the Company, the Servicer, the Support Provider or any Seller which reduces or impairs the rights of the Trustee or the Committed Purchaser with respect to any Receivable or the value of any such Receivable; (xv) any attempt by any Person to void any Increase hereunder or the purchase of any VFC Certificate under statutory provisions or common law or equitable action; and 27 (xvi) the failure of any Receivable included in the calculation of the Series 2004-1 Allocated Receivables Amount as an Eligible Receivable to be an Eligible Receivable at the time so included. The foregoing provisions shall survive the termination of this Supplement and the Agreement, resignation or removal of any Indemnified Party and satisfaction and discharge of the Trust ARTICLE III ARTICLE III OF THE AGREEMENT Section 3.1 of the Agreement and each other section of Article III of the Agreement relating to another Series shall read in their entirety herein as provided in the Agreement. Article III of the Agreement (except for Section 3.1 thereof and any portion thereof relating to another Series) shall read in its entirety herein as follows and shall be exclusively applicable to the Series 2004-1 Interests: SECTION 3A.2. ESTABLISHMENT OF TRUST ACCOUNTS. The Servicer shall cause to be established and maintained in the name of the Company, (i) for the benefit of the Committed Purchasers and (ii) in the case of clauses (A) and (B) below, for the benefit, subject to the prior and senior interest of the Committed Purchasers, of the owner of the Series 2004-1 Subordinated Interest, a subaccount of the Collection Account (the "SERIES 2004-1 COLLECTION SUBACCOUNT"), which subaccount is the Series Collection Subaccount with respect to Series 2004-1 and shall bear a designation indicating that the funds deposited therein are held for the benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (i) and (ii) above. The Trustee shall have the right to take sole dominion and control of the Collection Account and the Series 2004-1 Collection Subaccount pursuant to the terms of a Lockbox Agreement and to direct the disposition of funds from time to time on deposit in the Series 2004-1 Collection Subaccount and in all proceeds thereof. SECTION 3A.3. ALLOCATIONS. The Servicer shall apply and distribute the portion of the Aggregate Daily Collections allocated to the Series 2004-1 Interests pursuant to Article III of the Agreement (the "SERIES 2004-1 COLLECTIONS"): (a) On each Business Day during the Series 2004-1 Revolving Period, an amount equal to the Accrued Interest Expense shall be set aside for distribution in accordance with Section 3A.6(a) on the next occurring Distribution Date. The balance of such Series 2004-1 Collections (the "REINVESTMENT AMOUNT" shall be distributed by the Servicer to such accounts or such persons as the Company may direct in writing (which directions may consist of standing instructions provided by the Company that shall remain in effect until changed by the Company in writing);; PROVIDED that such distribution shall be made only if no Early Amortization Event or Potential Early Amortization Event has occurred and is continuing and only to the extent that, if after giving effect to such distribution, the Series 2004-1 Target Receivables Amount would not exceed the Series 2004-1 Allocated Receivables Amount; PROVIDED FURTHER that if the Company 28 or the Servicer, on behalf of the Company, shall have given the Administrator irrevocable prior written notice (effective upon receipt) when required under Section 2.7(a), the Servicer may withdraw all or a portion of such amounts on deposit in the Series 2004-1 Collection Subaccount and apply such withdrawn amounts toward the reduction of the Series 2004-1 Invested Amount and the Series 2004-1 Subordinated Interest Amount in accordance with Section 2.7. (b) On each Business Day during the Series 2004-1 Amortization Period (including Distribution Dates), funds deposited in the Series 2004-1 Collection Subaccount shall be set aside for distribution in accordance with Section 3A.6(b). Except as set forth in Section 3A.6(b), no amounts on deposit in the Series 2004-1 Collection Subaccount shall be distributed by the Servicer to the Company or the owner of the Series 2004-1 Subordinated Interest during the Series 2004-1 Amortization Period. (c) The allocations to be made pursuant to this Section 3A.3 are subject to the provisions of Sections 2.5, 2.7, 7.2, 9.1 and 9.4 of the Agreement. SECTION 3A.4. DETERMINATION OF SERIES 2004-1 MONTHLY INTEREST. (a) On or before the Business Day preceding each Distribution Date, the Administrator shall notify the Servicer and the Trustee of the Series 2004-1 Monthly Interest for the Accrual Period ending on the related Distribution Date. From time to time, for purposes of determining the Rate Periods applicable to the different portions of the Series 2004-1 Funded Amount and of calculating Discount with respect thereto, the Administrator shall allocate the Series 2004-1 Funded Amount to one or more tranches (each a "FUNDING TRANCHE"). At any time, each Funding Tranche shall have only one Rate Period and one Rate Type. In addition, at any time when the Series 2004-1 Funded Amount is not divided into more than one portion, "Funding Tranche" means 100% of the Series 2004-1 Invested Amount. (b) From time to time the Administrator shall notify the Servicer and the Trustee of the number of Funding Tranches and the Rate Type of each Funding Tranche. (c) On each Distribution Date, the Servicer shall determine the excess, if any (the "INTEREST SHORTFALL"), of (i) the Series 2004-1 Monthly Interest for the Accrual Period ending on such Distribution Date OVER (ii) the amount which will be available to be distributed to the Purchasers on such Distribution Date in respect thereof pursuant to this Supplement. If the Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("ADDITIONAL INTEREST") equal to the product of (A) the number of days until such Interest Shortfall shall be repaid DIVIDED BY 365 (or 366, as the case may be), (B) the Base Rate PLUS 2.0% and (C) such Interest Shortfall (or the portion thereof which has not been paid to the Committed Purchaser) shall be payable as provided herein with respect to the VFC Certificates on each Distribution Date following such Distribution Date to but excluding the Distribution Date on which such Interest Shortfall is paid to the VFC Certificateholders. (d) Any reduction in the Series 2004-1 Invested Amount on any Business Day shall be allocated in the following order of priority: 29 FIRST, to reduce the Unallocated Balance, as appropriate; and SECOND, to reduce the portion of the Series 2004-1 Invested Amount allocated to Eurodollar Tranches in such order as the Company may select in order to minimize costs payable pursuant to Section 7.4. SECTION 3A.5. DETERMINATION OF SERIES 2004-1 MONTHLY PRINCIPAL. PAYMENTS OF SERIES 2004-1 PRINCIPAL. The amount (the "SERIES 2004-1 MONTHLY PRINCIPAL PAYMENT") distributable from the Series 2004-1 Collection Subaccount on each Distribution Date during the Series 2004-1 Amortization Period, as determined by the Servicer, shall be equal to the amount on deposit in such account on the immediately preceding Settlement Report Date; PROVIDED, HOWEVER, that the Series 2004-1 Monthly Principal Payment on any Distribution Date shall not exceed the Series 2004-1 Invested Amount on such Distribution Date. SECTION 3A.6. APPLICATIONS. (a) During the Series 2004-1 Revolving Period the Servicer shall on each Distribution Date apply funds on deposit in the Series 2004-1 Collection Subaccount in the following order of priority to the extent funds are available: (i) to the payment of the Series 2004-1 Periodic Servicing Fee if the Company or one of its Affiliates is not then acting as the Servicer; (ii) to the reimbursement of the Administrator's costs of collection and enforcement of this Supplement; (iii) ratably, to the payment of all accrued and unpaid Series 2004-1 Monthly Interest payable on such Distribution Date (the "MONTHLY INTEREST PAYMENT"), plus the amount of any Monthly Interest Payment previously due but not distributed to the Administrator, for further distribution to the Committed Purchaser on a prior Distribution Date, plus the amount of any Additional Interest for such Distribution Date and any Additional Interest previously due but not distributed to the Administrator, for further distribution to the Committed Purchaser on a prior Distribution Date, plus all accrued and unpaid fees under the Fee Letter (including the Commitment Fee and the Utilization Fee); (iv) to the extent applicable, to the reduction of Series 2004-1 Invested Amount; (v) to the extent applicable, to fund any Decrease in accordance with Section 2.7; (vi) to the payment of any amounts owing to the Trustee pursuant to Section 8.5 of the Agreement; (vii) to the payment of all other accrued and unpaid Recourse Obligations; and 30 (viii) to the payment of the Series 2004-1 Periodic Servicing Fee if the Company or any Affiliate thereof is then acting as the Servicer. Any remaining amounts on deposit in the Series 2004-1 Collection Subaccount not allocated pursuant to clauses (i) through (viii) above shall be paid to the owner of the Series 2004-1 Subordinated Interest; provided, however, that during the Series 2004-1 Amortization Period, such remaining amounts shall be distributed in accordance with Section 3A.6(b). (b) During the Series 2004-1 Amortization Period, the Servicer shall apply, on each Distribution Date (or any other Business Day specified by the Administrator), amounts on deposit in the Series 2004-1 Collection Subaccount in the following order of priority: (i) to the payment of the Series 2004-1 Periodic Servicing Fee if the Company or one of its Affiliates is not then acting as the Servicer; (ii) to the reimbursement of the Administrator's costs of collection and enforcement of this Supplement; (iii) to the payment of all accrued and unpaid Monthly Interest Payment payable on such Distribution Date, plus the amount of any Monthly Interest Payment previously due but not distributed to the Administrator, for further distribution to the Committed Purchaser on a prior Distribution Date, plus the amount of any Additional Interest for such Distribution Date and any Additional Interest previously due but not distributed to the Administrator, for further distribution to the Committed Purchaser, on a prior Distribution Date, plus all accrued and unpaid fees under the Fee Letter (including the Commitment Fee and the Utilization Fee); (iv) to the payment of any amounts owing to the Trustee pursuant to Section 8.5 of the Agreement; (v) to the payment of all other accrued and unpaid Recourse Obligations (other than the Series 2004-1 Periodic Servicing Fee if the Company or any of its Affiliates is then acting as the Servicer); (vi) to the ratable reduction of Series 2004-1 Invested Amount; (vii) to the payment of the Series 2004-1 Periodic Servicing Fee if the Company or any Affiliate thereof is then acting as the Servicer; and (viii) following the repayment in full of the Series 2004-1 Invested Amount, the remaining amount on deposit in the Series 2004-1 Collection Subaccount on such Distribution Date, if any, shall be distributed to the owner of the Series 2004-1 Subordinated Interest. 31 Section 3A.7 ELIGIBLE INVESTMENTS. All amounts from time to time held in, deposited in or credited to, the Series 2004-1 Collection Subaccount may be invested by the Servicer (as agent for the Administrator) in Eligible Investments. All such investments shall at all times be and remain credited to an account, which if applicable, may be a subaccount of the Series 2004-1 Collection Subaccount (the "SERIES 2004-1 SECURITIES ACCOUNT") subject to a securities control agreement in form and substance satisfactory to the Administrator. All income or other gain from investment of monies deposited in or credited to the Series 2004-1 Securities Account shall be deposited in or credited to the Series 2004-1 Securities Account immediately upon receipt, and any loss resulting from such investment shall be charged to the Series 2004-1 Securities Account. Funds on deposit in the Series 2004-1 Securities Account shall be invested in Eligible Investments that will mature no later than the Business Day immediately preceding the next Distribution Date. None of the Administrator or the Committed Purchaser shall be held liable in any way by reason of any insufficiency in the Series 2004-1 Securities Account resulting from any investment loss on any Eligible Investments. ARTICLE IV DISTRIBUTIONS AND REPORTS Article IV of the Agreement (except for any portion thereof relating to another Series) shall read in its entirety herein as follows and the following shall be exclusively applicable to the VFC Certificates: SECTION 4A.1. DISTRIBUTIONS. (a) On each Distribution Date, the Trustee shall distribute to the Administrator and the Administrator shall further distribute to the Committed Purchaser the amount to be distributed to the Committed Purchaser pursuant to Article III. (b) All allocations and distributions hereunder shall be in accordance with the Monthly Settlement Statement, upon which the Trustee may conclusively rely, and shall be made in accordance with the provisions of Section 11.4 hereof and subject to Section 3.1(h) of the Agreement. SECTION 4A.2. Reserved. SECTION 4A.3. STATEMENTS AND NOTICES. (a) MONTHLY SETTLEMENT STATEMENTS. On each Settlement Report Date, the Servicer shall deliver to the Trustee and the Administrator (commencing with the Settlement Report Date occurring on April 17, 2004) a Monthly Settlement Statement in the Form of Exhibit D setting forth, among other things, the Default Ratio, Delinquency Ratio and Dilution Ratio and the components of the calculation thereof, and the Series 2004-1 Monthly Principal Payment, each as calculated for the Accrual Period ending immediately prior to such Settlement Report Date. The Trustee shall have no obligation whatsoever to verify the accuracy of any information contained within the Monthly Settlement Statement, including any calculations contained therein. A copy of any such items may be obtained by any holder of a Certificate upon a written request delivered to the Trustee at the 32 Corporate Trust Office. Where the Servicer is required to provide written instructions to the Trustee in respect of the distributions and allocations to be made on a Distribution Date, the delivery by the Servicer to the Trustee of the Monthly Settlement Statement with all such instructions contained therein on the Settlement Report Date shall satisfy the Servicers obligation to provide written instructions. (b) ANNUAL CERTIFICATEHOLDERS' TAX STATEMENT. On or before January 31 of each calendar year (or such earlier date as required by applicable law), beginning with calendar year 2005, the Company on behalf of the Trustee shall furnish, or cause to be furnished, to the Committed Purchaser, a statement prepared by the Company containing the aggregate amount distributed to the Committed Purchaser for such calendar year or the applicable portion thereof, together with such other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as the Company deems necessary or desirable to enable the Purchasers to prepare their tax returns. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall have been prepared by the Servicer and provided to the Trustee or the Administrator and to the Committed Purchaser, in each case pursuant to any requirements of the Internal Revenue Code as from time to time in effect. (c) EARLY AMORTIZATION EVENT/DISTRIBUTION OF PRINCIPAL NOTICES. Upon the occurrence of an Early Amortization Event with respect to Series 2004-1, the Company or the Servicer, as the case may be, shall give prompt written notice thereof to the Trustee and the Administrator. As promptly as reasonably practicable after its receipt of notice of the occurrence of an Early Amortization Event with respect to Series 2004-1, the Trustee shall give notice to the Administrator. ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS SECTION 5.1 ADDITIONAL EARLY AMORTIZATION EVENTS. If any one of the events specified in Section 7.1 of the Agreement (after the expiration of any grace periods or consents applicable thereto) or any one of the following events (each, an "EARLY AMORTIZATION EVENT") shall occur during the Series 2004-1 Revolving Period with respect to the Series 2004-1 Interests: (a) failure on the part of the Servicer to make or direct any payment or deposit under any Pooling and Servicing Agreement required to be made or directed by it or failure by the Company to make any payment or deposit required to be made by it under any Pooling and Servicing Agreement which failure continues, in either case, for two Business Days after the date such payment, deposit or amount is required to be made or directed; (b) failure on the part of the Company to duly observe or perform any of the covenants or agreements of the Company set forth in Section 2.7 and 2.8 of the Agreement or (ii) 33 failure on the part of the Company or the Support Provider duly to observe or perform any (other than as described in any other paragraph of this Section 5.1) other covenants or agreements of the Company or the Support Provider (as applicable) set forth in any Pooling and Servicing Agreement, which failure continues unremedied until 10 Business Days after the earlier of the date on which a Responsible Officer of the Company or the Support Provider has knowledge thereof and the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company or the Support Provider (as applicable) by the Trustee, or to the Company or the Support Provider (as applicable) and the Trustee by the Administrator; (c) any representation or warranty made or deemed made by the Company or the Support Provider in any Pooling and Servicing Agreement to or for the benefit of the Committed Purchaser (i) proves to have been incorrect in any material respect when made or when deemed made and (ii) continues to be materially incorrect until 10 Business Days after the earlier of the date on which a Responsible Officer of the Company or the Servicer has knowledge thereof and the date on which notice of such failure, requiring the same to be remedied, has been given to the Company or the Support Provider (as applicable) by the Trustee, or to the Company or the Support Provider (as applicable) and the Trustee by the Administrator; (d) a Servicer Default with respect to the Servicer shall have occurred and be continuing or the Servicer shall have resigned; (e) a Purchase Termination Event (as defined in any Receivables Sale Agreement) shall have occurred and be continuing under such Receivables Sale Agreement or any Seller shall for any reason cease to transfer (other than in accordance with the terms of the applicable Receivables Sale Agreement), or cease to have the legal capacity to transfer, or otherwise be incapable of transferring Receivables pursuant to the applicable Receivables Sale Agreement; (f) a USSC Change in Control shall have occurred, or any Seller or the Servicer shall cease to be a directly or indirectly wholly-owned, Subsidiary of USSC; (g) USFS, USSC or any one of USSC's wholly-owned direct or indirect subsidiaries shall cease to own 100% of the ordinary shares of the Company, free and clear of any Lien, other than any Lien in favor of the administrative agent under the Credit Agreement; provided, that 30% of the voting rights with respect to such shares shall be held by the independent director as nominee; (h) any of the Agreement, the Servicing Agreement, this Supplement or the Receivables Sale Agreements or any material provision of any of the foregoing shall cease, for any reason, to be in full force and effect, or to be the legally valid, binding and enforceable obligation of the Company, the Servicer, the Support Provider or any Seller or the Company, any Seller, the Support Provider or the Servicer or any Affiliate of any thereof shall so assert in writing; 34 (i) the Trust shall for any reason cease to have a valid and perfected first priority undivided ownership or security interest in the Trust Assets (subject to no other Liens), or any of USSC, USFS, the Company or any Affiliate of any one thereof shall so assert in writing; (j) (i) there shall have been filed against the Company or the Trust a notice of federal tax Lien from the Internal Revenue Service and 40 days shall have elapsed without such notice having been effectively withdrawn or such Lien having been released or discharged (ii) any formal step is taken to terminate any Plan, other than a standard termination under Section 4041(b) of ERISA, or a contribution failure has occurred with respect to any Plan sufficient to give rise to a Lien under Section 302(f) of ERISA or (iii) there shall have been filed against USSC, USFS, the Company, any Seller or the Trust a notice of any other Lien the existence of which could reasonably be expected to have a Material Adverse Effect on the business, operations or financial condition of such Person, and 40 days shall have elapsed without such notice having been effectively withdrawn or such Lien having been released or discharged; (k) an event of default under the Credit Agreement shall have occurred and the lender parties thereto shall have caused the indebtedness thereunder to come due prior to its stated maturity; (l) default by the Company in the payment of an Indebtedness when due or the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Company shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof; or (ii) default by USSC or USFS in the payment of an Indebtedness equal to or in excess of $25,000,000 or the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed and the lender parties thereto shall have caused such Indebtedness to come due prior to its stated maturity; (m) any action, suit, investigation or proceeding at law or in equity (including, without limitation, injunctions, writs or restraining orders) shall be brought or commenced or filed by or before any arbitrator, court or Governmental Authority against the Company or any of its properties, revenues or rights which could reasonably be expected to have a Material Adverse Effect; (n) one or more judgments for the payment of money shall be rendered against the Company; (o) as at the end of any Accrual Period, the average Delinquency Ratio for the three preceding Accrual Periods (including such Accrual Period then ended) shall exceed the greater of (x)125% of the highest three-month rolling average Delinquency Ratio for the period from September 1, 2002 through August 31, 2003 and (y) 150% of the average of the three- 35 month rolling average Delinquency Ratio for the period from September 1, 2002 through August 31, 2003; (p) as at the end of any Accrual Period, the average Default Ratio for the three preceding Accrual Periods (including such Accrual Period then ended) shall exceed 1.10%; (q) as at the end of any Accrual Period, the average Dilution Ratio for the three preceding Accrual Periods (including such Accrual Period then ended) shall exceed 8.75%; (r) as at the end of any fiscal quarter of USSC or USI, the Leverage Ratio shall exceed 3.0 to 1.0; (s) as of any day, Consolidated Net Worth shall be less than (i) $450,000,000 minus (ii) amounts permitted to be expended by USI in connection with repurchases or redemptions of its capital stock under Section 6.10 of the Credit Agreement, plus (iii) 50% of Consolidated Net Income (if positive) earned in each fiscal quarter beginning with the fiscal quarter ending June 30, 2003, plus (iv) 50% of the Net Cash Proceeds resulting from issuances of the capital stock of USI or any Subsidiary of USI; (t) as of the end of any fiscal quarter of USSC or USI, the Fixed Charge Coverage Ratio shall be less than 1.25 to 1.00; (u) the Series 2004-1 Allocated Receivables Amount shall be less than the Series 2004-1 Target Receivables Amount for more than two consecutive Business Days; or (v) any Bankruptcy Event shall occur with respect to the Support Provider, and in the case of any such event arising from the commencement of an involuntary proceeding, case or action, such event remains undismissed, undischarged or unbonded for a period of 30 days; then, in the case of (x) any event described in Section 7.1(a) of the Agreement, Section 6.1(g) of any Receivables Sale Agreement or Section 6.1(e) of the Servicing Agreement, after the applicable grace period (if any) set forth in such Section, automatically without any notice or action on the part of the Trustee or Administrator, an early amortization period shall immediately commence or (y) any other event described above or in Section 7.1 of the Agreement, after the expiration of the applicable grace period (if any) set forth in such subsections, the Administrator may, by written notice then given to the Company and the Servicer, declare that an early amortization period has commenced as of the date of such notice with respect to Series 2004-1 (any such period under clause (x) or (y) above, an "EARLY AMORTIZATION PERIOD"). ARTICLE VI SERVICING FEE SECTION 6.1 SERVICING COMPENSATION. A periodic servicing fee (the "SERIES 2004-1 PERIODIC SERVICING FEE") shall be payable to the Servicer on each Distribution Date for 36 the preceding Accrual Period in an amount equal to the product of (a) the Servicing Fee and (b) a fraction the numerator of which is the daily average Series 2004-1 Invested Amount for such Accrual Period and the denominator of which is the sum of (i) the daily average Aggregate Invested Amounts. ARTICLE VII CHANGE IN CIRCUMSTANCES SECTION 7.1 ILLEGALITY. Notwithstanding any other provision herein, if any Change in Law shall make it unlawful for any Affected Party to make or maintain its portion of the VFC Certificateholder's Interest (or funding thereof through a Program Support Agreement) in any Eurodollar Tranche and such Affected Party shall notify in writing the Administrator, the Trustee and the Company, then the portion of each Eurodollar Tranche applicable to such Affected Party shall thereafter be calculated by reference to the Base Rate. If any such change in the method of calculating interest occurs on a day which is not the last day of the Rate Period with respect to any Eurodollar Tranche, the Company shall pay to the Administrator for the account of such Affected Party the amounts, if any, as may be required pursuant to Section 7.4. SECTION 7.2 INCREASED COSTS. If any Change in Law (except with respect to Taxes which shall be governed by Section 7.3) shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Affected Party (except any such reserve requirement reflected in the Euro-Rate); or (ii) impose on any Affected Party or the London interbank market any other condition affecting the Transaction Documents or the funding of Eurodollar Tranches by such Affected Party; and the result of any of the foregoing shall be to increase the cost to such Affected Party of making, converting into, continuing or maintaining Eurodollar Tranches (or maintaining its obligation to do so) or to reduce any amount received or receivable by such Affected Party hereunder or under any Program Support Agreement (whether principal, interest or otherwise), then the Company will pay to such Affected Party such additional amount or amounts as will compensate such Affected Party for both increased costs and maintenance of bargained for yield. (a) If any Affected Party determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Affected Party's capital or the capital of any corporation controlling such Affected Party as a consequence of its obligations hereunder or under any Program Support Agreement to a level below that which such Affected Party or such corporation could have achieved but for such Change in Law (taking into consideration such Affected Party's or such corporation's policies with respect to capital adequacy), then from time to time, the Company shall pay to such Affected Party such additional 37 amount or amounts as will compensate such Affected Party for both increased costs and bargained for yield. (b) A certificate of an Affected Party setting forth in reasonable detail the amount or amounts necessary to compensate such Affected Party as specified in subsections (a) and (b) of this Section 7.2 shall be delivered to the Company (with a copy to the Administrator) and shall be conclusive absent manifest error provided that such Certificate is delivered in good faith and in a manner generally consistent with such Affected Party's standard practice. The agreements in this Section shall survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder and thereunder for a period of nine months. (c) Failure or delay on the part of any Affected Party to demand compensation pursuant to this Section 7.2 shall not constitute a waiver of such Affected Party's right to demand such compensation; PROVIDED that the Company shall not be required to compensate an Affected Party pursuant to this Section 7.2 for any increased costs or reductions incurred more than 270 days prior to the date that such Affected Party notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Affected Party's intention to claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. (d) For avoidance of doubt any increase in cost and/or reduction in yield caused by regulatory capital allocation adjustments due to Financial Accounting Standards Board's Interpretation 46 (or any future statement or interpretation issued by the Financial Accounting Standards Board or any successor thereto) shall be covered by this Section 7.2. SECTION 7.3 TAXES. (a) Any and all payments by or on account of any obligation of the Company hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the Company shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 7.3) the Administrator or the Committed Purchaser receives an amount equal to the sum that it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Company shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Subject to paragraph (e) of this Section 7.3, the Company shall indemnify the Administrator and the Committed Purchaser within the later of 10 days after written demand therefor and the Distribution Date next following such demand for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrator or the Committed Purchaser on or 38 with respect to any payment by or on account of any obligation of the Company hereunder or under any other Transaction Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 7.3) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Company by the Administrator or the Committed Purchaser shall be conclusive absent manifest error. The agreements in this subsection shall survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder and thereunder. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Company to a Governmental Authority, the Company shall deliver to the Administrator the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrator. (e) The Administrator and the Committed Purchaser shall (but with respect to any Indemnified Tax or Other Tax arising from a Change in Law, only to the extent the Administrator or such Purchaser is legally able to do so) deliver to the Company (with a copy to the Administrator) such properly completed and executed documentation prescribed by applicable law and reasonably requested by the Company on the later of (i) 30 Business Days after such request is made and the applicable forms are provided to the Committed Purchaser or (ii) 30 Business Days before prescribed by applicable law as will permit such payments to be made without withholding or with an exemption from or reduction of Indemnified Taxes or Other Taxes. Failure to timely provide such documentation to the Company shall relieve the Company of any indemnification responsibility under this Section 7.3. (f) If the Administrator or the Committed Purchaser receives a refund solely in respect of Indemnified Taxes or Other Taxes, it shall pay over such refund to the Company to the extent that such Administrator or Purchaser has already received indemnity payments or additional amounts pursuant to this Section 7.3 with respect to such Indemnified Taxes or Other Taxes giving rise to the refund, net of all out-of-pocket expenses and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); PROVIDED, HOWEVER, that the Company shall, upon request of the Administrator or the Committed Purchaser, repay such refund (plus interest or other charges imposed by the relevant Governmental Authority) to the Administrator or the Committed Purchaser if the Administrator or the Committed Purchaser is required to repay such refund to such Governmental Authority. Nothing contained herein shall require the Administrator or the Committed Purchaser to make its tax returns (or any other information relating to its taxes which it deems confidential) available to the Company or any other Person. SECTION 7.4 BREAK FUNDING PAYMENTS. The Company agrees to indemnify the Committed Purchaser and to hold the Committed Purchaser harmless from any loss or expense 39 which the Committed Purchaser may sustain or incur as a consequence of (a) default by the Company in making a borrowing of a Eurodollar Tranche after the Company has given irrevocable notice requesting the same in accordance with the provisions of this Supplement, or (b) default by the Company in making any prepayment in connection with a Decrease after the Company has given irrevocable notice thereof in accordance with the provisions of Section 2.7 or (c) the making of a prepayment of a Eurodollar Tranche or CP Tranche prior to the termination of the Rate Period for such Eurodollar Tranche or CP Tranche, as applicable. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid or not so borrowed, for the period from the date of such prepayment or of such failure to borrow to the last day of the Rate Period (or in the case of a failure to borrow the Rate Period that would have commenced on the date of such prepayment or of such failure) in each case at the Euro-Rate or CP Rate, as applicable, for such Eurodollar Tranche or CP Tranche, as applicable, provided for herein over (ii) the amount of interest (as reasonably determined by the Committed Purchaser) which would have accrued to the Committed Purchaser on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder and thereunder. A certificate as to any additional amounts payable pursuant to the foregoing sentence, showing in reasonable detail the calculation thereof, submitted by the Committed Purchaser to the Company shall be conclusive absent manifest error. SECTION 7.5 MITIGATION OBLIGATIONS. (a) If any Liquidity Purchaser requests compensation under Section 7.2, or if the Company is required to pay any additional amount to any such Liquidity Purchaser or any Governmental Authority for the account of any Alternate Investor pursuant to Section 7.3, then such Liquidity Purchaser shall use reasonable efforts to designate a different lending office for funding or booking its obligations under this Supplement and the Agreement or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Liquidity Purchaser, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 7.2 or 7.3, as the case may be, in the future and (ii) would not subject such Liquidity Purchaser to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Liquidity Purchaser. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Liquidity Purchaser in connection with any such designation or assignment. (b) If any Liquidity Purchaser requests compensation under Section 7.2, or if the Company is required to pay any additional amount to such Liquidity Purchaser or any Governmental Authority for the account of such Liquidity Purchaser pursuant to Section 7.3, or if such Liquidity Purchaser defaults in its obligations under the Liquidity Agreement, then the Company may, at its sole expense and effort, upon notice to such Liquidity Purchaser and the Administrator require such Liquidity Purchaser to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 11.11), all its interests, rights and obligations under the Liquidity Agreement to an assignee that shall assume such obligations (which assignee may be another Liquidity Purchaser, if a Liquidity Purchaser accepts such assignment); PROVIDED that (i) the Company shall have received the prior written consent of the 40 Administrator, (ii) such Liquidity Purchaser shall have received payment of all amounts payable to it hereunder and under the Liquidity Agreement, from the assignee or the Company (in the case of all amounts payable hereunder) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 7.2 or payments required to be made pursuant to Section 7.3, such assignment will result in a reduction in such compensation or payments. A Liquidity Purchaser shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Liquidity Purchaser or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. ARTICLE VIII REPRESENTATIONS AND WARRANTIES, COVENANTS SECTION 8.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SERVICER. The Company and the Servicer each hereby represents and warrants to the Trustee, the Administrator and each of the Purchasers that each and every of their respective representations and warranties contained in the Agreement is true and correct in all material respects as of the Issuance Date and as of the date of each Increase (except to the extent that any such representation or warranty is expressly made as of another date). SECTION 8.2 COVENANTS OF THE COMPANY AND THE SERVICER. The Company and the Servicer hereby agree, in addition to their obligations under the Agreement and the Servicing Agreement, that: (a) they shall observe in all material respects each and every of their respective covenants (both affirmative and negative) contained in the Agreement, the Servicing Agreement, this Supplement and all other Transaction Documents to which each is a party; (b) they shall afford the Trustee, Administrator or any representatives of the Trustee or the Administrator access to all records relating to the Receivables at any reasonable time during regular business hours, upon reasonable prior notice (and without prior notice if an Early Amortization Event has occurred), for purposes of inspection and shall permit the Trustee, Administrator or any representative of the Trustee or the Administrator to visit any of the Company's or the Servicer's, as the case may be, offices or properties during regular business hours and as often as may reasonably be desired to discuss the business, operations, properties, financial and other conditions of the Company or the Servicer with their respective officers and employees and with their independent certified public accountants; PROVIDED that the Administrator shall provide the Company or the Servicer, as the case may be, with reasonable notice prior to any such contact and shall give the Company or the Servicer the reasonable opportunity to participate in such discussions; and (c) neither the Company nor the Servicer shall take any action, nor permit the Seller to take any action, requiring the satisfaction of the Rating Agency Condition pursuant to any Transaction Document without the prior written consent of the Majority Purchasers. 41 SECTION 8.3 COVENANTS OF THE SERVICER. The Servicer hereby agrees that: (a) it shall observe each and all of its respective covenants (both affirmative and negative) contained in the Pooling and Servicing Agreements in all material respects; (b) it shall provide to the Administrator, simultaneously with delivery to the Trustee, all reports, notices, certificates, statements and other documents required to be delivered to the Trustee pursuant to the Agreement, the Servicing Agreement and the other Transaction Documents and furnish to the Administrator promptly after receipt thereof a copy of each material notice, material demand or other material communication (excluding routine communications) received by or on behalf of the Company or the Servicer with respect to the Transaction Documents; (c) it shall provide notice to the Administrator of the appointment of a Successor Servicer pursuant to Section 6.2 of the Servicing Agreement; and (d) it shall operate in good faith to allow the Trustee to use the Servicer's available facilities, equipment, leasehold agreements, data systems, records, files and expertise upon the Servicer's termination or default. SECTION 8.4 OBLIGATIONS UNAFFECTED. The obligations of the Company and the Servicer to the Administrator and the Committed Purchaser under this Supplement shall not be affected by reason of any invalidity, illegality or irregularity of any of the Receivables or any sale of any of the Receivables. ARTICLE IX CONDITIONS PRECEDENT SECTION 9.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF SUPPLEMENT. This Supplement shall become effective on the date (the "EFFECTIVE DATE") on which the following conditions precedent have been satisfied: (a) DOCUMENTS. The Administrator shall have received, with a copy for the Committed Purchaser, true and complete copies of (i) this Supplement, executed by a duly authorized officer of each of the Company, the Servicer, the Trustee, the Administrator and the Committed Purchaser and (ii) each of the Agreement, the Servicing Agreement and each of the Receivables Sale Agreements, duly executed by each of the parties thereto, (iii) all documents required to be delivered in connection with the foregoing, (iv) a VFC Certificate Series 2004-1 in the original principal amount of $25,000,000 issued in favor of the Committed Purchaser and duly executed and delivered by the Company and duly authenticated by the Trustee, and (v) evidence satisfactory to the Administrator that the "Commitment" of Bank One, NA under Series 2003-1 has been reduced to $127,500,000. 42 (b) ORGANIZATIONAL DOCUMENTS, ORGANIZATIONAL PROCEEDINGS. The Committed Purchaser shall have received from the Company, each Seller and the Servicer, true and complete copies of: (i) the articles of association, articles of incorporation or other formation documents, including all amendments thereto, of such Person, certified as of a recent date by the Secretary of State or other appropriate authority of the state of formation or incorporation, as the case may be, and a certificate of compliance, of status or of good standing, as and to the extent applicable, of each such Person as of a recent date, from the Secretary of State or other appropriate authority of such jurisdiction; (ii) a certificate of the Secretary or an Assistant Secretary of each such Person, dated the Effective Date and certifying (A) that attached thereto is a true and complete copy of the bylaws and articles of incorporation or articles of association (or equivalent organizational documents) of each such Person, as in effect on the Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of the resolutions, in form and substance reasonably satisfactory to the Administrator, of the Board of Directors of each such Person or committees thereof (and corresponding resolutions of authority for any such committee) authorizing the execution, delivery and performance of the Series 2004-1 Transaction Documents to which it is a party and the transactions contemplated thereby, and that such resolutions have not been amended, modified, revoked or rescinded and are in full force and effect, (C) that the articles of association, articles of incorporation or other formation documents of each such Person have not been amended since the date of the last amendment thereto shown on the certificate of good standing (or its equivalent) furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing any Series 2004-1 Transaction Documents or any other document delivered in connection herewith or therewith on behalf of each such Person; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above. (c) GOOD STANDING CERTIFICATES. The Committed Purchaser shall have received copies of certificates of compliance, of status or of good standing, dated as of a recent date, from the Secretary of State or other appropriate authority of such jurisdiction, with respect to the Company, the Servicer and each Seller, in each State where the ownership, lease or operation of property or the conduct of business requires it to qualify as a foreign corporation or limited liability company, except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect. (d) LEGAL OPINIONS. The Committed Purchaser shall have received opinions of counsel to the Company and the Servicer, dated the Issuance Date (or, dated as of an earlier date, 43 with a reliance letter dated as of the Issuance Date as agreed by the Committed Purchaser and the Servicer), as to corporate, federal tax (tax status of the VFC Certificates as debt), bankruptcy ("true sale" and "non-substantive consolidation"), perfection of security and/or ownership interests and other matters in form and substance reasonably acceptable to the Committed Purchaser and their counsel. (e) FEES. The Committed Purchaser shall have received payment of all fees and other amounts due and payable to it on or before the Effective Date. (f) MATERIAL ADVERSE CHANGE. No material adverse change shall have occurred with respect to the business, operations, or condition (financial or otherwise) of USSC and its Subsidiaries taken as a whole since September 30, 2003. (g) LOCKBOX AGREEMENTS. The Committed Purchaser shall have received Lockbox Agreements for each of the Lockbox Accounts identified on Schedule 2 in form and substance reasonably satisfactory to the Committed Purchaser, duly executed by the respective parties thereto. (h) FEE LETTER. The Committed Purchaser shall have received the Fee Letter, duly executed by the parties thereto. (i) MONTHLY SETTLEMENT REPORT. The Committed Purchaser shall have received a Monthly Settlement Report as of February 28, 2004. ARTICLE X [RESERVED] ARTICLE XI MISCELLANEOUS SECTION 11.1 RATIFICATION OF AGREEMENT. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. SECTION 11.2 GOVERNING LAW. (a) THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. (b) CONSENT TO JURISDICTION. EACH OF THE COMPANY AND THE SERVICER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE 44 JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS SUPPLEMENT AND EACH OF THE COMPANY AND THE SERVICER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATOR OR THE COMMITTED PURCHASER TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE SERVICER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE COMPANY OR THE SERVICER AGAINST THE ADMINISTRATOR OR THE COMMITTED PURCHASER OR ANY AFFILIATE OF ADMINISTRATOR OR THE COMMITTED PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS SUPPLEMENT OR ANY DOCUMENT EXECUTED BY THE COMPANY OR THE SERVICER PURSUANT TO THIS SUPPLEMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS OR NEW YORK, NEW YORK. (c) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS SUPPLEMENT, ANY DOCUMENT EXECUTED BY THE COMPANY OR THE SERVICER PURSUANT TO THIS SUPPLEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER. SECTION 11.3 FURTHER ASSURANCES. Each of the Company, the Servicer and the Trustee agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by the Administrator more fully to effect the purposes of this Supplement and the sale of the VFC Certificates hereunder, including, without limitation, in the case of the Company and the Servicer, the execution of any financing or registration statements or similar documents or notices or continuation statements relating to the Receivables and the other Trust Assets for filing or registration under the provisions of the UCC or similar legislation of any applicable jurisdiction. SECTION 11.4 PAYMENTS. To the extent proper payment instructions are provided, each payment to be made hereunder shall be made on the required payment date in lawful money of the United States and in immediately available funds, if to the Committed Purchaser, at the office of the Administrator set forth in Section 11.9. 45 SECTION 11.5 COSTS AND EXPENSES. The Company agrees to pay all reasonable out-of-pocket costs and expenses of the Administrator (including, without limitation, reasonable fees and disbursements of one counsel to the Administrator) in connection with (i) the preparation, execution and delivery of this Supplement, the Agreement and the other Transaction Documents and amendments or waivers of any such documents and (ii) the enforcement by the Administrator of the obligations and liabilities of the Company and the Servicer under the Agreement, this Supplement, the other Transaction Documents or any related document; PROVIDED that any payments made by the Company pursuant to this subsection shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts (other than amounts payable to the Company) pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. SECTION 11.6 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Trustee, the Administrator or the Committed Purchaser, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 11.7 AMENDMENTS. (a) Subject to subsection (c) of this Section 11.7, this Supplement may be amended in writing from time to time by the Servicer, the Company and the Trustee, with the consent of the Administrator but without the consent of any holder of any outstanding VFC Certificate, to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein or to add any other provisions to or change in any manner or eliminate any of the provisions with respect to matters or questions raised under this Supplement which shall not be inconsistent with the provisions of any Pooling and Servicing Agreement; PROVIDED, HOWEVER, that such action shall not, as evidenced by an Officer's Certificate or, to the extent in the reasonable view of the Company, a question of law exists, an Opinion of Counsel delivered to the Trustee, adversely affect in any material respect the interests of the VFC Certificateholder, including without limitation the tax status of the VFC Certificates or of the Trust. The Trustee may, but shall not be obligated to, enter into any such amendment pursuant to this paragraph or paragraph (b) below which affects the Trustee's rights, duties or immunities under any Pooling and Servicing Agreement or otherwise. (b) Subject to subsection (c) of this Section 11.7, this Supplement may also be amended in writing from time to time by the Servicer, the Company and the Trustee with the consent of the Administrator for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Supplement or of modifying in any manner the rights of the VFC Certificateholder (including, without limitation, the acceleration of the payment of sums payable to or for the account of the Committed Purchaser under any provision of this Supplement); PROVIDED, HOWEVER, that no such amendment shall, unless signed or 46 consented to in writing by the Committed Purchaser, (i) extend the time for payment, or reduce the amount, of any sum payable to or for the account of the Committed Purchaser under any provision of this Supplement or extend the Series 2004-1 Termination Date, (ii) subject the Committed Purchaser to any additional obligation (including, without limitation, any change in the determination of any amount payable by any Purchaser), (iii) increase the Purchase Limit or change the amount of any interest or fees or the voting requirements required for any action under this subsection or any other provision of this Supplement, (iv) change the tax characteristics of the VFC Certificates or of the Trust, (v) consent to or permit the assignment or transfer by the Company of any of its rights or obligations under this Supplement or the Agreement; (vi) change the definition of "Eligible Receivable," "Default Ratio," "Delinquency Ratio," or "Dilution Ratio" or "Aggregate Receivables Amount"; or (vii) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in the foregoing clauses (i) through (vi) in a manner that would circumvent the intention of the restrictions set forth in such clauses. (c) Any amendment hereof can be effected without the Administrator's being party thereto; PROVIDED, HOWEVER, that no such amendment, modification or waiver of this Supplement that affects rights or duties of the Administrator shall be effective unless the Administrator shall have given its prior written consent thereto. (d) No amendment hereof shall be effective until the Rating Agency Condition is satisfied with respect thereto. SECTION 11.8 SEVERABILITY. If any provision hereof is void or unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision hereof in such or any other jurisdiction. SECTION 11.9 NOTICES. All notices, requests and demands to or upon any party hereto to be effective shall be given (i) in the case of the Company, the Servicer and the Trustee, in the manner set forth in Section 10.4 of the Agreement and (ii) in the case of the Administrator and the Committed Purchaser in writing, and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile notice, when received, addressed as follows in the case of the Administrator, and the Committed Purchaser; or to such other address as may be hereafter notified by the respective parties hereto: If to the Administrator: Fifth Third Bank, as Administrator 38 Fountain Square Plaza M.D. 109047 Cincinnati, Ohio 45263 47 Attention: Judy Huls Telephone: 513-579-4224 Facsimile: 513-534-0875 If to the Committed Purchaser: Fifth Third Bank, as Administrator 38 Fountain Square Plaza M.D. 109047 Cincinnati, Ohio 45263 Attention: Robert Finley Telephone: 513-534-4870 Facsimile: 513-579-4270 (with a copy to the Administrator) SECTION 11.10 SUCCESSORS AND ASSIGNS. This Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights under this Supplement without the prior written consent of the Administrator and the Committed Purchaser may not assign or transfer any of its rights under this Supplement except as described below. The Committed Purchaser may assign its rights under this Supplement without the prior written consent of the Company to Fifth Third, any Affiliate of Fifth Third (other than a director or officer of Fifth Third), any Liquidity Purchaser or other Program Support Provider or any Person that is: (i) in the business of issuing Commercial Paper and (ii) associated with or administered by Fifth Third or any Affiliate of Fifth Third. The Administrator shall give prior written notice of any assignment of the Committed Purchaser's rights and obligations (including ownership of the VFC Certificate to any Person other than a Program Support Provider). The Committed Purchaser may at any time grant to one or more Liquidity Providers party to the Liquidity Agreement, or to any other Program Support Provider, participating interests in its Series 2004-1 Purchaser Invested Amount. In the event of any such grant by the Committed Purchaser of a participating interest to a Liquidity Purchaser or other Program Support Provider, the Committed Purchaser shall remain responsible for the performance of its obligations hereunder. The Company agrees that each Liquidity Purchaser or other Program Support Provider shall be entitled to the benefits of ARTICLE VII. Only assignments to Persons other than a Program Support Provider shall be subject to SECTION 11.11. SECTION 11.11 SECURITIES LAWS; ASSIGNMENTS. (a) The Committed Purchaser represents and warrants to the Company that it is a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act and agrees that its that its VFC Certificate will be acquired for investment only and not with a view to any public distribution thereof, and that the Committed Purchaser will not offer to sell or otherwise dispose of its VFC 48 Certificate (or any interest therein) in violation of any of the registration requirements of the Securities Act or any applicable state or other securities laws. The Committed Purchaser acknowledges that it has no right to require the Company to register its VFC Certificate under the Securities Act or any other securities law. The Committed Purchaser hereby confirms and agrees that in connection with any transfer by it of an interest in the VFC Certificate, the Committed Purchaser has not engaged and will not engage in a general solicitation or general advertising including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (b) Any sale subject to the terms of this Section 11.11(a) shall be made only upon the satisfaction of all applicable requirements under Section 5.3 of the Agreement, in the ordinary course of its business and in accordance with applicable law, in each case pursuant to a commitment transfer supplement, substantially in the form of Exhibit E (the "COMMITMENT TRANSFER SUPPLEMENT"), executed by such purchaser, the Committed Purchaser and delivered to the Administrator for its acceptance and recording in the Register. Notwithstanding the foregoing, the Committed Purchaser shall not so sell its rights hereunder, (x) if such sale would result in there being more than 20 beneficial owners of the VFC Certificates for the purposes of the 1940 Act or is not otherwise permitted under subsection 5.3(e) of the Agreement, (y) unless the Committed Purchaser reasonably believes that such purchaser is a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act and (z) unless, prior to such sale, the purchaser of such rights shall have executed and delivered to the Administrator and the Transfer Agent and Registrar an Assignment/Participation Certification. Upon such execution, delivery, acceptance and recording, (A) the Company shall sign, on behalf of the Trust, and shall direct the Trustee in writing to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate, a new VFC Certificate in the name and the denomination determined pursuant to the related Commitment Transfer Supplement and set forth in such written direction and shall deliver such VFC Certificate to such purchaser (or its designated agent or nominee) in accordance with such written direction, and (B) from and after the Transfer Issuance Date determined pursuant to such Commitment Transfer Supplement, (1) the purchaser thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of the Committed Purchaser hereunder with a "Commitment" as set forth therein and (2) the Committed Purchaser shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Supplement. (c) The Administrator shall maintain at its address referred to in Section 11.9 a copy of each Commitment Transfer Supplement delivered to it. (d) Upon its receipt of an executed Commitment Transfer Supplement, the Administrator shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Issuance Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Servicer and the Company. 49 SECTION 11.12 [Reserved] SECTION 11.13 COUNTERPARTS. This Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. SECTION 11.14 NO BANKRUPTCY PETITION. (a) The Administrator and the Committed Purchaser hereby covenants and agrees that, prior to the date which is one year and one day after the later of (i) the last day of the Series 2004-1 Amortization Period and (ii) the last day of the amortization period of any other Outstanding Series, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other similar proceedings under any federal or state bankruptcy or similar law. (b) The Company, the Servicer, the Trustee, the Administrator and each Alternate Investor hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding Commercial Paper, it will not institute against, or join any other Person in instituting against, the Committed Purchaser any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other similar proceedings under any federal or state bankruptcy or similar law. SECTION 11.15 COMMITTED PURCHASER'S LIABILITIES. Notwithstanding anything to the contrary contained in this Supplement, the obligations of the Committed Purchaser under this Supplement and all other Transaction Documents are solely the corporate obligations of the Committed Purchaser. No recourse shall be had against any stockholder, employee, officer, director or incorporator of the Committed Purchaser; PROVIDED, that this Section 11.15 shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. SECTION 11.16 RECOURSE TO THE COMPANY. Notwithstanding any limitation on recourse contained in this Supplement, the Company shall immediately pay to the Administrator when due, for the account of the Committed Purchaser on a full recourse basis, (i) such fees as set forth in the Fee Letter, (ii) all amounts payable as Series 2004-1 Monthly Interest, (iii) all amounts payable as Dilution Adjustments, Transfer Deposit Amounts, or payable pursuant to Section 2.6 of the Agreement (which shall be immediately due and payable by the Company and applied to reduce outstanding Series 2004-1 Invested Amount), (iv) all amounts payable pursuant to Article VII and Section 2.10, if any, (v) all Program Costs, (vi) all Servicer costs and expenses, including the Servicing Fee, in connection with servicing, administering and collecting the Receivables, and (vii) all Default Fees (collectively, the "RECOURSE OBLIGATIONS"). If any Person fails to pay any of the Recourse Obligations when due, such Person agrees to pay, on demand, the Default Fee in respect thereof until paid. 50 SECTION 11.17 RATING AGENCY CONDITION. Unless and until the VFC Certificates shall be rated by an applicable rating agency, no action permitted to be taken hereunder by any party shall be subject to satisfaction of the Rating Agency Condition. SECTION 11.18 WAIVER OF NOTICE AND OPINIONS. The Trustee hereby waives the following requirements of Section 5.10 of the Agreement: (i) that the Trustee receive at least 30 days prior written notice from the Company of the issuance of this Supplement and the VFC Certificate, (ii) that the Company deliver to the Trustee a Tax Opinion (as defined in the Agreement) addressed to the Trustee and the Trust and (iii) that the Company deliver to the Trustee a General Opinion (as defined in the Agreement) addressed to the Trustee and the Trust. 51 IN WITNESS WHEREOF, the Company, the Servicer, the Trustee, the Administrator, and the Committed Purchaser have caused this Series 2004-1 Supplement to be duly executed by their respective officers as of the day and year first above written. USS RECEIVABLES COMPANY, LTD. By: /s/ Brian S. Cooper ------------------------------------- Name: BRIAN S. COOPER Title: TREASURER UNITED STATIONERS FINANCIAL SERVICES LLC, as Servicer, By: /s/ Brian S. Cooper ------------------------------------- Name: BRIAN S. COOPER Title: TREASURER JPMORGAN CHASE BANK, not in its individual capacity but solely as Trustee, By: /s/ Mark J. Frye ------------------------------------- Name: Mark J. Frye Title: Attorney-In-Fact FIFTH THIRD BANK, as Committed Purchaser and as Administrator, By: /s/ Robert O. Finley ------------------------------------- Name: Robert O. Finley Title: Vice President S-1 EXHIBIT A TO SERIES 2004-1 SUPPLEMENT UNITED STATIONERS RECEIVABLES MASTER TRUST VFC CERTIFICATE, SERIES 2004-1 REGISTERED NO. VFC- 1 THIS VFC CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS VFC CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THIS VFC CERTIFICATE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE POOLING AGREEMENT, REFERRED TO HEREIN. This VFC Certificate evidences a fractional undivided interest in the assets of the UNITED STATIONERS RECEIVABLES MASTER TRUST the corpus of which consists of receivables representing amounts payable for merchandise or services, which receivables have been purchased by USS Receivables Company, Ltd., a Cayman Islands limited liability company, which in turn transferred and assigned such receivables to the United Stationers Receivables Master Trust. Exhibits Page 1 This certifies that FIFTH THIRD BANK (the "VFC CERTIFICATEHOLDER") is the registered owner of a fractional undivided interest in the assets of the United Stationers Receivables Master Trust (the "TRUST"), created pursuant to the Second Amended and Restated Pooling Agreement dated as of March 28, 2003 (as may from time to time be amended, restated, supplemented or otherwise modified, the "POOLING AGREEMENT"), by and among USS Receivables Company, Ltd., a Cayman Islands limited liability company (the "COMPANY"), United Stationers Financial Services LLC, an Illinois limited liability company ("USFS"), as servicer, and JP Morgan Trust Company (as successor in interest to Bank One, NA (Main Office Chicago), not in its individual capacity but solely as trustee (in such capacity, the "TRUSTEE") for the Trust, as supplemented by the Series 2004-1 Supplement, dated as of March 25, 2004 (as amended, supplemented or otherwise modified from time to time, the "SUPPLEMENT", collectively, with the Pooling Agreement, the "AGREEMENT"), by and among the Company, USFS, as servicer (except where otherwise noted therein), Fifth Third Bank (Chicago), National Association, a national banking association, as administrator for the Fifth Third Conduit Program and as committed purchaser, and the Trustee. The corpus of the Trust consists of receivables (the "RECEIVABLES") representing amounts payable for merchandise or services and all other Trust Assets referred to in the Agreement. Although a summary of certain provisions of the Agreement is set forth below, this VFC Certificate does not purport to summarize the Agreement, is qualified in its entirety by the terms and provisions of the Agreement and reference is made to the Agreement for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee. A copy of the Agreement may be requested by a holder hereof by writing to the Trustee at JP Morgan Trust Company, 227 W. Monroe, 26th Floor, Chicago, Illinois 60606, Attention: Global Corporate Trust Services. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement. This VFC Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the VFC Certificateholder, by virtue of the acceptance hereof, assents and is bound. USFS, the Company, each VFC Certificateholder and the Trustee intend, for federal, state and local income and franchise tax purposes only, the VFC Certificates to be evidence of indebtedness of the Company secured by the Receivables. The VFC Certificateholder, by virtue of the acceptance hereof, assents and is bound by such intent. This VFC Certificate is one in a Series of Investor Certificates entitled "United Stationers Receivables Master Trust, VFC Certificates, Series 2004-1" (the "VFC CERTIFICATES") representing a fractional undivided interest in the Trust including the right to receive (i) the Invested Percentage (expressed as a decimal) of Collections received with respect to the Receivables and all other funds on deposit in the Collection Account and (ii) all other funds on deposit in the Series Exhibits Page 2 Collection Subaccounts and any subaccounts thereof (collectively, the "VFC CERTIFICATEHOLDERS' INTEREST"). The Trust's assets are allocated in part to the VFC Certificateholders and to the Company as owner of the right to receive Collections allocated to the VFC Certificateholders' Interest and not required to be distributed to or for the benefit of the Purchasers (the "SERIES 2004-1 SUBORDINATED INTEREST") with the remainder allocated to the Certificateholders of other Series of Investor Certificates and to the Company (the "EXCHANGEABLE COMPANY INTEREST"). The Company may, in accordance with the procedures set forth in the Agreement, request an adjustment of the Exchangeable Company Interest in exchange for an increase in the Invested Amount of a Class of Investor Certificates of an Outstanding Series and an increase in the related Series 2004-1 Subordinated Interest or one or more newly issued Series of Investor Certificates and the related newly created Series 2004-1 Subordinated Interest, if any. Interest on and principal of the Purchaser Invested Amount shall be distributed to the VFC Certificateholder at the times, and in the amounts set forth in the Agreement. Distributions with respect to this VFC Certificate shall be paid by the Trustee in immediately available funds to the VFC Certificateholder at the office of the Administrator by wire transfer provided by the Trustee. Final payment of this VFC Certificate shall be made only upon presentation and surrender of this VFC Certificate at the office or agency specified in the notice of final distribution delivered by the Trustee to the VFC Certificateholders in accordance with the Agreement. This VFC Certificate does not represent an obligation of, or an interest in, the Company, USFS or any Affiliate of either of them. The transfer of this VFC Certificate shall be registered in the Certificate Register upon surrender of this VFC Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer, in a form satisfactory to the Trustee and the Transfer Agent and Registrar, duly executed by the VFC Certificateholder or the VFC Certificateholder's attorney, and duly authorized in writing with such signature guaranteed, and thereupon one or more new VFC Certificates of authorized denominations and of like aggregate Fractional Undivided Interests will be issued to the designated transferee or transferees. The Company, the Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them, may treat the person in whose name this VFC Certificate is registered as the owner hereof for all purposes. It is expressly understood and agreed by the Company and the VFC Certificateholder that (a) the Agreement is executed and delivered by the Trustee, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) the representations, undertakings and agreements made on the part of the Trustee in the Agreement are made and intended not as personal representations, undertakings and agreements by the Trustee, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability of the Trustee, individually or personally, to Exhibits Page 3 perform any covenant either expressed or implied made on the part of the Trust in the Agreement all such liability, if any, being expressly waived by the parties who are signatories to the Agreement and by any Person claiming by, through or under such parties; PROVIDED, HOWEVER, the Trustee shall be liable in its individual capacity for its own willful misconduct or negligence and for any tax assessed against the Trustee based on or measured by any fees, commission or compensation received by it for acting as Trustee and (d) under no circumstances shall the Trustee be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under the Agreement. The holder of this VFC Certificate is authorized to record the date and amount of each increase and decrease in the Series 2004-1 Invested Amount with respect to such holder on the schedules annexed hereto and made a part hereof and any such recordation shall constitute PRIMA FACIE evidence of the accuracy of the information so recorded, absent manifest error, PROVIDED that the failure of the holder of this VFC Certificate to make such recordation (or any error in such recordation) shall not affect the rights of the holder of this VFC Certificate or the obligations of the Company, USFS or the Trustee under the Agreement. THIS VFC CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this VFC Certificate shall not be entitled to any benefit under the Agreement, or be valid for any purpose. Exhibits Page 4 IN WITNESS WHEREOF, the Company has caused this VFC Certificate to be duly executed and delivered. Dated: March 25, 2004 USS RECEIVABLES COMPANY, LTD., as authorized pursuant to Section 5.1 of the Agreement By: ------------------------------------- Title Exhibits Page 5 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the VFC Certificates described in the within-mentioned Agreement. JP MORGAN TRUST COMPANY, not in its individual capacity but solely as Trustee By: OR By: ------------------------------------- -------------------------- Authorized Signatory Authenticating Agent By: ------------------------- Authorized Signatory Exhibits Page 6 Schedule I to VFC Certificate

Exhibits Page 7 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF - ------------------------------------------------- ASSIGNEE(S): - ------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE) - ------------------------------------------------------ - ------------------------------------------------------ the within certificate and all rights thereunder, and hereby irrevocably constitutes and appoints - ------------------------------------------------------ attorney, with full power of substitution in the premises, to transfer said certificate on the books kept for registration thereof. Dated: _______________________________ Note: The signature(s) to this Assignment must correspond with the name(s) as written on the face of the within certificate in every particular, without alteration or enlargement or any change whatever. (1) A Non-U.S. Person as defined in the Internal Revenue Code of 1986, as amended the "CODE") must certify to the Trustee in writing as to its Non-U.S. Person status and such further information as may be required under the Code or reasonably requested by the Trustee. Exhibits Page 8 EXHIBIT B TO SERIES 2004-1 SUPPLEMENT FORM OF [ASSIGNMENT] [PARTICIPATION] CERTIFICATION JP Morgan Trust Company 227 W. Monroe, 26th Floor Chicago, Illinois 60606 ATTENTION: ASSET BACKED FINANCE Ladies and Gentlemen: In connection with our proposed entrance into a[n] [assignment] [participation] (the "Participation") in respect of the VFC Certificate held by [Name of Purchaser] (the ["Participation"] ["Assignment"]), and pursuant to the provisions of the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003, by and among JP Morgan Trust Company (as successor in interest to Bank One, NA (Main Office Chicago)), as Trustee (in such capacity, the "Trustee"), and USS Receivables Company, Ltd. (the "Company") and United Stationers Financial Services LLC ("USFS"), as servicer, and the Certificateholders thereto (the "Pooling Agreement"; capitalized terms used herein and not otherwise defined are used as defined in the Pooling Agreement), and the Series 2004-1 Supplement, dated as of March 25, 2004 among the Company, USFS, as servicer (except where otherwise noted therein), the Trustee and the Committed Purchasers from time to time parties thereto (the "Supplement"), we confirm that: 1. Certain terms of the [Assignment] [Participation] are as follows: (1) The effective date of the [Assignment] [Participation] is ___________, _______. (2) The expected maturity date of the [Assignment] [Participation] is _____________. (3) The portion of the VFC Certificate and commitment under the Supplement being [assigned] [participated] is _____%. 2. We have acquired the [Assignment] [Participation] described herein for our own account and we are and will remain the sole beneficial owner of such [Assignment] [Participation], and any interest therein, at all times. 3. We understand that we may not at any time grant any assignment] Exhibits Page 9 [participation] or other interest in the [Assignment] [Participation] or otherwise subdivide our interest therein, and we further understand that we may not sell, assign, trade, pledge or otherwise transfer the [Assignment] [Participation] except in accordance with and to the extent permitted under Section 11.10 or 11.11 of the Supplement or 2.6 of the Pooling Agreement. 4. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the VFC Certificate and are able to bear the economic risk of such investment. We have, independently and without reliance upon the Administrator or any other Committed Purchaser, and based on such documents and information as we have deemed appropriate, made our own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Trust, the Company and USFS and made our own decision to purchase our interest in the VFC Certificate, and will, independently and without reliance upon the Administrator or any other Committed Purchaser, and based on such documents and information as we shall deem appropriate at the time, continue to make our own analysis, appraisals and decisions in taking or not taking action under the Supplement and the Pooling Agreement, and to make such investigation as we deem necessary to inform our self as to the business, operations, property, financial and other condition and creditworthiness of the Trust, the Company and USFS. We are an "accredited investor", as defined in Rule 501, promulgated by the SEC under the Securities Act and a "qualified institutional investor," as defined in Rule 144A, promulgated by the SEC under the Securities Act. We understand that the offering and sale of the VFC Certificate has not been and will not be registered under the Securities Act and has not and will not be registered or qualified under any applicable "blue sky" law, and that the offering and sale of the VFC Certificate has not been reviewed by, passed on or submitted to any federal or state agency or commission, securities exchange or other regulatory body. We are acquiring an interest in the VFC Certificate without a view to any distribution, resale or other transfer thereof except as contemplated in the following sentence. In addition to the foregoing, we will not resell or otherwise transfer any interest or participation in the VFC Certificate, except in accordance with Section 11.11 of the Supplement. In connection therewith, we hereby agree that we will not resell or otherwise transfer the VFC Certificate or any interest therein unless the purchaser thereof provides to the addressee hereof a letter substantially in the form hereof. [7. [The VFC Certificate to be held by us will be deemed to be held beneficially by a single person for purposes of the 1940 Act.] [The VFC Certificate to be held by us will be deemed to be held beneficially by a total of ____________ persons for purposes of the 1940 Act.]](1) - ---------- (1) To be included in assignments only. Exhibits Page 10 You are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [ASSIGNEE] [PARTICIPANT] By: ------------------------------------- Name: Title: Exhibits Page 11 EXHIBIT C TO SERIES 2004-1 SUPPLEMENT FORM OF NOTICE OF INCREASE - ------------, ----------- [Name and Address of the Administrator] Telecopier: Attention: Ladies and Gentlemen: Reference is hereby made to the Series 2004-1 Supplement, dated as of March 25, 2004, (as may from time to time be amended, modified or supplemented, the "SUPPLEMENT"), among USS Receivables Company, Ltd. (the "COMPANY"), United Stationers Financial Services, LLC ("USFS"), as servicer (except where otherwise noted therein), Fifth Third Bank, as committed purchaser ("COMMITTED PURCHASER"), and JP Morgan Trust Company, as Trustee (in such capacity, the "TRUSTEE"), and to the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003 (as may from time to time be amended, modified or supplemented, the "POOLING AGREEMENT") among the Company, USFS, and the Trustee. Capitalized terms used in this Notice of Increase and not otherwise defined herein shall have the meanings assigned thereto in the Supplement. This letter constitutes the notice required in connection with any Increase pursuant to subsection 2.5(a) of the Supplement. USFS, on behalf of the Company, and the Company hereby request that an Increase be made by the Committed Purchaser on _____________, _____ in the aggregate amount of $_____________. The Servicer hereby represents and warrants as of the date of such Increase after giving effect thereto, the conditions set forth in subsections 2.5(a) and (c) of the Supplement with respect to such Increase have been satisfied. Exhibits Page 12 IN WITNESS WHEREOF, the undersigned has caused this notice to be executed by its duly authorized officers as of the date first above written on behalf of the Company or USFS, as applicable, and not individually. UNITED STATIONERS FINANCIAL SERVICES, LLC, as Servicer By: ------------------------------------- Name: Title: USS RECEIVABLES COMPANY, LTD. By: ------------------------------------- Name: Title: Exhibits Page 13 EXHIBIT C-1 TO SERIES 2004-1 SUPPLEMENT FORM OF NOTICE OF DECREASE - ------------, ----------- [Name and Address of the Administrator] Telecopier: Attention: Ladies and Gentlemen: Reference is hereby made to the Series 2004-1 Supplement, dated as of March 25, 2004, (as may from time to time be amended, modified or supplemented, the "SUPPLEMENT"), among USS Receivables Company, Ltd. (the "COMPANY"), United Stationers Financial Services, LLC ("USFS"), as servicer (except where otherwise noted therein), Fifth Third Bank, as committed purchaser ("COMMITTED PURCHASER"), and JP Morgan Trust Company, as Trustee (in such capacity, the "TRUSTEE"), and to the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003 (as may from time to time be amended, modified or supplemented, the "POOLING AGREEMENT") among the Company, USFS, and the Trustee. Capitalized terms used in this Notice of Decrease and not otherwise defined herein shall have the meanings assigned thereto in the Supplement. This letter constitutes the notice required in connection with any Decrease pursuant to subsection 2.7(a) of the Supplement. USFS, on behalf of the Company, and the Company hereby request that a Decrease in the Series 2004-1 Invested Amount be made on ____________, ______ in the aggregate amount of $_____________ by the distribution of such amount by the Servicer to the Committed Purchaser, in accordance with its Series 2004-1 Purchaser Invested Amount from funds on deposit in the Series 2004-1 Collection Subaccount. The Decrease will be made in available funds (by 12:00 noon Chicago time) to [specify account number]. After giving effect to the Decrease requested hereby, the aggregate Series 2004-1 Invested Amount is $_______________. Exhibits Page 14 IN WITNESS WHEREOF, the undersigned has caused this notice to be executed by its duly authorized officers as of the date first above written on behalf of the Company or USFS, as applicable, and not individually. UNITED STATIONERS FINANCIAL SERVICES, LLC, as Servicer By: ------------------------------------- Name: Title: USS RECEIVABLES COMPANY, LTD. By: ------------------------------------- Name: Title: Exhibits Page 15 EXHIBIT D TO SERIES 2004-1 SUPPLEMENT FORM OF MONTHLY SETTLEMENT REPORT [As agreed between Fifth Third and the Servicer] Exhibits Page 16 EXHIBIT E TO SERIES 2004-1 SUPPLEMENT FORM OF COMMITMENT TRANSFER SUPPLEMENT COMMITMENT TRANSFER SUPPLEMENT, dated as of ________ ___, 200_ among [COMMITTED PURCHASER] (the "TRANSFEROR"), each purchaser listed as an Acquiring Purchaser on the signature pages hereof (each, an "ACQUIRING PURCHASER"), [IF ANY ACQUIRING PURCHASER IS NOT AN EXISTING PURCHASER OR AN AFFILIATE: USS RECEIVABLES COMPANY, LTD., a Cayman Islands limited liability company (the "COMPANY"), UNITED STATIONERS FINANCIAL SERVICES, LLC, an Illinois limited liability company on ("USFS")] and FIFTH THIRD BANK, as Administrator (in such capacity, the "ADMINISTRATOR"), for the Committed Purchasers under the Supplement described below. W I T N E S S E T H: - - - - - - - - - - WHEREAS, this Commitment Transfer Supplement is being executed and delivered in accordance with subsection 11.11(b) of the Series 2004-1 Supplement, dated as of March 25, 2004 (as may from time to time be amended, supplemented or otherwise modified in accordance with the terms thereof, the "SUPPLEMENT"; terms defined therein being used herein as therein defined), among the Company, USFS, Fifth Third Bank, as the Initial Purchaser, the Transferor, the other Committed Purchasers from time to time parties thereto, and JP Morgan Trust Company, as the Trustee (in such capacity, the "TRUSTEE"), and the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003 (as may from time to time be amended, supplemented or otherwise modified, the "POOLING AGREEMENT"), among the Company, USFS and the Trustee; WHEREAS, each Acquiring Purchaser (if it is not already an existing Committed Purchaser) wishes to become Committed Purchaser party to the Supplement; and WHEREAS, the Transferor is selling and assigning to each Acquiring Purchaser, rights, obligations and commitments under the Supplement; NOW, THEREFORE, the parties hereto hereby agree as follows: 5. Upon the execution and delivery of this Commitment Transfer Supplement by each Acquiring Purchaser, [IF ANY ACQUIRING PURCHASER IS NOT THEN AN EXISTING PURCHASER OR AN AFFILIATE: the Company, USFS,] and the Transferor (the date of such execution and delivery, the "TRANSFER ISSUANCE DATE"), each Acquiring Purchaser Exhibits Page 17 shall be an Committed Purchaser party to the Supplement for all purposes thereof. 6. The Transferor acknowledges receipt from each Acquiring Purchaser of an amount equal to the purchase price, as agreed between the Transferor and such Acquiring Purchaser (the "PURCHASE PRICE"), of the portion being purchased by such Acquiring Purchaser (such Acquiring Purchaser's "PRO RATA SHARE") of the Transferor's Series 2004-1 Purchaser Invested Amount. The Transferor hereby irrevocably sells, assigns and transfers to each Acquiring Purchaser, without recourse, representation or warranty, and each Acquiring Purchaser hereby irrevocably purchases, takes and assumes from the Transferor, such Acquiring Purchaser's Pro Rata Share of the Transferor's Series 2004-1 Purchaser Invested Amount. 7. The Transferor has made arrangements with each Acquiring Purchaser with respect to (i) the portion, if any, to be paid, and the date or dates for payment, by the Transferor to such Acquiring Purchaser of any Commitment Fees heretofore received by the Transferor pursuant to the Supplement prior to the Transfer Issuance Date and (ii) the portion, if any, to be paid, and the date or dates for payment, by such Acquiring Purchaser to the Transferor of Commitment Fees or Series 2004-1 Monthly Interest received by such Acquiring Purchaser pursuant to the Supplement from and after the Transfer Issuance Date. 8. From and after the Transfer Issuance Date, amounts that would otherwise be payable to or for the account of the Transferor pursuant to the Supplement shall, instead, be payable to or for the account of the Transferor and the Acquiring Purchasers, as the case may be, in accordance with their respective interests as reflected in this Commitment Transfer Supplement, whether such amounts have accrued prior to the Transfer Issuance Date or accrue subsequent to the Transfer Issuance Date. 9. Prior to or concurrently with the execution and delivery hereof, the Administrator will, at the expense of the Transferor, provide to each Acquiring Purchaser (if it is not already an existing Committed Purchaser party to the Supplement) photocopies of all documents delivered to the Administrator on the Issuance Date in satisfaction of the conditions precedent set forth in the Supplement. 10. Each of the parties to this Commitment Transfer Supplement agrees that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Commitment Transfer Supplement. 11. By executing and delivering this Commitment Transfer Supplement, the Transferor and each Acquiring Purchaser confirm to and agree with each other as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned hereby free and clear of any adverse claim, the Transferor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Supplement or the execution, Exhibits Page 18 legality, validity, enforceability, genuineness, sufficiency or value of the Supplement, the Pooling Agreement, the VFC Certificate, Series 2004-1 or any instrument or document furnished pursuant thereto; (ii) the Transferor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Trust, the Company or USFS or the performance or observance by the Trust, the Company or USFS of any of their obligations under the Supplement, the Pooling Agreement or any other instrument or document furnished pursuant hereto; (iii) each Acquiring Purchaser confirms that it has received a copy of the Supplement, the Pooling Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Commitment Transfer Supplement; (iv) each Acquiring Purchaser will, independently and without reliance upon the Administrator, the Transferor or any other Committed Purchaser and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Supplement and the Pooling Agreement; and (v) each Acquiring Purchaser agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Supplement are required to be performed by it as an Committed Purchaser. Schedule I hereto sets forth the revised Pro Rata Shares of the Transferor and each Acquiring Purchaser as well as administrative information with respect to each Acquiring Purchaser. 12. This Commitment Transfer Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. Exhibits Page 19 IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer Supplement to be executed by their respective duly authorized officers as of the date first set forth above. [NAME OF SELLING COMMITTED PURCHASER], as Transferor By: ------------------------------ Title: [NAME OF ACQUIRING PURCHASER], as Acquiring Purchaser By: ------------------------------ Title: FIFTH THIRD BANK, as Administrator By: ------------------------------ Title: [IF NECESSARY: CONSENTED AND ACKNOWLEDGED: USS RECEIVABLES COMPANY, LTD. By: ------------------------------ Title: Exhibits Page 20 SCHEDULE I LIST OF ADDRESSES FOR NOTICES AND OF COMMITMENT PERCENTAGES FIFTH THIRD BANK, as Administrator Fifth Third Bank 38 Fountain Square Plaza M.D. 109047 Cincinnati, Ohio 45263 Attention: Judy Huls Telecopier: 513-534-0875 [TRANSFEROR] Address: Prior Pro Rata Share: Revised Pro Rata Share: [ACQUIRING PURCHASER] Address: [Prior] Pro Rata Share: [Revised Pro Rata Share:] Exhibits Page 21 Schedule 1 LIST OF COMMITMENTS

Sch. 1-1 Schedule 2 Lockbox Agreements PNC Bank -------- Lockbox Number 821724 Philadelphia, Pennsylvania Lockbox Number 910284 Pasadena, California Lockbox Number 771708 Chicago, Illinois Lockbox Number 676502 Dallas, Texas Lockbox Account Number 2149466 US Bank ------- Lockbox Number 952418 St. Louis, Missouri Lockbox Account Number 152302004717 Sch. 2-1 EX-10.2 3 a2136021zex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 OMNIBUS AMENDMENT DATED AS OF MARCH 26, 2004 BY AND AMONG USS RECEIVABLES COMPANY, LTD., UNITED STATIONERS FINANCIAL SERVICES LLC, UNITED STATIONERS SUPPLY CO., FALCON ASSET SECURITIZATION CORPORATION, PNC BANK, NATIONAL ASSOCIATION, MARKET STREET FUNDING CORPORATION, BANK ONE, NA (MAIN OFFICE CHICAGO) and JPMORGAN CHASE BANK, as Trustee AMENDMENT NO. 1 TO SERIES 2003-1 SUPPLEMENT AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED SERIES 2000-2 SUPPLEMENT AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED SERVICING AGREEMENT AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT AMENDMENT NO. 1 TO AMENDED AND RESTATED USFS RECEIVABLES SALE AGREEMENT OMNIBUS AMENDMENT This OMNIBUS AMENDMENT (this "OMNIBUS AMENDMENT") is entered into as of March 26, 2004 by and among USS Receivables Company, Ltd., a Cayman Islands limited liability company ("USSR"), United Stationers Financial Services LLC, an Illinois limited liability company ("USFS"), United Stationers Supply Co., an Illinois corporation ("USSC"), Falcon Asset Securitization Corporation, a Delaware corporation ("FALCON"), PNC Bank, National Association, as Administrator under and as defined in the Series 2000-2 Supplement referred to below ("PNC"), Market Street Funding Corporation ("MARKET STREET"), Bank One, NA (Main Office Chicago), as the Funding Agent and the sole APA Bank under and as defined in the Series 2003-1 Supplement referred to below ("BANK ONE" or the "FUNDING AGENT") and JPMorgan Chase Bank, as Trustee. RECITALS WHEREAS, USSR, USFS, as Servicer (the "SERVICER"), and JPMorgan Chase Bank, as Trustee (as successor in interest to Bank One) (the "TRUSTEE"), are parties to that certain Second Amended and Restated Pooling Agreement, dated as of March 28, 2003 (the "POOLING AGREEMENT"); WHEREAS, USSR, the Servicer, Falcon, Bank One and the Trustee are parties to that certain Series 2003-1 Supplement, dated as of March 28, 2003, to the Pooling Agreement (the "SERIES 2003-1 SUPPLEMENT"); WHEREAS, USSR, the Servicer, PNC, Market Street and the Trustee, are parties to that certain Second Amended and Restated Series 2000-2 Supplement, dated as of March 28, 2003, to the Pooling Agreement (the "SERIES 2000-2 SUPPLEMENT"); WHEREAS, USSR, the Servicer, USSC, as Support Provider (USSC, together with USSR and USFS, the "USS COMPANIES"), and the Trustee are parties to that certain Second Amended and Restated Servicing Agreement, dated as of March 28, 2003 (the "SERVICING AGREEMENT"); WHEREAS, USSC, USFS and the Servicer are parties to that certain Second Amended and Restated Receivables Sale Agreement, dated as of March 28, 2003 (the "SALE AGREEMENT"); 2 WHEREAS, USFS, USSR and the Servicer are parties to that certain Amended and Restated USFS Receivables Sale Agreement, dated as of March 28, 2003 (the "USFS SALE AGREEMENT"); and WHEREAS, each of the parties hereto now desires to amend the Series 2003-1 Supplement, the Series 2000-2 Supplement, the Servicing Agreement, the Sale Agreement and the USFS Sale Agreement (collectively, the "AMENDED DOCUMENTS"), in each case, subject to the terms and conditions hereof. AGREEMENT NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. DEFINITIONS USED HEREIN. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth for such terms in the Pooling Agreement or, if not defined therein, the Series 2003-1 Supplement or Series 2000-2 Supplement, as applicable. Section 2. PROVISIONS RELATING TO SERIES 2003-1 SUPPLEMENT. (a) REDUCTION OF SERIES 2003-1 COMMITMENT. (i) The parties hereto hereby acknowledge that pursuant to Section 2.8 of the Series 2003-1 Supplement, USSR, on behalf of the Trust, has provided written notice of a Commitment Reduction in the amount of $25,500,000. Subject to the satisfaction of the conditions set forth in SECTION 7 hereof and the consummation of the transactions described in this SECTION 2, the Commitment of Bank One, as sole APA Bank under and as defined in the Series 2003-1 Supplement, shall be reduced as of the date hereof by $25,500,000. To the extent that any reduction of the Series 2003-1 Invested Amount is required in connection with such Commitment Reduction (an "INVESTED AMOUNT REDUCTION"), USSR and the Servicer shall, on or prior to March 29, 2004, effect such Invested Amount Reduction in accordance with Section 2.7(a) of the Series 2003-1 Supplement (including, without limitation, the requirement that such reduction be made with funds on deposit in the Series 2003-1 Collection Subaccount, but excluding any notice requirement), and simultaneously with any such Invested Amount Reduction, the Series 2003-1 Subordinated Interest Amount shall be reduced by the Series 2003-1 Subordinated Interest Reduction Amount pursuant to and in accordance with the terms of Section 2.7(b) of the Series 2003-1 Supplement. 3 (ii) The parties hereto hereby further acknowledge that pursuant to a certain Series 2004-1 Supplement to the Pooling Agreement entered into as of even date herewith among USSR, the Servicer, the Trustee and Fifth Third Bank ("FIFTH THIRD") (the "2004-1 SUPPLEMENT"), Fifth Third has on the date hereof purchased a Certificate in an amount equal to $25,000,000 (the "PURCHASE") and that a portion of the proceeds of such Purchase (the "PURCHASE PROCEEDS") may be deposited first in the Collection Account and then allocated by the Servicer to the Series 2003-1 Collection Subaccount and applied to any Invested Amount Reduction contemplated by clause (i) above. The application of the Purchase Proceeds and any other amounts on deposit in the Series 2003-1 Collection Subaccount to such Invested Amount Reduction shall be made in the manner specified by Section 3A.6 of the Series 2003-1 Supplement notwithstanding the fact that the date on which such Invested Amount Reduction shall occur is not a Distribution Date. The parties hereto hereby waive the requirements of Sections 2.3(d) and 2.3(g) of the Servicing Agreement solely to the extent necessary to permit the deposit of Purchase Proceeds to the Series 2003-1 Collection Subaccount. (b) AMENDMENTS TO THE SERIES 2003-1 SUPPLEMENT. Immediately upon the satisfaction of each of the conditions precedent set forth in SECTION 7 of this Omnibus Amendment, the Series 2003-1 Supplement is hereby amended as follows, effective as of the date first written above: (i) Section 1.1 of the Series 2003-1 Supplement is hereby amended by amending and restating the definitions of "Commitment Expiry Date", "Maximum Commitment Amount", "Maximum Invested Amount" and "Series 2003-1 Ratio" in their entirety to read as follows: "COMMITMENT EXPIRY DATE" SHALL MEAN MARCH 25, 2005 (AS MAY BE EXTENDED FOR AN ADDITIONAL PERIOD OF TIME UP TO 364 DAYS FROM TIME TO TIME IN WRITING BY INITIAL PURCHASER, THE FUNDING AGENT AND THE APA BANKS). "MAXIMUM COMMITMENT AMOUNT" SHALL MEAN $127,500,000. "MAXIMUM INVESTED AMOUNT" SHALL MEAN $125,000,000. 4 "SERIES 2003-1 RATIO" SHALL MEAN, AS OF ANY SETTLEMENT REPORT DATE AND CONTINUING UNTIL (BUT NOT INCLUDING) THE NEXT SETTLEMENT REPORT DATE, THE SUM OF THE LOSS PERCENTAGE, THE DILUTION PERCENTAGE, THE SERVICING AND DISCOUNT RESERVE RATIO, IN EACH CASE, THEN IN EFFECT. (ii) Section 5.1(o) of the Series 2003-1 Supplement is hereby amended and restated in its entirety to read as follows: (o) AS AT THE END OF ANY ACCRUAL PERIOD, THE AVERAGE DELINQUENCY RATIO FOR THE THREE PRECEDING ACCRUAL PERIODS (INCLUDING SUCH ACCRUAL PERIOD THEN ENDED) SHALL EXCEED 5.10%. (iii) Schedule 1 to the Series 2003-1 Supplement is hereby deleted in its entirety and replaced with ANNEX A hereto. (iv) Schedule 2 to the Series 2003-1 Supplement is hereby deleted in its entirety and replaced with ANNEX B hereto. Section 3. AMENDMENT TO THE SERIES 2000-2 SUPPLEMENT. Immediately upon the satisfaction of each of the conditions precedent set forth in SECTION 7 of this Omnibus Amendment, the Series 2000-2 Supplement is hereby amended as follows, effective as of the date first written above: (a) Section 1.1 of the Series 2000-2 Supplement is hereby amended by deleting the defined terms "Credit Agreement" and "Series 2000-2 Purchaser Funded Amount" appearing therein in their entirety. (b) Section 1.1 of the Series 2000-2 Supplement is hereby amended by deleting the clause "the sum of (i) the Applicable Margin for a Floating Tranche and (ii)" where it appears in the definition of "Base Rate" in its entirety. (c) Section 1.1 of the Series 2000-2 Supplement is hereby amended by amending and restating the definitions of "Commitment Expiry Date", "Series 2000-2 Funded Amount" and "Series 2000-2 Ratio" in their entirety to read as follows: "COMMITMENT EXPIRY DATE" SHALL MEAN MARCH 25, 2005 (AS MAY BE EXTENDED FOR AN ADDITIONAL 364 DAYS FROM TIME TO TIME 5 IN WRITING BY THE COMMITTED PURCHASER AND THE ADMINISTRATOR (IN THEIR SOLE DISCRETION)). "SERIES 2000-2 FUNDED AMOUNT" SHALL MEAN, AS OF ANY DATE OF DETERMINATION, THE SERIES 2000-2 PURCHASER INVESTED AMOUNT OF THE COMMITTED PURCHASER ON SUCH DATE. "SERIES 2000-2 RATIO" SHALL MEAN, AS OF ANY SETTLEMENT REPORT DATE AND CONTINUING UNTIL (BUT NOT INCLUDING) THE NEXT SETTLEMENT REPORT DATE, THE SUM OF THE LOSS PERCENTAGE, THE DILUTION PERCENTAGE, THE SERVICING AND DISCOUNT RESERVE RATIO, IN EACH CASE, THEN IN EFFECT. (d) Section 2.3(b) of the Series 2000-2 Supplement is hereby amended by deleting the reference to "Series 2000-2 Purchaser Funded Amount" where it appears therein and subsitituting "Series 2000-2 Funded Amount" in lieu thereof. (e) Schedule 2 to the Series 2000-2 Supplement is hereby deleted in its entirety and replaced with ANNEX B hereto. Section 4. AMENDMENT TO THE SERVICING AGREEMENT. Immediately upon the satisfaction of each of the conditions precedent set forth in SECTION 7 of this Omnibus Amendment, the Servicing Agreement is hereby amended, effective as of the date first written above, by deleting Section 4.4 thereof in its entirety and replacing it with "[Intentionally Omitted]." Section 5. AMENDMENT TO THE SALE AGREEMENT. Immediately upon the satisfaction of each of the conditions precedent set forth in SECTION 7 of this Omnibus Amendment, the Sale Agreement is hereby amended, effective as of the date first written above, by deleting Schedule III to the Sale Agreement in its entirety and replacing it with ANNEX C hereto. Section 6. AMENDMENT TO USFS SALE AGREEMENT. Immediately upon the satisfaction of each of the conditions precedent set forth in SECTION 7 of this Omnibus Amendment, the USFS Sale Agreement is hereby amended, effective as of the date first written above, by deleting the reference to "Schedule III" where it appears therein and substituting the following clause in lieu thereof: "Schedule III to the USSC Receivables Sale Agreement". 6 Section 7. CONDITIONS TO EFFECTIVENESS OF THIS OMNIBUS AMENDMENT. The effectiveness of this Omnibus Amendment is subject to the satisfaction of the following conditions precedent: (a) OMNIBUS AMENDMENT. The Trustee shall have received, on or before the date hereof, executed counterparts of this Omnibus Amendment, duly executed by each of the parties hereto. (b) REPRESENTATIONS AND WARRANTIES. As of the date hereof, both before and after giving effect to this Omnibus Amendment, all of the representations and warranties of the USS Companies contained in each Amended Document, as amended hereby and in each other Transaction Document (other than those that speak expressly only as of a different date) shall be true and correct in all material respects as though made on the date hereof (and by its execution hereof, each of the USS Companies shall be deemed to have represented and warranted such). (c) NO EARLY AMORTIZATION EVENT. As of the date hereof, both before and after giving effect to this Omnibus Amendment, no Early Amortization Event shall have occurred and be continuing (and by its execution hereof, each of the USS Companies shall be deemed to have represented and warranted such). (d) PAYMENT OF FEES. USSR shall have paid all costs, fees and expenses due and owing pursuant to that certain Fee Letter, dated as of March 28, 2003, among USSR, the Funding Agent and Falcon, including, without limitation, the Agency Fee (as defined therein) payable to the Funding Agent pursuant to Section 1(c) thereof. (e) AMENDED AND RESTATED FEE LETTER. The Funding Agent and Falcon shall have received, on or before the date hereof, executed counterparts of an amended and restated Fee Letter, dated the date hereof, among USSR, the Funding Agent and Falcon, in form and substance satisfactory to the Funding Agent and Falcon, duly executed by each of the parties thereto. (f) 2004-1 SUPPLEMENT AND CERTIFICATE, SERIES 2004-1. The Trustee shall have received, on or before the date hereof, executed counterparts of the 2004-1 Supplement, in form and substance satisfactory to the Trustee, duly executed by each of the parties thereto. Fifth Third shall have received, on or before the date hereof, a Certificate, Series 2004-1, in the original principal amount of $25,000,000 issued in favor of Fifth Third and duly executed and delivered by USSR and duly authenticated by the Trustee. 7 (g) OPINION RELIANCE LETTERS. Fifth Third shall have received, on or before the date hereof, letters addressed to Fifth Third, as Administrator and as Committed Purchaser under and as defined in the 2004-1 Supplement, from each of Weil, Gotshal & Manges LLP, Jenner & Block and Maples and Calder, each a special legal counsel to USSR and certain of its affiliates (collectively, the "COUNSELS"), in each case, allowing Fifth Third to rely on the opinions provided by the Counsels on March 28, 2003 with respect to the Transaction Documents and the transactions contemplated thereby. (h) PAYMENT OF CERTAIN FEES. The USS Companies shall have reimbursed Bank One for the fees of Skadden, Arps, Slate, Meagher & Flom, LLP, special legal counsel to Bank One, owing on the date hereof of and incurred in connection with the preparation, execution and delivery of this Omnibus Amendment and the other Transaction Documents. Section 8. TRUSTEE'S WAIVER OF NOTICE OF SERIES 2004-1 SUPPLEMENT. The parties hereto acknowledge that the issuance of the 2004-1 Supplement and the related Certificate to Fifth Third is being made pursuant to and in accordance with Section 5.10 of the Pooling Agreement, provided that the Trustee hereby waives the following requirements of Section 5.10 of the Pooling Agreement: (i) that the Trustee receive at least 30 days prior written notice from USSR of the issuance of the 2004-1 Supplement and the related Certificate, (ii) that USSR deliver to the Trustee a Tax Opinion addressed to the Trustee and the Trust and (iii) that USSR deliver to the Trustee a General Opinion addressed to the Trustee and the Trust. Section 9. MISCELLANEOUS. (a) EFFECT; RATIFICATION. The amendments and waivers set forth herein are effective solely for the purposes set forth herein and shall be limited precisely as written, and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Amended Document or of any other instrument or agreement referred to therein; or (ii) prejudice any right or remedy which any of the Trustee, the Funding Agent, Falcon, PNC or Market Street may now have or may have in the future under or in connection with any Amended Document, as amended hereby or any other instrument or agreement referred to therein. Each reference in the Series 2003-1 Supplement to "this Supplement," "herein," "hereof" and words of like import and each reference in the other Transaction Documents to the "Series 2003-1 Supplement" shall mean the Series 2003-1 Supplement as amended hereby. Each reference in the Series 2000-2 Supplement to "this Supplement," "herein," "hereof" and words of like import and each reference in the other Transaction Documents to the "Series 2000-2 Supplement" shall mean the Series 2000-2 Supplement as amended hereby. Each reference in the Servicing Agreement to "this Agreement," "herein," "hereof" and words of like import and each reference in the other Transaction Documents to the "Servicing Agreement" shall mean the Servicing Agreement as amended hereby. Each 8 reference in the Sale Agreement to "this Agreement," "herein," "hereof" and words of like import and each reference in the other Transaction Documents to the "USSC Receivables Sale Agreement" shall mean the Sale Agreement as amended hereby. Each reference in the USFS Sale Agreement to "this Agreement," "herein," "hereof" and words of like import and each reference in the other Transaction Documents to the "USFS Receivables Sale Agreement" shall mean the USFS Sale Agreement as amended hereby. This Omnibus Amendment shall be construed in connection with and as part of each Amended Document, as amended hereby, respectively, and all terms, conditions, representations, warranties, covenants and agreements set forth in each such agreement and each other instrument or agreement referred to therein, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect. (b) TRANSACTION DOCUMENTS. This Omnibus Amendment is a Transaction Document executed pursuant to the Amended Documents and shall be construed, administered and applied in accordance with the terms and provisions thereof. (c) COSTS, FEES AND EXPENSES. The USS Companies agree to reimburse each of the Trustee, the Funding Agent, Falcon, PNC and Market Street on demand for all costs, fees and expenses (including the reasonable fees and expenses of counsels to each of the Trustee, the Funding Agent, Falcon, PNC and Market Street) incurred in connection with the preparation, execution and delivery of this Omnibus Amendment. (d) AUTHORIZATION TO FILE FINANCING STATEMENT AMENDMENTS. Each of the parties hereto hereby authorize Bank One and/or JPMorgan Chase Bank to file any financing statements or amendments relating to the financing statements currently filed in connection with the Pooling Agreement and the other Transaction Documents (including, without limitation, any financing statements "in lieu" of continuation statements, terminations, continuations, assignments or other amendments) necessary to reflect JPMorgan Chase Bank as Trustee and to otherwise reflect the Trustee's interest in the Trust Assets, including those transferred to USSR. (e) COUNTERPARTS. This Omnibus Amendment may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9 (f) SEVERABILITY. If any one or more of the covenants, agreements, provisions or terms of this Omnibus Amendment shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Omnibus Amendment and shall in no way affect the validity or enforceability of the other provisions of this Omnibus Amendment. (g) GOVERNING LAW. THIS OMNIBUS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. [SIGNATURE PAGES FOLLOW] 10 IN WITNESS WHEREOF, the parties hereto have caused this Omnibus Amendment to be executed and delivered by their respective duly authorized officers as of the date first written above. USS RECEIVABLES COMPANY, LTD. By: /s/ Brian S. Cooper --------------------------------- Name: BRIAN S. COOPER Title: TREASURER UNITED STATIONERS FINANCIAL SERVICES LLC, individually and as Servicer By: /s/ Brian S. Cooper --------------------------------- Name: BRIAN S. COOPER Title: TREASURER UNITED STATIONERS SUPPLY CO., individually and as Support Provider By: /s/ Brian S. Cooper --------------------------------- Name: BRIAN S. COOPER Title: TREASURER BANK ONE, NA (MAIN OFFICE CHICAGO), individually as an APA Bank and as Funding Agent under and as defined in the Series 2003-1 Supplement By: /s/ Ronald J. Atkins --------------------------------- Name: RONALD J. ATKINS Title: Director, Capital Markets FALCON ASSET SECURITIZATION CORPORATION, as Initial Purchaser under and as defined in the Series 2003-1 Supplement By: /s/ Ronald J. Atkins --------------------------------- Name: RONALD J. ATKINS Title: Authorized Signor PNC BANK, NATIONAL ASSOCIATION, as Administrator under and as defined in the Series 2000-2 Supplement By: /s/ John T. Smathers --------------------------------- Name: John T. Smathers Title: Vice President MARKET STREET FUNDING CORPORATION, as Committed Purchaser under and as defined in the Series 2000-2 Supplement By: /s/ Evelyn Echevarria --------------------------------- Name: Evelyn Echevarria Title: Vice President JPMORGAN CHASE BANK, not in its individual capacity but solely as Trustee By: /s/ Mark J. Fyre --------------------------------- Name: Mark J. Fyre Title: Attorney-In-Fact ANNEX A Schedule 1 LIST OF COMMITMENTS

Schedule 1-1 ANNEX B Schedule 2 LOCKBOX AGREEMENTS PNC BANK Lockbox Number 821724 Philadelphia, Pennsylvania Lockbox Number 910284 Pasadena, California Lockbox Number 771708 Chicago, Illinois Lockbox Number 676502 Dallas, Texas Lockbox Account Number 2149466 US BANK Lockbox Number 952418 St. Louis, Missouri Lockbox Account Number 152302004717 Schedule 2-1 ANNEX C SCHEDULE III Lockbox Processors: PNC BANK Lockbox Number 821724 Philadelphia, Pennsylvania Lockbox Number 910284 Pasadena, California Lockbox Number 771708 Chicago, Illinois Lockbox Number 676502 Dallas, Texas Lockbox Account Number 2149466 US BANK Lockbox Number 952418 St. Louis, Missouri Lockbox Account Number 152302004717 EX-15.1 4 a2136021zex-15_1.txt EXHIBIT 15.1 Exhibit 15.1 May 7, 2004 The Board of Directors United Stationers Inc. We are aware of the incorporation by reference in the Registration Statement on Form S-8 of United Stationers Inc. for the registration 3,700,000 shares of its Common Stock in connection with United Stationers Inc. 2000 Management Equity Plan, 270,000 shares of its Common Stock in connection with United Stationers Inc. Retention Grant Plan, and 160,000 shares of its Common Stock in connection with United Stationers Inc. Directors Grant Plan of our report dated April 27, 2004 relating to the unaudited condensed consolidated interim financial statements of United Stationers Inc. that are included in its Form 10-Q for the quarter ended March 31, 2004. Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP EX-15.2 5 a2136021zex-15_2.txt EXHIBIT 15.2 Exhibit 15.2 May 7, 2004 The Board of Directors United Stationers Inc. We are aware of the incorporation by reference in the Registration Statement on Form S-8 of United Stationers Inc. for the registration of 8,200,000 shares of its common stock of our report dated April 27, 2004 relating to the unaudited condensed consolidated interim financial statements of United Stationers Inc. which are included in its Form 10-Q for the quarter ended March 31, 2004. Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP EX-31.1 6 a2136021zex-31_1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard W. Gochnauer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Stationers Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 7, 2004 /s/ Richard W. Gochnauer ------------------------------------------- Richard W. Gochnauer President and Chief Executive Officer EX-31.2 7 a2136021zex-31_2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kathleen S. Dvorak, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Stationers Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 7, 2004 /s/ Kathleen S. Dvorak ------------------------------------------------- Kathleen S. Dvorak Senior Vice President and Chief Financial Officer EX-32.1 8 a2136021zex-32_1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Stationers Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Richard W. Gochnauer, President and Chief Executive Officer of the Company, and Kathleen S. Dvorak, Senior Vice President and Chief Financial Officer of the Company, each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Richard W. Gochnauer - ------------------------------------------------- Richard W. Gochnauer President and Chief Executive Officer May 7, 2004 /s/ Kathleen S. Dvorak - ------------------------------------------------- Kathleen S. Dvorak Senior Vice President and Chief Financial Officer May 7, 2004 -----END PRIVACY-ENHANCED MESSAGE-----